<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1997
Registration No. 333-25433
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
Amendment No. 1
To
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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<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.
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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 AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(2) PER UNIT(1) OFFERING PRICE(1) FEE(3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Senior Floating Rate Class A-1 Notes........ $1,000,000 100% $1,000,000 $303.03
Senior Floating Rate Class A-2 Notes........ $1,000,000 100% $1,000,000 $303.03
Subordinate LIBOR Rate Class B Notes........ $1,000,000 100% $1,000,000 $303.03
===================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Also registered are secondary market sales of Notes that may be effected by
PNC Capital Markets, Inc., an affiliate of the Registrant.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE> 3
EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to a public
offering by PNC Student Loan Trust I of [$ ] aggregate principal amount
of PNC 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 and pages [ ] 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 , 1997
$
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 $[ ] aggregate principal amount of Senior Floating Rate Class A-1
Asset Backed Notes (the "Class A-1 Notes"), $[ ] aggregate principal amount
of Senior Floating Rate Class A-2 Asset Backed Notes (the "Class A-2 Notes" and,
together with the Class A-1 Notes, the "Class A Notes") and $[ ] aggregate
principal amount of Subordinate LIBOR Rate Class B Asset Backed Notes (the
"Class B Notes" and, together with the Class A Notes, 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.
------------------
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
[fifteenth day] of each , , , and , commencing [ ],
1997 (each, a "Distribution Date"); provided, that no distribution in respect of
principal of the Class A-2 Notes will be payable until the Class A-1 Notes are
paid in full (except as otherwise described herein) and no distribution in
respect of principal of the Class B Notes will be payable until the Class A
Notes are paid in full. Interest on the Notes will accrue, subject to certain
limitations described herein, for each Interest Period at a per annum rate equal
to the T-Bill Rate plus the applicable Margin for the Class A-1 Notes and Class
A-2 Notes and One-Month LIBOR plus the applicable Margin for the Class B Notes.
The Margin will be [ ]% for the Class A-1 Notes, [ ]% for the Class A-2 Notes
and [ ]% for the Class B Notes. The final maturity date for the Class A-1 Notes
will be the [ ] Distribution Date, the final maturity date for the Class
A-2 Notes will be the [ ] Distribution Date and the final maturity date for
the Class B Notes will be the [ ] Distribution Date.
(Continued on following page)
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE [21].
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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>
====================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO THE
THE PUBLIC DISCOUNTS(1) TRANSFEROR(2)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
$ Senior Floating Rate Class A-1 Notes... [100%] [ ]% [ ]%
- --------------------------------------------------------------------------------------------------------------------
$ Senior Floating Rate Class A-2 Notes... [100%] [ ]% [ ]%
- --------------------------------------------------------------------------------------------------------------------
$ Subordinate LIBOR Rate Class B Notes... [100%] [ ]% [ ]%
- --------------------------------------------------------------------------------------------------------------------
Total....................................... [ ] [ ] [ ]
====================================================================================================================
</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 $[ ].
------------------
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 [ ], 1997
<PAGE> 5
(Cover continued from previous page)
However, payment in full of the Notes could occur earlier than such 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, (ii) on or after the
Distribution Date occurring in , 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 herein, upon the insolvency of the Transferor and
subsequent termination of the Trust pursuant to the Trust Agreement (as defined
herein).
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 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 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 85 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 Floating Rate Class A-1 Asset
Backed Notes (the "Class A-1 Notes") in
the aggregate principal amount of
$ , Senior Floating Rate Class
A-2 Asset Backed Notes (the "Class A-2
Notes" and together with the Class A-1
Notes, the "Class A Notes") in the
aggregate principal amount of $
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 $ .
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 The
Depository Trust Company ("DTC") in the
United States or Cedel Bank, societe
anonyme ("Cedel") or the Euroclear System
("Euroclear") in Europe. See "Description
of the Notes-- Book-Entry Registration"
herein.
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
4
<PAGE> 8
("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 (the "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
[fifteenth day] of each [ , ,
and ], or if such day is not a
Business Day, the next succeeding Business
Day, commencing [ ], 1997 (each, a
"Distribution Date"); provided, however,
that (except as otherwise provided herein)
no distribution in respect of principal of
the Class A-2 Notes will be made until the
Class A-1 Notes have been paid in full and
no distribution in respect of principal of
Class B Notes will be made until the Class
A Notes have 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 each Distribution Date (each
a "Record Date").
Interest........................ Each class ("Class") of Notes will bear
interest during each Interest Period 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; 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
5
<PAGE> 9
Class of Notes will equal (i) in the case
of the Class A-1 Notes and the Class A-2
Notes, the daily average of the T-Bill
Rates within such Interest Period
(determined as described below) plus the
applicable Margin for such Class, and (ii)
in the case of the Class B Notes,
One-Month LIBOR as of the LIBOR
Determination Date for such Interest
Period plus the applicable Margin for such
Class. See "Description of the Notes--The
Notes--Distributions of Interest." The
"Margin" will be [ ]% for the Class A-1
Notes, [ ]% for the Class A-2 Notes and
[ ]% of the Class B Notes. Interest on
the Class A Notes will be calculated on
the basis of the actual number of days
elapsed in each Interest Period divided by
365 (or 366 in the case of a leap year),
and interest on the Class B Notes will be
calculated on the basis of the actual
number of days elapsed in each Interest
Period divided by 360.
Notwithstanding the foregoing, if the
Class Interest Rate with respect to any
Class of Notes for any Interest Period is
greater than the Net Loan Rate (as defined
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 Notes
exceed % per annum. See "Description
of the Notes--The Notes--Distributions of
Interest."
If the Class Interest Rate for any Class
of 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; and Expense
Account." The ratings of the Notes do not
address the likelihood of the payment of
the amount of any Noteholders' Interest
Carryover.
"Interest Period" means the period
beginning on the 15th day of each month
(or the Closing Date with respect to the
first Interest Period) and ending on (and
including) the 14th day of the following
month.
The "T-Bill Rate" will generally be
adjusted weekly on the calendar day
following each auction of direct
obligations of the United States with a
maturity of 13 weeks ("91-day Treasury
Bills") to equal the weighted average per
annum discount rate (expressed on a bond
equivalent basis and applied on a daily
basis) of the 91-day Treasury Bills sold
at
6
<PAGE> 10
such auction, as reported by the U.S.
Department of Treasury; provided, however,
that in the event that the results of the
auctions of 91-day Treasury Bills cease to
be reported, or that no such auction is
held in a particular week, then the T-Bill
Rate in effect as a result of the last
such publication or report will remain in
effect until such time, if any, as the
results of auctions of 91-day Treasury
Bills shall again be reported or such an
auction is held, as the case may be;
provided, further, that (i) the T-Bill
Rate in effect from the first day of the
Interest Period, including the initial
Interest Period, through the day of the
first 91-day Treasury Bill auction on or
after the first day of each Interest
Period will be based on the results of the
most recent 91-day Treasury Bill auction
prior to such day and (ii) the T-Bill Rate
will be subject to a lock-in period of six
business days preceding each Distribution
Date, during which the T-Bill Rate will
remain in effect from the first day of
such period until the end of the Interest
Period related to such Distribution Date.
See "Description of the
Notes--Determination of the T-Bill Rates."
"One-Month LIBOR" for any Interest Period
will be determined as described under
"Description of the Notes-- Determination
of LIBOR."
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
[ ]% per annum during the period from the
Closing Date through December 31, 1998).
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, Transaction Fees, and
the denominator of which is the Pool
Balance as of the last day of such
calendar year.
Principal....................... Principal of the Notes will be payable
quarterly on each Distribution Date, first
to the principal balance of the Class A-1
Notes until such principal balance is
reduced to zero, then to the principal
balance of the Class A-2 Notes until such
principal balance is reduced to zero and
then to the principal balance of the Class
B Notes until such principal balance is
reduced to zero. The amount of principal
payable on a Distribution Date will be
equal to the Note-
7
<PAGE> 11
holders' Principal Distribution Amount for
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.
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............ , 20 with respect to the Class
A-1 Notes; , 20 with respect
to the Class A-2 Notes; and , 20
with respect to the Class B Notes.
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 as a result of prepayments on
the Financed Student Loans or 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
(as defined under "--Assets of the Trust--
Collection Account--Distributions from the
Collection Account"), or under certain
circumstances as described herein, upon
the insolvency of the Transferor and
subsequent termination of the Trust
pursuant to the Trust Agreement as
described below under "Description of the
Transfer and Servicing
Agreements--Termination." 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 [1.15%] 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
ad-
8
<PAGE> 12
vance, 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 three Collection
Periods immediately succeeding such
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 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:
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 after June 6, 1997 (the
"Cut-off Date"). 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
$ and , respectively,
as of 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
"Exchange Financed Student Loans") in
exchange for certain Financed Student
Loans owned by the Trust. See "Description
of Transfer and Servicing
Agreements--Exchange Period and Exchanged
Financed Student Loan."
9
<PAGE> 13
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) (as defined
below), (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, the
Florida Department of Education ("FDOE"),
the Georgia Higher Education Assistance
Corporation, the Illinois Student
Assistance Commission, the Kentucky Higher
Education Assistance Authority, the
Michigan Higher Education Assistance
Authority, the New Jersey Higher Education
Assistance Authority ("NJHEAA"), PHEAA and
United States Aid Funds, Inc. ("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 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 up to a maximum of 98%
of Guarantee Payments. 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."
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<PAGE> 14
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 Transfer
and Servicing Agreements--Exchange Period
and Exchanged Financed Student 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 that are
serial to existing Federal Loans owned by
the Transferor 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
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 in which
the related borrower is in school and for
certain authorized periods as described in
the Higher Education Act (the "Deferral
Phase"), 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
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<PAGE> 15
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 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."
12
<PAGE> 16
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,
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 "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 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 Distribution Date (or
with respect to the first Distribution
Date, from the Closing Date through and
including the Collection Period
immediately preceding such Distribution
Date), (i) to a separate account held with
and in the name of the Indenture Trustee
(the "Expense Account"), 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
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
Noteholders' Interest Distribution Amount,
(iii) to the Note Distribution Account,
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"), the
Certificateholders' Interest Distribution
Amount, and (v) after the Notes have been
paid in full, to the Certificateholder
Distribution Account and the
Certificateholders' Principal Distribution
Amount.
On each Distribution Date, 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 Master Servicer, the estimated
Servicing Fee for the three immediately
succeeding Collection Periods and all
overdue Servicing Fees, (ii) to the
Administrator, the estimated
Administration Fee for the three
immediately succeeding Collection Periods
and
13
<PAGE> 17
all overdue Administration Fees, (iii) to
the Indenture Trustee, the estimated
Indenture Trustee Fee for the three
immediately succeeding Collection Periods
and all overdue Indenture Trustee Fees and
(iv) 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
described in the second preceding
paragraph, the Indenture Trustee will
distribute to the Noteholders as of the
related Record Date all 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: first, to the Class A-1
and Class A-2 Noteholders, the
Noteholders' Interest Distribution Amount
allocable to each such Class (pro rata
based upon the portion thereof allocable
to each such Class); second, to the Class
B Noteholders, the Noteholders' Interest
Distribution Amount allocable to the Class
B Notes; third, 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; fourth, to the
Class A-2 Noteholders, the Noteholders'
Principal Distribution Amount until the
outstanding principal amount of the Class
A-2 Notes has been paid in full; and
fifth, 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.
On each Distribution Date, the Eligible
Lender Trustee will distribute to the
Certificateholders all amounts transferred
to the Certificate Distribution Account as
set forth above (in addition to any
amounts transferred from the Reserve
Account and the Monthly Advance Account,
each as described herein).
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
14
<PAGE> 18
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 to the Transferor.
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.
Notwithstanding the foregoing, if (x) on
any Distribution Date following all
distributions to be made on such
Distribution Date, the outstanding
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, distributions will be made in
the following priority: (i) first, to the
Class A-1 Noteholders and the Class A-2
Noteholders, the Noteholders' Interest
Distribution Amount applicable to each
such Class, pro rata based upon the
portion thereof allocable to each such
Class; (ii) second, in the case of clause
(x) above, (a) to the Class A-1
Noteholders, the Noteholder's 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-2 Noteholders, the Noteholders'
Principal Distribution Amount until the
outstanding principal amount of the Class
A-2 Notes has been paid in full, and in
the case of clause (y) above, to the Class
A-1 Noteholders and Class A-2 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, 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; (v) fifth,
to the Class A-1 Noteholders and the Class
A-2 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 Certificate-
15
<PAGE> 19
holders' Interest Distribution Amount; and
(viii) eighth, to the Certificateholders,
the Certificateholders' Principal
Distribution Amount. See "Description of
the Transfer and Servicing
Agreements--Distributions."
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 equal to $[ ]
(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
Noteholders' Distribution Amount and the
Certificateholders' Distribution Amount
for such applicable Distribution Date for
which Available Funds are insufficient to
make such payments and distributions.
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) 1.5% 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
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 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 Ex-
16
<PAGE> 20
changed 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 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."
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<PAGE> 21
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 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 Noteholders the Noteholders'
Interest Distribution amount 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. 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
18
<PAGE> 22
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 2007
Distribution Date or any subsequent
Distribution Date. See "Description of the
Transfer and Servicing
Agreement--Termination" herein.
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 which the Pool Balance is
equal to 5% or less of the Initial Pool
Balance, 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 $[ ].
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
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 and the Class A-2
Notes that they be rated "AAA" by Standard
& Poor's Ratings Services, a division of
The McGraw-Hill Companies ("Standard &
Poor's"), and
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<PAGE> 23
"Aaa" by Moody's Investors Service, Inc.
("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 at least "A2" by
Moody's. Each of Standard & Poor's 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 payment of
the Noteholders' Interest Carryover. See
"Risk Factors--Risk of Change of Ratings
on the Notes."
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<PAGE> 24
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> 25
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.
Commingling Risk of Consolidation of Federal Benefit Billings and Receipts
with Other Trusts. 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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<PAGE> 26
adequate to compensate the Trust and Noteholders for any previous reduction in
the Available Funds for a Collection Period.
Risk of 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.
Exchanged Financed Student Loans; Risk of Change in Characteristics of the
Financed Student Loan Pool. Except for the criteria described under "The
Financed Student Loan Pool", there will be no other required characteristics of
the Exchanged Financed Student Loans. Therefore, upon the Transfer of the
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 loan type, the distribution by interest
rate and the distribution by principal balance will vary from those of the
Initial Financed Student Loans as of the Cut-off Date. See "The Financed Student
Loan Pool".
Risk Resulting From Variability of Actual Cash Flows; Risk of 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
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<PAGE> 27
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."
Unsecured Nature of Financed Student Loans; 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 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.
Changes in Law. 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
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<PAGE> 28
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 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. 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.
Recent Developments--Possible Risk Resulting From President Clinton's
Proposed FY 1998 Budget. In his proposed FY 1998 Budget, President Clinton has
proposed a number of changes to the Higher Education Act affecting lenders and
Guarantors of Federal Loans. These proposals, would, among other things,
increase lender risk-sharing, reduce the yield on certain Federal Loans while
the student is in school, require certain new payments to be made by lenders to
guarantors in connection with default aversion, eliminate guarantor risksharing,
reduce guarantor reserve fund levels, reduce guarantor retention rates on
post-default payments and institute performancebased contracts for guarantors.
These proposals are likely to encounter strenuous opposition from lenders and
guarantors, and their prospects for enactment by the Congress are uncertain. No
assurance can be made that some or all of these proposals will not be enacted,
or that other amendments to the Higher Education Act adverse to lenders or
guarantors will not be included in the final FY 1998 budget or related
legislation.
Subordination. The rights of the Class B Noteholders to receive payments of
principal will be subordinated to those of the Class A-1 Noteholders and the
Class A-2 Noteholders as described herein. If amounts otherwise allocable to the
Class B Notes are used to fund payments of principal on the Class A-1 Notes or
the Class A-2 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'
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<PAGE> 29
Interest Carryover that may exist from time to time. See "Description of the
Notes--Subordination of the Class B Notes," "Description of the Transfer and
Servicing Agreements--Distributions" and "--Credit Enhancement--Subordination of
the Class B Notes."
Risk Resulting From Limited Assets. 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."
Maturity and Prepayment Assumptions; Reinvestment Risk of 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).) 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 Noteholders. 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 will 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."
On the other hand, 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
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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" regarding the
Transferor's option to purchase the Financed Student Loans and the auction of
the Financed Student Loans on or after the 2007 Distribution
Date.
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. 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
2007 Distribution Date or any subsequent Distribution Date. See "Description of
the Transfer and Servicing Agreements--Termination."
Certain Differences between Classes of Notes with Respect to Receipt of
Payments on the Financed Student Loans. Because the Class A-2 Notes will receive
no payment of principal until the Class A-1 Notes have been paid in full, and
the Class B Notes will receive no payments of principal until the Class A-1
Notes and the Class A-2 Notes have been paid in full, 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. 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.
Basis Risk for the Class B Notes. The interest rate for the Class B Notes
(the "Class B Interest Rate") 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 Class B Interest Rate, the Class B Interest Rate 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 Class B Interest Rate 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."
Basis Risk for the Class A Notes. Although the interest rate on the Class
A-1 Notes and the Class A-2 Notes is generally based on the T-Bill Rate, it is
possible that for a Distribution Date a positive spread may not exist between
(a) the Net Loan Rate and (b) the interest rate on such Classes of Notes based
on the T-Bill Rate. In such a case, the interest rate on one or both Classes of
Class A 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 interest rate on one
or both Classes of Notes being determined on the basis of the Note 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 the Transfer and Servicing
Agreements--Distributions."
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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. 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 the Class A-1 Notes and the Class A-2 Notes that they each be rated
"AAA" by Standard & Poor's 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 S&P and at
least "A2" by Moody's. 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 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.
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,
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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."
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 $ . Upon
the consummation of such transaction, the property of the Trust will consist of
(a) the pool of Initial 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 Cut-off Date and (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. 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
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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.
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
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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.
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
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which is also affiliated with USA Funds, a student loan guarantor and one of the
USAG's guaranty agencies. As of December 31, 1996, USAG provided loan servicing
for in excess of 3 million student and parent loans with outstanding balances of
approximately $10.4 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 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 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"). 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
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implementing these programs. See "Risk Factors--Changes in Law" and "--Recent
Developments--Possible Risk Resulting From President Clinton's Proposed FY 1998
Budget."
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 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
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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.
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
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through October 1, 1998 (or, in the case of borrowers who have received Federal
Loans prior to that date, September 30, 2002).
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 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.
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.
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 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.
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(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 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.
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(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 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).
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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--Failure to Comply With Loan Origination and Servicing Procedures
for Financed Student Loans"; "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--Variability of Actual Cash Flows; 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.
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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 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.
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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 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
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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 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--Changes in Law" and "--Recent
Developments--Possible Risk Resulting From President Clinton's Proposed FY 1998
Budget."
41
<PAGE> 45
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 the Cut-off Date 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. 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:
42
<PAGE> 46
COMPOSITION OF THE INITIAL FINANCED STUDENT LOANS AS OF THE CUT-OFF DATE
<TABLE>
<S> <C>
Aggregate Outstanding Principal Balance......................................... $
Number of Borrowers.............................................................
Average Outstanding Principal Balance Per Borrower.............................. $
Number of Loans.................................................................
Average Outstanding Principal Balance Per Loan.................................. $
Weighted Average Annual Interest Rate........................................... %
Weighted Average Annual Effective Rate.......................................... %
Weighted Average Remaining Term (months) [(does not include the months remaining
for the in-school, grace, deferment or forbearance periods)]..................
[Weighted Average Remaining Term (months) (including the months remaining for
the in-school, grace, deferment or forbearance periods)]......................
</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............................................ $ %
PLUS.................................................... %
SLS..................................................... %
Stafford--Subsidized.................................... %
Stafford--Unsubsidized.................................. %
----- ----------- ------
Total................................................. $ %
===== =========== ======
</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%......................................... $ %
7.50% to 8.49%.......................................... %
8.50% to 9.49%.......................................... %
9.50% to greater........................................ 0 0 0.00%
----- ----------- ------
Total................................................. $ %
===== =========== ======
</TABLE>
43
<PAGE> 47
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........................................ $ %
$1,000-$1,999........................................... %
$2,000-$2,999........................................... %
$3,000-$3,999........................................... %
$4,000-$4,999........................................... %
$5,000-$5,999........................................... %
$6,000-$6,999........................................... %
$7,000-$7,999........................................... %
$8,000-$8,999........................................... %
$9,000-$9,999........................................... %
$10,000-$10,999......................................... $ %
$11,000-$11,999......................................... %
$12,000-$12,999......................................... %
$13,000-$13,999......................................... %
$14,000-$14,999......................................... %
15,000 or greater....................................... %
----- ----------- ------
Total................................................... $ %
===== =========== ======
</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................................................... $ %
Deferment............................................... %
Forbearance............................................. %
Grace................................................... %
In School............................................... %
Repayment
First Year Repayment.................................. %
Second Year Repayment................................. %
Third Year Repayment.................................. %
Fourth Year Repayment................................. %
----- ----------- ------
Total................................................. $ %
===== =========== ======
</TABLE>
44
<PAGE> 48
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>
$ %
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
----- ----------- ------
TOTAL................................................... $ %
===== =========== ======
</TABLE>
- ---------
(1) Based on the permanent billing addresses of the borrowers of the Initial
Financed Student Loans shown on the Servicer's records.
45
<PAGE> 49
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..................................... $ %
October 1, 1993 and thereafter.......................... %
----- ----------- ------
Total................................................. $ %
===== =========== ======
</TABLE>
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>
California Student Aid Commission....................... %
Florida Department of Education.........................
Georgia Higher Education Assistance Corporation.........
Illinois Student Assistance Commission.................. %
Kentucky Higher Education Assistance Authority.......... %
Michigan Higher Education Assistance Authority..........
New Jersey Higher Education Assistance Authority........ %
Pennsylvania Higher Education Assistance Authority...... %
United Student Aid Funds................................ %
Other................................................... %
----- ----------- ------
Total................................................. $ %
===== =========== ======
</TABLE>
46
<PAGE> 50
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[s] of [$ and]
$ are subject to [the PNC Bank Discount Loan Program (the "DLP Program"
and] the PNC Bank Preferred Payment Program (the "PP Program") [, respectively].
[The DLP Program applies to Stafford Loans and Unsubsidized Stafford Loans
guaranteed by PHEAA and made by the Transferor to Pennsylvania residents or to
students attending Pennsylvania institutions ("DLP Loans"). Under the DLP
Program, if the borrower makes the first 36 consecutive monthly payments of a
DLP Loan on time, the applicable interest rate on such DLP Loan is reduced by
1%.]
The PP Program applies to all Stafford Loans and Unsubsidized Stafford
Loans (other than DLP Loans) with a first disbursement made by 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 Notes and the yield on the 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--The Federal
Loan 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--Sale 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 "--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 or, as the result of the
conveyance of Exchanged Financed Student Loans to the Eligible Lender Trustee on
behalf of the Trust during the Exchange Period. The rate of payment of principal
of the Notes and the yield on the Notes may also be affected by the rate of
defaults resulting in losses on Financed Student Loans, by the
47
<PAGE> 51
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 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 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
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
48
<PAGE> 52
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--Changes in Law."
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 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.
49
<PAGE> 53
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 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."
50
<PAGE> 54
GUARANTORS FOR THE FEDERAL LOANS
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 [(excluding refinanced
PLUS and SLS 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 CSAC FDOE NJHEAA PHEAA USAF GUARANTORS
- ------- -------- ------ ------- ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $1,333.7 $314.1 $268.0 $ $ $ $ $ $
1993 1,507.4 437.9 289.3
1994 2,077.6 424.3 369.5 **
1995 1,805.6 631.0 314.7 **
1996 1,634.1 569.9 310.7 ** **
</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 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
51
<PAGE> 55
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>
CSAC FDOE NJHEAA
---------------------- ---------------------- ---------------------- ----------------------
FEDERAL CUMULATIVE CUMULATIVE CUMULATIVE CUMULATIVE
FISCAL CASH RESERVE CASH RESERVE CASH RESERVE CASH RESERVE
YEAR RESERVES** RATIO RESERVES** RATIO RESERVES** RATIO RESERVES** RATIO
- ------- ---------- ------- ---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $183.4 2.5% $ 27.8 1.6% $ 28.7 1.1%
1993 185.5 2.3 44.1 2.2 18.3 0.7
1994 192.7 2.1 64.8 3.0 42.0 1.5
1995 237.0 2.3 66.6 2.6 40.2 1.5
1996 265.7 2.5 74.7 2.7 40.4 1.5
</TABLE>
<TABLE>
<CAPTION>
PHEAA USAF
---------------------- ---------------------- ---------------------- ---------------------- NATIONAL
FEDERAL CUMULATIVE CUMULATIVE CUMULATIVE CUMULATIVE AVERAGE
FISCAL CASH RESERVE CASH RESERVE CASH RESERVE CASH RESERVE RESERVE
YEAR RESERVES** RATIO RESERVES** RATIO RESERVES** RATIO RESERVES** RATIO RATIO
- ------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 162.6 2.1% 100.1 1.0%
1993 113.4 1.3 169.9 1.3
1994 133.6 1.4 215.8 1.2
1995 166.3 1.5 377.9 1.5
1996 210.6 1.7 423.9 1.5 *** ***
</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 CSAC FDOE NJHEAA PHEAA USAF AVERAGE
- ------- ----- ----- ------ ------ ------ ------ ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 32.2 % 33.1 % 54.3 % 46.5 % 28.1 % 35.1%
1993 33.3 39.0 56.0 49.5 30.7 38.1
1994 33.59 41.79 56.11 52.90 29.28 39.38
1995 35.60 43.03 58.54 53.29 34.90 40.67
1996 37.61 45.50 60.54 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.
52
<PAGE> 56
Claims Rate. For at least one of the five Federal Fiscal Years 1992 through
1996, CSAC, FOSFA and USAF experienced a claims rate in excess of 5%. For each
Federal Fiscal Year that such Guarantors' claims rate exceeded 5%, the claims of
such Guarantors 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 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 RECOVERY RATE
FISCAL ------------------------------------------------- NATIONAL
YEAR CSAC FDOE NJHEAA PHEAA USAF AVERAGE
- ------- ----- ----- ------ ------ ------ ----- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 5.93% 4.93% 2.01 % 2.8 % 5.00% 6.3% 4.15%
1993 5.38 4.49 2.11 2.3 7.30 4.5 3.83
1994 4.12 3.88 2.27 2.2 4.99 3.1 3.44
1995 3.41 3.05 1.86 1.97 4.69 2.8 3.21
1996 4.45 4.17 2.24 1.58 4.65 2.3 3.25
</TABLE>
- ---------
* The information set forth in the table above has been obtained from the
Department.
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.
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 $50,000 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."
THE NOTES
Distributions of Interest. Interest will accrue 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). Interest will accrue from the 15th day of each
month (or from the Closing Date with respect to the first Interest Period) to
(and including) the 14th day of the next month (each, an "Interest Period") 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 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."
53
<PAGE> 57
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; 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 and the Class A-2 Notes, the daily weighted
average of the T-Bill Rates within such Interest Period (determined as described
below) plus the applicable Margin for such Class, and (ii) in the case of the
Class B Notes, One-Month LIBOR as of the LIBOR Determination Date for such
Interest Period plus the applicable Margin for such Class. See "--The
Notes--Distributions of Interest." The "Margin" will be [ ]% for the Class A-1
Notes, [ ]% for the Class A-2 Notes and [ %] for the Class B Notes. Interest
on the Class A-1 Notes and the Class A-2 Notes will be calculated on the basis
of the actual number of days elapsed in each Interest Period divided by 365 (or
366 in the case of a leap year), and interest on the Class B Notes will be
calculated on the basis of the actual number of days elapsed in each Interest
Period divided by 360.
Notwithstanding the foregoing, if the Class Interest Rate with respect to
any Class of Notes for any Interest Period is greater than the Net Loan Rate (as
defined 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 Notes exceed % per annum. See "--The Notes--Distributions of
Interest."
Noteholders' Interest Carryover. If the Class Interest Rate for any Class
of 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 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 on each Distribution Date, first to the principal balance of the Class
A-1 Notes until such principal balance is reduced to zero, then to the principal
balance of the Class A-2 Notes until such principal balance is reduced to zero
and then to the principal balance of the Class B Notes until such principal
balance is reduced to zero. Principal payments on a Class of Notes will
generally be derived from Available Funds and amounts, if any, on deposit in the
Reserve Account remaining after the Indenture Trustee has deposited in the
Expense Account the Transaction Fees and all overdue Transaction Fees required
and deposited in the Note Distribution Account and the Noteholders' Interest
Distribution Amount. 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. 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--Maturity and Prepayment Assumptions; Reinvestment Risk of Notes" and
"The Financed Student Loan Pool--Maturity and Prepayment Assumptions."
54
<PAGE> 58
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
Class B 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 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.
DETERMINATION OF THE T-BILL RATES
The "T-Bill Rate" will generally be adjusted weekly on the calendar day
following each auction of direct obligations of the United States with a
maturity of 13 weeks ("91-day Treasury Bills") to equal the weighted average per
annum discount rate (expressed on a bond equivalent basis and applied on a daily
basis) of the 91-day Treasury Bills sold at such auction, as reported by the
U.S. Department of the Treasury; provided, however, that in the event that the
results of the auctions of 91-day Treasury Bills cease to be so reported, or
that no such auction is held in a particular week, then the T-Bill Rate in
effect as a result of the last such publication or report will remain in effect
until such time, if any, as the results of auctions of 91-day Treasury Bills
shall again be reported or such an auction is held, as the case may be;
provided, further, that (i) the T-Bill Rate in effect from the first day of the
Interest Period, including the initial Interest Period, through the day of the
first 91-day Treasury Bill auction on or after the first day of each Interest
Period will be based on the results of the most recent 91-day Treasury Bill
auction prior to such day and (ii) the T-Bill Rate will be subject to a lock-in
period of six business days preceding each Distribution Date, during which the
T-Bill Rate will remain in effect from the first day of such period until the
end of the Interest Period related to such Distribution Date.
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
55
<PAGE> 59
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.
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.
The Trust and the Indenture Trustee may also enter into supplemental
indentures, but without obtaining the consent of Noteholders, 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
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.
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 after the same becomes due and payable; (ii) a default for five business
days in the 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 under the Indenture on any Note
Distribution Date is limited to the amount of Available Funds and amounts on
deposit in the Reserve Account after payment of the Transaction Fees, the
Noteholders' Interest Distribution Amount and the Certificateholder's Interest
Distribution Amount. Any such shortfalls on any Note Distribution Date will be
carried over as a Noteholders' Principal Carryover Shortfall to be paid on
succeeding Note 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.
56
<PAGE> 60
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, 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 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 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.
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 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
57
<PAGE> 61
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, (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 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.
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 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 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.
The Indenture Trustee. Bankers Trust Company, a New York banking
corporation, will be the Indenture Trustee under the Indenture.
58
<PAGE> 62
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.
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 Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
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
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(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 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
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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 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 Depositary. 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 Depositary'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 Depositary 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
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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.
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
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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 and 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 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
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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 that are serial to an existing Federal Loan owned by the Transferor
for one or more Federal Loans owned by the Transferor that are serial 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.
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 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.
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,
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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 are
rated "A" or better by Standard & Poor's and "A2" or better by Moody's, or bear
one of the two highest short-term ratings by Standard & Poor's and the highest
short-term rating by Moody's.
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 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
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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 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 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 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 Distribution Date.
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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, 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.
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 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 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 Distribution
Date (or with respect to the first Distribution Date, from the Closing Date
through and including the Collection Period immediately preceding such
Distribution Date), (i) to a separate account held with and in the name of the
Indenture Trustee (the "Expense Account"), 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 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
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Noteholders' Interest Distribution Amount, (iii) to the Note Distribution
Account, 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"), the
Certificateholders' Interest Distribution Amount, and (v) after the Notes have
been paid in full, to the Certificateholder Distribution Account, the
Certificateholders' Principal Distribution Amount.
On each Distribution Date 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 Master Servicer, the estimated Servicing Fee for the three
immediately succeeding Collection Periods and all overdue Servicing Fees, (ii)
to the Administrator, the estimated Administration Fee for the three immediately
succeeding Collection Periods and all overdue Administration Fees, (iii) to the
Indenture Trustee, the estimated Indenture Trustee Fee for the three immediately
succeeding Collection Periods and all overdue Indenture Trustee Fees, and (iv)
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 described in the second preceding paragraph, the Indenture Trustee will
distribute to the Noteholders as of the related Record Date all 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; first, to the Class A-1
and Class A-2 Noteholders, the Class A Noteholders' Interest Distribution Amount
(pro rata based upon the portion thereof allocable to each such class), second,
to the Class B Noteholders, the Class B Noteholders' Interest Distribution
Amount, third, 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, fourth, to the Class A-2 Noteholders, the
Noteholders' Principal Distribution Amount until the outstanding principal
amount of the Class A-2 Notes has been paid in full, and fifth, 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. On each
Distribution Date, the Eligible Lender Trustee will distribute to the
Certificateholders all amounts transferred to the Certificate Distribution
Account as set forth above (in addition to any amounts transferred from the
Reserve Account and the Monthly Advance Account, each as described herein).
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 to the
Transferor.
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
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multiplying the original principal amount of such Note by the Principal Factor
applicable to that Class of Notes.
Notwithstanding the foregoing, if (x) on any Distribution Date following
all distributions to be made on such Distribution Date, the outstanding
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, distributions will be made in the following priority: (i)
first, to the Class A-1 Noteholders and the Class A-2 Noteholders, the
Noteholders' Interest Distribution Amount applicable, to each such Class, pro
rata based upon the portion thereof allocable to each such Class; (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-2 Noteholders, the Noteholders' Principal Distribution Amount until the
outstanding principal amount of the Class A-2 Notes has been paid in full and in
the case of clause (y) above, to the Class A-1 Noteholders and Class A-2
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, 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; (v) fifth, to the Class A-1 Noteholders and the Class A-2 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.
"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 each related
Certificate Rate for the 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.
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"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 principal available to be distributed on such
Distribution Date over the amount of principal paid on the Notes on such date.
"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 (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 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 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' 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 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 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
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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.
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 Initial Reserve Account Deposit. 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.
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 principal and interest due them and to
decrease the likelihood that the Noteholders will experience losses. In certain
circumstances, however, the Reserve Account could be depleted. If the amount
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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-1 Notes and the Class
A-2 Notes to the extent described herein. This subordination is intended to
enhance the likelihood of regular receipt by holders of Class A-1 and Class A-2
Notes of the full amount of the Class A-1 and Class A-2 Noteholders' Interest
Distribution Amount and, after distribution of the Class B Interest Distribution
Amount, the Class A-1 and Class A-2 Noteholders' Principal Distribution Amount.
See "Description of Transfer and Service Agreements--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 Indenture, on or after the Closing Date, the Trust may
enter into one or more swap agreements with a counterparty whereby some or all
of the interest payments received on the Financed Student Loans (which payments
generally are based on the 91-day Treasury Bill Rate) may be paid to the
counterparty in exchange for a payment of interest based upon another index
(i.e., One-Month LIBOR). No such swap agreement will be entered into unless,
among other conditions, the long-term debt of the counterparty to such swap
agreement is rated in the highest rating category by each Rating Agency then
rating a Class of Notes and each Rating Agency then rating a Class of Notes
confirms that entering into such swap agreement will not cause such Rating
Agency to lower its rating assigned to such Notes. The obligations of the Trust
to make payments to the counterparty will rank equally without preference with
the Trust's obligations to pay interest on the Class A Notes. In connection with
entering into a swap agreement, appropriate amendments will be made to the
applicable Transfer and Servicing Agreements without obtaining the consent of
any Noteholders or Certificateholders.
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 Notes,
whether such interest rates are based on the T-Bill Rate or the One-Month
LIBOR, as the case may be, 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
each preceding Collection Period since the last Distribution Date;
(vi) the aggregate outstanding principal balance of each class of
Notes and Certificates as of such Distribution Date, after giving effect to
payments allocated to principal reported under clause (i) above;
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(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;
(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.
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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.
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 or the
Certificateholders, 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.
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
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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 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
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payments from any of the Trust Accounts or giving instructions regarding the
same in accordance with the 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 or the Certificateholders 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.
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 and Certificateholders; 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 and the Certificateholders 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, 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 and Certificateholders 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 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, 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. 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 2007 Distribution
Date or any subsequent Distribution Date.
ADMINISTRATOR
PNC Bank, National Association, in its capacity as Administrator, will
enter 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").
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. sec.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 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
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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. These requirements impose
specific statutory liabilities upon lenders who fail to comply with their
provisions. In certain circumstances, the Trust may be liable for certain
violations of consumer protection laws that apply to the Financed Student Loans,
either as assignee from the Transferor or as the party directly responsible for
obligations arising after the transfer. 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.
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
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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 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
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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 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
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<PAGE> 85
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:
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.
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<PAGE> 86
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.
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 amount of each Class of
Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
---------------------------------------------------
UNDERWRITER CLASS A-1 NOTES CLASS A-2 NOTES CLASS B NOTES
------------------------------------------ --------------- --------------- -------------
<S> <C> <C> <C>
Smith Barney Inc.......................... $ $ $
PNC Capital Markets, Inc.................. $ $ $
Total..................................... $ $ $
</TABLE>
The Transferor has agreed to pay Smith Barney Inc. a structuring fee equal
to $ .
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
provisions of the Financial Services Act of 1986 of Great Britain with respect
to anything done by it in relation
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<PAGE> 87
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 relating to the
validity of the issuance of the Notes 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 and the
Class A-2 Notes that they each be rated "AAA" by Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies ("Standard & Poor's"), and
"Aaa" by Moody's Investors Service, Inc. ("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 at least "A2" by Moody's. Each of Standard & Poor's 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 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 payment of the Noteholders' Interest Carryover.
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<PAGE> 88
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........................................................................... 46
Adjustment Payment............................................................
Administration Agreement...................................................... 5
Administration Fee............................................................ 9, 71
Administrator................................................................. 5
Administrator Default......................................................... 70
AFSA.......................................................................... 5, 28
Assigned Rights............................................................... 23
Available Funds............................................................... 63
Benefit Plan.................................................................. 77
Business Day.................................................................. 11
Cede.......................................................................... 4
Cedel......................................................................... 4
Cedel Participants............................................................ 58
Certificate Balance........................................................... 65
Certificate Distribution Account.............................................. 12, 64
Certificateholders............................................................ 12
Certificateholders' Distribution Amount....................................... 65
Certificateholders' Interest Carryover Shortfall.............................. 65
Certificateholders' Interest Distribution Amount.............................. 65
Certificateholders' Principal Carryover Shortfall............................. 65
Certificateholders' Principal Distribution Amount............................. 66
Certificates.................................................................. 4
Class......................................................................... 5
Class A Notes................................................................. 1, 4
Class A-1 Notes............................................................... 1, 4
Class A-2 Notes............................................................... 1, 4
Class B Notes................................................................. 1, 4
Class B Interest Rate......................................................... 24
Class Interest Rate........................................................... 5
Closing Date.................................................................. 9
Code.......................................................................... 75
Collection Account............................................................ 11
Collection Period............................................................. 11
Commission.................................................................... 3
Consolidation Loan............................................................ 37
Consolidation Prepayments.....................................................
Cooperative................................................................... 58
Corporation................................................................... 27
Cut-off Date.................................................................. 9
Deferral Period............................................................... 34
Deferral Phase................................................................ 10
Definitive Notes.............................................................. 59
Department.................................................................... 10, 29
Depositor..................................................................... 3
Depositories.................................................................. 56
Depository.................................................................... 50
</TABLE>
85
<PAGE> 89
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Determination Date............................................................ 12
Distribution Date............................................................. 1, 5
DLP Loans..................................................................... 44
DLP Program................................................................... 44
DTC........................................................................... 3, 4
DTC Participants.............................................................. 56
Effective Interest Rate....................................................... 7
Eligible Deposit Account...................................................... 61
Eligible Institution.......................................................... 61
Eligible Investments.......................................................... 61
Eligible Lender Trustee....................................................... 1, 5
Eligible Lender Trustee Fee................................................... 12
Eligible Student.............................................................. 30
ERISA......................................................................... 77
Euroclear..................................................................... 4, 57
Euroclear Operator............................................................ 58
Euroclear Participants........................................................ 58
Event of Default.............................................................. 53
Exchange Act.................................................................. 3
Exchange Date.................................................................
Exchange Period...............................................................
Exchanged Consolidation Loan..................................................
Exchanged Consolidation Loans.................................................
Exchanged Financed Student Loans..............................................
Exchanged Serial Loan.........................................................
Expense Account............................................................... 12
FDIA.......................................................................... 25
FDIC.......................................................................... 25
FDOE.......................................................................... 10
Federal Assistance............................................................ 32
Federal Direct Student Loan Program........................................... 22
Federal Loan Program.......................................................... 10
Federal Loans................................................................. 10
Federal Tax Counsel........................................................... 75
Final Maturity Date........................................................... 52
Financed Student Loans........................................................ 1, 9
FIRREA........................................................................ 25
Forbearance Period............................................................ 34
Forbearance Periods........................................................... 24
Grace Period.................................................................. 34
Grace Periods................................................................. 24
Guarantee Agreements.......................................................... 29
Guarantee Payments............................................................ 19
Guarantor..................................................................... 10
Guarantors.................................................................... 10
Higher Education Act.......................................................... 29
Holders....................................................................... 59
Holding Company............................................................... 27
Indenture..................................................................... 4
Indenture Trustee............................................................. 5
</TABLE>
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<PAGE> 90
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Indenture Trustee Fee......................................................... 12
Index Maturity................................................................ 52
Indirect Participants......................................................... 56
Initial Financed Student Loans................................................
Initial Pool Balance.......................................................... 9
Insolvency Event.............................................................. 71
Interest Period............................................................... 6, 51
Interest Subsidy Payments..................................................... 32
Investment Earnings........................................................... 61
IRS........................................................................... 75
Issuer Consolidation Payments.................................................
LIBOR Determination Date...................................................... 52
Margin........................................................................ 6, 51
Master Servicer............................................................... 4
Master Servicer Default....................................................... 70
Minimum Purchase Price........................................................
Monthly Advance Account....................................................... 16
Monthly Advances.............................................................. 16, 67
Moody's....................................................................... 8, 80
Net Loan Rate................................................................. 7
1992 Amendments............................................................... 32
1993 Amendments............................................................... 32
1993 Technical Amendments..................................................... 32
NJHEAA........................................................................ 10
Note Distribution Account..................................................... 12, 64
Noteholders................................................................... 5
Noteholders' Distribution Amount.............................................. 66
Noteholders' Interest Carryover............................................... 6, 51
Noteholders' Interest Carryover Shortfall..................................... 66
Noteholders' Interest Distribution Amount..................................... 66
Noteholders' Principal Carryover Shortfall.................................... 66
Noteholders' Principal Distribution Amount.................................... 66
Note Owner.................................................................... 57
Notes......................................................................... 1, 4
Obligors...................................................................... 11
OID........................................................................... 76
One-Month LIBOR............................................................... 7
Parity Percentage............................................................. 8
Parity Percentage Payments.................................................... 14, 65
Participants.................................................................. 50
PHEAA......................................................................... 5
PLUS Loans.................................................................... 9, 36
PNC Subsidiary................................................................
Pool Balance.................................................................. 11
PP Loans...................................................................... 44
PP Program.................................................................... 44
Principal Distribution Amount................................................. 66
Principal Factor.............................................................. 14, 65
Program....................................................................... 30
Program Operating Expense Percentage.......................................... 7
</TABLE>
87
<PAGE> 91
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
PTCE.......................................................................... 78
Purchase Amount............................................................... 61
Rating Agencies............................................................... 18
Realized Loss................................................................. 67
Record Date................................................................... 5
Reference Bank................................................................ 52
Registration Statement........................................................ 3
Regulation.................................................................... 77
Related Documents............................................................. 55
Repayment Phase............................................................... 11
Reserve Account............................................................... 14
Reserve Account Deposit....................................................... 14
Securities Act................................................................ 3
Serial Loan................................................................... 23
Series........................................................................ 13
Servicer...................................................................... 5
Servicers..................................................................... 5
Servicing Fee................................................................. 8
SLS Loans..................................................................... 9, 35
SLS Program................................................................... 35
Special Allowance Payments.................................................... 32
Specified Reserve Account Balance............................................. 15
Stafford Loans................................................................ 32
Standard & Poor's............................................................. 18, 80
Student Loans................................................................. 9
Subsequent Cut-off Date.......................................................
T-Bill Rate................................................................... 7, 52
Telerate Page 3750............................................................ 52
Terms and Conditions.......................................................... 58
Terms Supplement.............................................................. 4
Transaction Fees.............................................................. 12, 64
Transfer Agreement............................................................
Transfer and Servicing Agreement.............................................. 4
Transfer and Servicing Agreements............................................. 60
Transferor.................................................................... 1, 4
Transferor Trust.............................................................. 20
91-day Treasury Bills......................................................... 6, 52
91-day Treasury Bill Rate..................................................... 24
Trust......................................................................... 1, 4
Trust Accounts................................................................ 48
Trust Agreement............................................................... 9
UCC........................................................................... 72
Underlying Federal Loan....................................................... 37
Underwriters.................................................................. 79
Underwriting Agreement........................................................
Unit Amount................................................................... 8
Unsubsidized Stafford Loans................................................... 35
U.K. Regulations..............................................................
USAF.......................................................................... 5
USAG.......................................................................... 5, 29
</TABLE>
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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> 93
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:
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<PAGE> 94
(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> 95
======================================================
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.......................... 21
Formation of the Trust................ 29
Use of Proceeds....................... 30
The Transferor........................ 30
The Servicers......................... 30
The Student Loan Financing Business... 32
The Financed Student Loan Pool........ 42
Description of the Notes.............. 53
Description of the Transfer and
Servicing Agreements................ 62
Legal Aspects of the Financed Student
Loans............................... 77
Federal Tax Consequences.............. 79
State and Local Tax Consequences...... 82
ERISA Considerations.................. 82
Underwriting.......................... 83
Legal Matters......................... 84
Financial Information................. 84
Rating................................ 84
Index of Principal Terms.............. 85
Annex I--Global Clearance, Settlement
and Tax Documentation Procedures.... A-1
</TABLE>
======================================================
======================================================
$
PNC STUDENT LOAN TRUST I
STUDENT LOAN
ASSET BACKED NOTES
SERIES 1997-2
$
Senior Floating Rate Class A-1 Notes
$
Senior Floating Rate Class A-2 Notes
$
Subordinate LIBOR Rate Class B Notes
PNC Bank, National Association
Transferor
------------
PROSPECTUS
------------
SMITH BARNEY INC.
PNC CAPITAL MARKETS, INC.
, 1997
======================================================
<PAGE> 96
[Alternate Page]
$
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 $[ ] aggregate principal amount of Senior Floating Rate Class A-1
Asset Backed Notes (the "Class A-1 Notes"), $[ ] aggregate principal amount
of Senior Floating Rate Class A-2 Asset Backed Notes (the "Class A-2 Notes" and,
together with the Class A-1 Notes, the "Class A Notes") and $[ ] aggregate
principal amount of Subordinate LIBOR Rate Class B Asset Backed Notes (the
"Class B Notes" and, together with the Class A Notes, 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.
------------------
The Notes will be available for purchase in denominations of $50,000 and
integral multiples thereof in book-entry form only. Interest on and principal of
the Notes will be payable quarterly on or about the [fifteenth day] of each
, , , and , commencing [ ], 1997 (each, a
"Distribution Date"); provided, that no distribution in respect of principal of
the Class A-2 Notes will be payable until the Class A-1 Notes are paid in full
(except as otherwise described herein) and no distribution in respect of
principal of the Class B Notes will be payable until the Class A Notes are paid
in full. Interest on the Notes will accrue, subject to certain limitations
described herein, for each Interest Period at a per annum rate equal to the
T-Bill Rate plus the applicable Margin for the Class A-1 Notes and Class A-2
Notes and OneMonth LIBOR plus the applicable Margin for the Class B Notes. The
Margin will be [ ]% for the Class A-1 Notes, [ ]% for the Class A-2
Notes and [ ]% for the Class B Notes. The final maturity date for the Class
A-1 Notes will be the [ ] Distribution Date , the final maturity date for
the Class A-2 Notes will be the [ ] Distribution Date and the final maturity
date for the Class B Notes will be the [ ] Distribution Date.
(Continued on following page)
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE [21].
------------------
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.
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> 97
[Alternate Page]
(Cover continued from previous page)
However, payment in full of the Notes could occur earlier than such 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, (ii) on or after the
Distribution Date occurring in , 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 herein, upon the insolvency of the Transferor and
subsequent termination of the Trust pursuant to the Trust Agreement (as defined
herein).
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> 98
[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.
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 and the
Class A-2 Notes that they each be rated "AAA" by Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies ("Standard & Poor's"), and
"Aaa" by Moody's Investors Service, Inc. ("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 at least "A2" by Moody's. Each of Standard & Poor's 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 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 payment of the Noteholders' Interest Carryover.
<PAGE> 99
[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.......................... 21
Formation of the Trust................ 29
Use of Proceeds....................... 30
The Transferor........................ 30
The Servicers......................... 30
The Student Loan Financing Business... 32
The Financed Student Loan Pool........ 42
Description of the Notes.............. 53
Description of the Transfer and
Servicing Agreements................ 62
Legal Aspects of the Financed Student
Loans............................... 77
Federal Tax Consequences.............. 79
State and Local Tax Consequences...... 82
ERISA Considerations.................. 82
Plan of Distribution..................
Financial Information.................
Rating................................
</TABLE>
======================================================
======================================================
$
PNC STUDENT LOAN TRUST I
STUDENT LOAN
ASSET BACKED NOTES
SERIES 1997-2
$
Senior Floating Rate Class A-1 Notes
$
Senior Floating Rate Class A-2 Notes
$
Subordinate LIBOR Rate Class B Notes
PNC Bank, National Association
Transferor
------------
PROSPECTUS
------------
PNC CAPITAL MARKETS, INC.
, 1997
======================================================
<PAGE> 100
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...................................................... $
Printing and Engraving Expenses.......................................
Trustee Fees and Expenses.............................................
Legal Fees and Expenses...............................................
Accountants' Fees and Expenses........................................
Rating Agencies' Fees.................................................
Miscellaneous.........................................................
--------
Total............................................................ $
========
</TABLE>
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. sec.sec.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:
[PNC Bank] may advance expenses to a Director, officer or employee in
connection with an action or proceeding under 12 U.S.C. sec.sec. 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
II-1
<PAGE> 101
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. sec.sec.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> 102
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.***
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.
*** To be filed by pre-effective amendment.
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,
II-3
<PAGE> 103
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> 104
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
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Pittsburgh, Commonwealth of Pennsylvania, on the
4th 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> 105
Pursuant to the requirements of the Securities Act of 1933, this
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 4, 1997
- -----------------------------------------
THOMAS H. O'BRIEN
* President and Chief Executive Officer June 4, 1997
- ----------------------------------------- (principal executive officer) and
JAMES E. ROHR Director
* Controller (principal financial and June 4, 1997
- ----------------------------------------- accounting officer)
WILLIAM J. JOHNS
* Director June 4, 1997
- -----------------------------------------
B.R. BROWN
* Director June 4, 1997
- -----------------------------------------
CONSTANCE C. CLAYTON, ED. D.
* Director June 4, 1997
- -----------------------------------------
EBERHARD FABER IV
* Director June 4, 1997
- -----------------------------------------
STUART HEYDT, M.D.
* Director June 4, 1997
- -----------------------------------------
EDWARD P. JUNKER III
* Director June 4, 1997
- -----------------------------------------
THOMAS A. MCCONOMY
* Director June 4, 1997
- -----------------------------------------
ROCCO A. ORTENZIO
* Director June 4, 1997
- -----------------------------------------
JANE G. PEPPER
* Director June 4, 1997
- -----------------------------------------
ROBERT C. ROBB, JR.
* Director June 4, 1997
- -----------------------------------------
DANIEL M. ROONEY
* Director June 4, 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> 106
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ---------------------------------------------------------------------
<S> <C> <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.***
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.
*** To be filed by pre-effective amendment.
II-7
<PAGE> 1
Exhibit 4.1
INDENTURE
between
PNC STUDENT LOAN TRUST I,
as Issuer
and
BANKERS TRUST COMPANY
not in its individual capacity, but
solely as Indenture Trustee
Dated as of March 27, 1997
<PAGE> 2
CROSS-REFERENCE TABLE1
<TABLE>
<CAPTION>
TIA Indenture
SECTION SECTION
<S> <C>
310(a)(1) ............................................................ 6.11
(a)(2) ............................................................ 6.11
(a)(3) ............................................................ 6.10
(a)(4) ............................................................ N.A.2
(a)(4) ............................................................ 6.11
(b) ............................................................ 6.8;
6.10; 6.11
(c) ............................................................ N.A.
311(a) ............................................................ 6.11
(b) ............................................................ 6.11
(c) ............................................................ N.A.
312(a) ............................................................ 7.1;
7.2(a)
(b) ............................................................ 7.2(b)
(c) ............................................................ 7.2(c)
313(a) ............................................................ 6.6
(b) ............................................................ 6.6
(c) ............................................................ 11.5
(d) ............................................................ 6.6
314(a) ............................................................ 3.9; 7.3
(b) ............................................................ 3.6
(c) ............................................................ 2.9; 4.1
11.1
(d) ............................................................ 2.9;
11.1
(e) ............................................................ 11.1
(f) ............................................................ 3.9
315(a) ............................................................ 6.1
(b) ............................................................ 6.5
(c) ............................................................ 6.1
(d) ............................................................ 6.1
(e) ............................................................ 5.13
316(a)(1)(A) ............................................................ 5.11
(a)(1)(B) ............................................................ 5.12
(a)(2) ............................................................ N.A.
(b) ............................................................ 5.7
(c) ............................................................ 1.1
317(a) ............................................................ 5.3
(b) ............................................................ 3.3
318(a) ............................................................ 11.7
</TABLE>
- --------
1 Note: This Cross-Reference Table shall not, for any purpose,
be deemed to be part of the Indenture.
2 N.A. means Not Applicable.
-i-
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I DEFINITIONS AND USAGE............................................................1
SECTION 1.1. DEFINITIONS AND USAGE. ..........................................................1
SECTION 1.2. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT................................1
ARTICLE II THE NOTES........................................................................2
SECTION 2.1. FORM.............................................................................2
SECTION 2.2. EXECUTION, AUTHENTICATION AND DELIVERY...........................................3
SECTION 2.3. NOTES ISSUABLE IN SERIES AND CLASSES; GENERAL PROVISIONS WITH RESPECT TO
PRINCIPAL AND INTEREST PAYMENTS..................................................3
SECTION 2.4. DENOMINATIONS....................................................................6
SECTION 2.5. TEMPORARY NOTES..................................................................6
SECTION 2.6. REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE..............................7
SECTION 2.7. MUTILATED, DESTROYED, LOST OR STOLEN NOTES.......................................9
SECTION 2.8. PERSONS DEEMED OWNER............................................................10
SECTION 2.9. PAYMENTS OF PRINCIPAL AND INTEREST..............................................10
SECTION 2.10. CANCELLATION....................................................................13
SECTION 2.11. AUTHENTICATION AND DELIVERY OF NOTES............................................13
SECTION 2.12. RELEASE OF COLLATERAL...........................................................18
SECTION 2.13. RESTRICTIONS ON TRANSFER........................................................18
SECTION 2.14. BOOK-ENTRY NOTES................................................................19
SECTION 2.15. NOTICES TO CLEARING AGENCY......................................................20
SECTION 2.16. DEFINITIVE NOTES................................................................21
ARTICLE III COVENANTS.......................................................................21
SECTION 3.1. PAYMENT TO NOTEHOLDERS..........................................................21
SECTION 3.2. MAINTENANCE OF OFFICE OR AGENCY.................................................22
SECTION 3.3. MONEY FOR PAYMENTS TO BE HELD IN TRUST..........................................22
SECTION 3.4. EXISTENCE.......................................................................24
SECTION 3.5. PROTECTION OF INDENTURE TRUST ESTATE............................................25
SECTION 3.6. OPINIONS AS TO INDENTURE TRUST ESTATE...........................................25
SECTION 3.7. PERFORMANCE OF OBLIGATIONS; SERVICING OF FINANCED
STUDENT LOANS...................................................................26
SECTION 3.8. NEGATIVE COVENANTS..............................................................27
SECTION 3.9. ANNUAL STATEMENT AS TO COMPLIANCE...............................................28
SECTION 3.10. ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.............................29
SECTION 3.11. SUCCESSOR OR TRANSFEREE.........................................................31
SECTION 3.12. NO OTHER BUSINESS...............................................................31
SECTION 3.13. NO BORROWING....................................................................31
SECTION 3.14. OBLIGATIONS OF MASTER SERVICER AND ADMINISTRATOR................................31
SECTION 3.15. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES...............................31
SECTION 3.16. CAPITAL EXPENDITURES............................................................32
SECTION 3.17. RESTRICTED PAYMENTS.............................................................32
SECTION 3.18. NOTICE OF EVENTS OF DEFAULT.....................................................32
SECTION 3.19. FURTHER INSTRUMENTS AND ACTS....................................................32
</TABLE>
1
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE IV SATISFACTION AND DISCHARGE......................................................33
SECTION 4.1. SATISFACTION AND DISCHARGE OF INDENTURE.........................................33
SECTION 4.2. APPLICATION OF TRUST MONEY......................................................34
SECTION 4.3. REPAYMENT OF MONEYS HELD BY PAYING AGENT........................................34
ARTICLE V REMEDIES........................................................................35
SECTION 5.1. EVENTS OF DEFAULT...............................................................35
SECTION 5.2. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT..............................36
SECTION 5.3. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
INDENTURE TRUSTEE...............................................................37
SECTION 5.4. REMEDIES; PRIORITIES............................................................40
SECTION 5.5. OPTIONAL PRESERVATION OF THE FINANCED STUDENT LOANS.............................42
SECTION 5.6. LIMITATION OF SUITS.............................................................43
SECTION 5.7. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE
PRINCIPAL AND INTEREST..........................................................44
SECTION 5.8. RESTORATION OF RIGHTS AND REMEDIES..............................................44
SECTION 5.9. RIGHTS AND REMEDIES CUMULATIVE..................................................44
SECTION 5.10. DELAY OR OMISSION NOT A WAIVER..................................................45
SECTION 5.11. CONTROL BY NOTEHOLDERS..........................................................45
SECTION 5.12. WAIVER OF PAST DEFAULTS.........................................................46
SECTION 5.13. UNDERTAKING FOR COSTS...........................................................46
SECTION 5.14. WAIVER OF STAY OR EXTENSION LAWS................................................47
SECTION 5.15. ACTION ON NOTES.................................................................47
SECTION 5.16. PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS..............................47
ARTICLE VI THE INDENTURE TRUSTEE...........................................................48
SECTION 6.1. DUTIES OF INDENTURE TRUSTEE.....................................................48
SECTION 6.2. RIGHTS OF INDENTURE TRUSTEE.....................................................50
SECTION 6.3. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE..........................................51
SECTION 6.4. INDENTURE TRUSTEE'S DISCLAIMER..................................................51
SECTION 6.5. NOTICE OF DEFAULTS..............................................................51
SECTION 6.6. REPORTS BY INDENTURE TRUSTEE TO NOTEHOLDERS.....................................52
SECTION 6.7. COMPENSATION AND INDEMNITY......................................................52
SECTION 6.8. REPLACEMENT OF INDENTURE TRUSTEE................................................53
SECTION 6.9. SUCCESSOR INDENTURE TRUSTEE BY MERGER...........................................54
SECTION 6.10. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE...................................55
SECTION 6.11. ELIGIBILITY; DISQUALIFICATION...................................................57
SECTION 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER................................57
ARTICLE VII NOTEHOLDERS' LISTS AND REPORTS..................................................................57
SECTION 7.1. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES
OF NOTEHOLDERS..................................................................57
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C>
SECTION 7.2. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
NOTEHOLDERS.....................................................................58
SECTION 7.3. FISCAL YEAR OF ISSUER...........................................................58
ARTICLE VIII ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1. COLLECTION OF MONEY.............................................................59
SECTION 8.2. TRUST ACCOUNTS..................................................................59
SECTION 8.3. GENERAL PROVISIONS REGARDING ACCOUNTS...........................................60
SECTION 8.4. [RESERVED]......................................................................60
SECTION 8.5. [RESERVED]......................................................................61
ARTICLE IX SUPPLEMENTAL INDENTURES.........................................................61
SECTION 9.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS..........................61
SECTION 9.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS.............................63
SECTION 9.3. EXECUTION OF SUPPLEMENTAL INDENTURES............................................65
SECTION 9.4. EFFECT OF SUPPLEMENTAL INDENTURE................................................65
SECTION 9.5. CONFORMITY WITH TRUST INDENTURE ACT.............................................65
SECTION 9.6. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES...................................65
ARTICLE X [INTENTIONALLY OMITTED].............................................................................66
ARTICLE XI MISCELLANEOUS......................................................................................66
SECTION 11.1. COMPLIANCE CERTIFICATES AND OPINIONS, ETC.......................................66
SECTION 11.2. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE................................68
SECTION 11.3. ACTS OF NOTEHOLDERS.............................................................69
SECTION 11.4. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER AND RATING
AGENCIES........................................................................70
SECTION 11.5. NOTICES TO NOTEHOLDERS; WAIVER..................................................71
SECTION 11.6. ALTERNATE PAYMENT AND NOTICE PROVISIONS.........................................71
SECTION 11.7. [RESERVED]......................................................................72
SECTION 11.8. EFFECT OF HEADINGS AND TABLE OF CONTENTS........................................72
SECTION 11.9. SUCCESSORS AND ASSIGNS..........................................................72
SECTION 11.10. SEPARABILITY....................................................................72
SECTION 11.11. BENEFITS OF INDENTURE...........................................................72
SECTION 11.12. LEGAL HOLIDAYS..................................................................72
SECTION 11.13. GOVERNING LAW...................................................................73
SECTION 11.14. COUNTERPARTS....................................................................73
SECTION 11.15. RECORDING OF INDENTURE..........................................................73
SECTION 11.16. TRUST OBLIGATIONS...............................................................73
SECTION 11.17. NO PETITION.....................................................................74
SECTION 11.18. INSPECTION......................................................................74
SECTION 11.19. USURY...........................................................................75
</TABLE>
3
<PAGE> 6
Appendix A Definitions and Usage
EXHIBIT A Form of Series 1997-1 Notes
EXHIBIT B Form of Resale Certificates
4
<PAGE> 7
INDENTURE dated as of March 27, 1997, between PNC STUDENT LOAN TRUST
I, a Delaware business trust (the "Issuer"), Bankers Trust Company, as trustee
and not in its individual capacity (the "Indenture Trustee").
PRELIMINARY STATEMENT
The Issuer has duly authorized the execution and delivery of this
Indenture to provide for one or more series (each a "Series") of its Notes (the
"Notes"), issuable as provided in this Indenture. Each Series of such Notes
will be issued only under a separate supplement to this Indenture duly executed
and delivered by the Issuer and the Indenture Trustee and limited to the amount
therein described. All covenants and agreements made by the Issuer herein are
for the benefit and security of the holders of the Notes. The Issuer is
entering into this Indenture and the Trustee is accepting the trusts created
hereby, for good and valuable consideration; the receipt and sufficiency of
which are hereby acknowledged.
All things necessary to make this Indenture a valid agreement of the
Issuer in accordance with its terms have been done.
ARTICLE I
DEFINITIONS AND USAGE
SECTION 1.1. DEFINITIONS AND USAGE. Except as otherwise specified
herein or as the context may otherwise require, capitalized terms used but not
defined herein are defined in Appendix A hereto (as supplemented to the extent
indicated therein, by the provisions of the Terms Supplement for a particular
Series), which Appendix A also contains rules as to usage that shall be
applicable herein.
SECTION 1.2. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
1
<PAGE> 8
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture trustee" or "institutional trustee" means the Indenture
Trustee.
"obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by such definitions.
ARTICLE II
THE NOTES
SECTION 2.1. FORM. The Notes and the Indenture Trustee's certificate
of authentication shall be in substantially the form set forth in Exhibit A,
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture or any Terms Supplement and may
have such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes.
Any portion of the text of any Note may be set forth on the reverse thereof,
with an appropriate reference thereto on the face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods (with or without steel
engraved borders), all as determined by the officers executing such Notes, as
evidenced by their execution of such Notes.
Each Note shall be dated the date of its authentication. The terms of
the Notes set forth in Exhibit A are part of the terms of this Indenture.
2
<PAGE> 9
SECTION 2.2. EXECUTION, AUTHENTICATION AND DELIVERY. The Notes shall
be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Issuer may deliver Notes executed by the Issuer to the
Trustee for authentication; and the Trustee shall authenticate and deliver such
Notes as provided in this Indenture and not otherwise.
Each Note shall be dated as of the date specified in the related Terms
Supplement.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
SECTION 2.3. NOTES ISSUABLE IN SERIES AND CLASSES; GENERAL PROVISIONS
WITH RESPECT TO PRINCIPAL AND INTEREST PAYMENTS. The Notes may, as provided
herein, be issued in one or more Series, each of which Series may consist of
only one Class of Notes or may be divided into two or more Classes, and shall
be designated generally as the "PNC Student Loan Trust I Asset Backed Notes" of
the Issuer, with such further particular designations added or incorporated in
such title for the Notes of any particular Series or Class as the Issuer may
determine.
The principal of each Note shall be payable on the related Final
Maturity Date unless the unpaid principal of such Note becomes due and payable
at an earlier date by declaration of acceleration or otherwise.
3
<PAGE> 10
Payments of principal of a Class of Notes of a Series shall be made
pro rata among all Outstanding Notes of such Class, without preference or
priority of any kind.
Unless otherwise provided in the Terms Supplement, all payments made
with respect to any Note shall be applied first to the interest then due and
payable on such Note and then to the principal thereof. Unless otherwise
provided in the related Terms Supplement, all computations of interest accrued
on any Note shall be made on the basis of the actual number of days elapsed in
each applicable Interest Period divided by 360.
Interest on the unpaid principal amount of each Outstanding Note of a
Class shall be payable on each Distribution Date for such Class at the Class
Interest Rates applicable to such Note for the related Interest Periods.
Notwithstanding any of the foregoing provisions with respect to
payments of principal of and interest on the Notes, if the Notes of a Series
have become or been declared due and payable following an Event of Default and
such acceleration of maturity and its consequences have not been rescinded and
annulled and the provisions of Section 5.5 are not applicable to such Series,
then payments of principal of and interest on such Notes shall be made in
accordance with Section 5.4.
Each Note shall bear upon the face thereof the designation so selected
for the Series and Class to which it belongs. All Notes of the same Series and
Class shall be identical in all respects except for the denominations and dates
thereof. All Notes of all Classes within any one Series at any time Outstanding
shall be identical except for differences among the Notes of the different
Classes within such Series as specified in the applicable Terms Supplement.
Each Series of Notes shall be created by a Terms Supplement authorized
by the Trust Agreement and establishing the terms and provisions of such
Series, specifying the Financed Student Loans and any other property to be
included in the Indenture Trust Estate therefor and Granting such Indenture
Trust Estate as security for all previously issued and Outstanding Series of
Notes and the Series of Notes created thereby. The several Series may differ in
respect of any of the following matters:
4
<PAGE> 11
(1) designation of the Series;
(2) dating of the Notes of the Series and Interest Period;
(3) the number of Classes and the maximum aggregate principal amount
of Notes of each such Class which may be issued;
(4) Class Interest Rate for each Class and the method for determining
such Class Interest Rate, including the applicable Interest Period;
(5) Final Maturity Date on which the final installment of principal of
each Class is to be paid;
(6) place or places for the payment of the final installment of
principal or the manner in which Noteholders will be informed of such place or
places;
(7) denominations;
(8) whether the Notes of such Series may be authenticated by an
Authenticating Agent, and, if so, the Person appointed as Authenticating Agent
for such Series;
(9) Record Dates and Distribution Dates for each Class;
(10) the amount, if any, to be deposited at the Closing Date in each
of the Collection Account, the Expense Account, the Reserve Account and any
other account;
(11) the amount, if any, to be deposited in the Reserve Account, the
Requisite Amount of the Specified Reserve Account Requirement for such Series,
the circumstances under which withdrawals from such Reserve Account are
permitted or required to be made and whether a Qualified Letter of Credit may
be delivered to the Indenture Trustee in lieu of a cash deposit in such Reserve
Account, and, if so, the standards applicable to such Qualified Letter of
Credit;
5
<PAGE> 12
(12) whether any surplus funds in the Collection Account for such
Series are required to be used to restore amounts on deposit in the Reserve
Account to the minimum amount, if any, required to be on deposit therein;
(13) any items required to be delivered to the Indenture Trustee on
the date of issuance of such Series pursuant to Section 2.11;
(14) whether or the extent to which Eligible Substitute Financed
Student Loans may be substituted for Financed Student Loans and the conditions
relating thereto including what constitutes an Eligible Substitute Financed
Student Loan;
(15) provisions with respect to terms defined in Appendix A for which
the definitions set forth therein require or permit further specification in
the related Terms Supplement;
(16) restrictions, if any, on the transferability of the Notes of such
Series; and
(17) providing for swap agreements, the terms of which shall be set
forth in the applicable Terms Supplement.
(18) any other provisions expressing or referring to the terms and
conditions upon which the Notes of that Series are to be issued under this
Indenture which are not in conflict with the provisions of this Indenture.
In authorizing the issuance of any Series, the Issuer, by Issuer
Order, shall determine and specify all matters in respect of the Notes of such
Series set forth in clauses (1) to (18), inclusive, to the extent applicable,
and shall also determine and specify the forms of Notes of such Series, in
compliance with the terms of this Article II.
SECTION 2.4. DENOMINATIONS. The Notes shall be issuable only as
registered Notes in the denominations prescribed by the terms of the Terms
Supplement creating the particular Series.
SECTION 2.5. TEMPORARY NOTES. Pending the preparation of Definitive
Notes, the Issuer may execute, and upon receipt of an Issuer Order the
Indenture Trustee shall authenticate and
6
<PAGE> 13
deliver, temporary Notes which are printed, lithographed, typewritten,
photocopied, mimeographed or otherwise produced, of the tenor of the Definitive
Notes in lieu of which they are issued and with such variations not
inconsistent with the terms of this Indenture as the officers executing such
Notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause Definitive Notes
to be prepared without unreasonable delay. After the preparation of Definitive
Notes, the temporary Notes shall be exchangeable for Definitive Notes upon
surrender of the temporary Notes at the office or agency of the Issuer to be
maintained as provided in Section 3.2, without charge to the Noteholder. Upon
surrender for cancellation of any one or more temporary Notes, the Issuer shall
execute and the Indenture Trustee shall authenticate and deliver in exchange
therefor a like principal amount of Definitive Notes of the same Series and
Class and of authorized denominations. Until so exchanged, the temporary Notes
shall in all respects be entitled to the same benefits under this Indenture as
Definitive Notes of the same Series and Class.
SECTION 2.6. REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE. The
Issuer shall cause to be kept a register (the "Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Issuer shall
provide for the registration of Notes and the registration of transfers of
Notes. The Indenture Trustee shall be the "Note Registrar" for the purpose of
registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Issuer shall promptly appoint a
successor or, if it elects not to make such an appointment, assume the duties
of Note Registrar.
If a Person other than the Indenture Trustee is appointed by the
Issuer as Note Registrar, the Issuer will give the Indenture Trustee prompt
written notice of the appointment of such Note Registrar and of the location,
and any change in the location, of the Note Registrar, and the Indenture
Trustee shall have the right to inspect the Note Register at all reasonable
times and to obtain copies thereof, and the Indenture Trustee shall have the
right to rely upon a certificate executed on behalf of the Note Registrar by an
officer thereof as to the names and addresses of the Noteholders and the
principal amounts and number of such Notes.
7
<PAGE> 14
Upon surrender for registration of transfer of any Note at the office
or agency of the Issuer to be maintained as provided in Section 3.2, the Issuer
shall execute, and the Indenture Trustee shall authenticate and the Noteholder
shall obtain from the Indenture Trustee, in the name of the designated
transferee or transferees, one or more new Notes in any authorized
denominations, of the same class and a like aggregate principal amount.
At the option of the Noteholder, Notes may be exchanged for other
Notes of any authorized denominations, of the same Series and Class and a like
aggregate principal amount, upon surrender of the Notes to be exchanged at such
office or agency. Whenever any Notes are so surrendered for exchange, the
Issuer shall execute, and the Indenture Trustee shall authenticate and the
Noteholder shall obtain from the Indenture Trustee, the Notes which the
Noteholder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
Restrictions on transfer, if any, of a Series or Class of Notes shall
be set forth herein and in the related Terms Supplement.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument
of transfer in form satisfactory to the Indenture Trustee duly executed by the
Noteholder thereof or such Noteholder's attorney duly authorized in writing,
with such signature guaranteed by an "eligible guarantor institution" meeting
the requirements of the Note Registrar, which requirements includes membership
or participation in the Securities Transfer Agent's Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Exchange Act.
8
<PAGE> 15
No service charge shall be made to a Noteholder for any registration
of transfer or exchange of Notes, but the Indenture Trustee may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of Notes,
other than exchanges pursuant to Section 2.3 or 9.6 not involving any transfer.
SECTION 2.7. MUTILATED, DESTROYED, LOST OR STOLEN NOTES. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Note, and (ii) there is delivered to the Indenture Trustee such security
or indemnity as may be required by it to hold the Issuer and the Indenture
Trustee harmless, then, in the absence of notice to the Issuer, the Note
Registrar or the Indenture Trustee that such Note has been acquired by a bona
fide purchaser, the Issuer shall execute and upon its request the Indenture
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note, a replacement Note of the same
Series, tenor, aggregate initial principal amount and Class bearing a number
not contemporaneously outstanding; provided, however, that if any such
destroyed, lost or stolen Note, but not a mutilated Note, shall have become or
within 15 days shall be due and payable, instead of issuing a replacement Note,
the Issuer may pay such destroyed, lost or stolen Note when so due or payable.
If, after the delivery of such replacement Note or payment of a destroyed, lost
or stolen Note pursuant to the proviso to the preceding sentence, a bona fide
purchaser of the original Note in lieu of which such replacement Note was
issued presents for payment such original Note, the Issuer and the Indenture
Trustee shall be entitled to recover such replacement Note (or such payment)
from the Person to whom it was delivered or any Person taking such replacement
Note from such Person to whom such replacement Note was delivered or any
assignee of such Person, except a bona fide purchaser, and shall be entitled to
recover upon the security or indemnity provided therefor to the extent of any
loss, damage, cost or expense incurred by the Issuer or the Indenture Trustee
in connection therewith.
Upon the issuance of any replacement Note under this Section, the
Issuer may require the payment by the Noteholder thereof of a sum sufficient to
cover any tax or other
9
<PAGE> 16
governmental charge that may be imposed in relation thereto and any other
reasonable expenses (including the fees and expenses of the Indenture Trustee)
connected therewith.
Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone in
accordance with the provisions of this Indenture and the applicable Terms
Supplement.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.8. PERSONS DEEMED OWNER. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of, interest, if any,
on such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and neither the Issuer, the Indenture Trustee nor any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
SECTION 2.9. PAYMENTS OF PRINCIPAL AND INTEREST. (a) Any installment
of interest or principal payable on any Notes of any Series which is punctually
paid or duly provided for by the Issuer on the applicable Distribution Date
shall be paid to the Person in whose name such Note (or one or more Predecessor
Notes) is registered at the close of business on the Record Date for such
Distribution Date by either (i) check mailed to such Person's address as it
appears in the Note Register on such Record Date, or (ii) wire transfer in
immediately available funds to the account of such Noteholders at a bank or
other entity having appropriate facilities therefore, if such Noteholder shall
have provided the Note Registrar appropriate written instructions (which may be
standing instructions) at least five business days prior to such Distribution
Date; provided, however, the final installment of principal payable with
respect to such Note shall be payable as provided in subsection (b) of this
Section 2.9.
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(b) All reductions in the principal amount of a Note (or one or more
Predecessor Notes) effected by payments of installments of principal made on
any Distribution Date shall be binding upon all Holders of such Note and of any
Note issued upon the registration of transfer thereof or in exchange therefor
or in lieu thereof, whether or not such payment is noted on such Note. The
final installment of principal of each Note shall be payable only upon
presentation and surrender thereof on or after the Distribution Date therefor
to the Indenture Trustee.
(c) The principal of each Class of Notes shall be payable in
installments on each Distribution Date as provided in the applicable Terms
Supplement. Notwithstanding the foregoing, the entire unpaid principal amount
of each Class of Notes shall be due and payable, if not previously paid, on the
date on which an Event of Default shall have occurred and be continuing, if
either the Indenture Trustee or the Noteholders of the Notes representing not
less than a majority of the Outstanding Amount of the Notes have declared the
Notes to be immediately due and payable in the manner provided in Section 5.2.
All principal payments on each Class of Notes shall be made to the Noteholders
of such Class entitled thereto as provided in the applicable Terms Supplement.
The Indenture Trustee shall notify the Person in whose name a Note is
registered at the close of business on the Record Date preceding the
Distribution Date on which the Issuer expects that the final installment of
principal of and interest on such Note will be paid. Such notice shall be
mailed or transmitted by facsimile prior to such final Distribution Date and
shall specify that such final installment will be payable only upon
presentation and surrender of such Note and shall specify the place where such
Note may be presented and surrendered for payment of such installment.
(d) If the Issuer defaults in a payment of interest on any Class of
Notes, the Issuer shall pay defaulted interest (plus interest on such defaulted
interest to the extent lawful) at the applicable Class Interest Rate in any
lawful manner. The Issuer may pay such defaulted interest to the persons who
are Noteholders of such Class on a subsequent special record date, which date
shall be at least five Business Days prior to the payment date. The Issuer
shall fix or cause to be fixed any
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such special record date and payment date, and, at least 15 days before any
such special record date, the Issuer shall mail to each Noteholder of such
Class a notice that states the special record date and the amount of defaulted
interest to be paid.
(e) Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture, upon registration of transfer of or in exchange
for or in lieu of any other Note, shall carry the rights to unpaid principal
and interest that were carried by such other Note. Any checks mailed pursuant
to this Section 2.9 and returned undelivered shall be held in accordance with
Section 3.3.
(f) Unless otherwise provided in the relevant Terms Supplement, not
later than each Determination Date relating to each Note Distribution Date for
a Series of Notes, the Administrator shall prepare and deliver to the Issuer,
the Eligible Lender Trustee and the Indenture Trustee a statement (a
"Distribution Date Statement") with respect to the following Distribution Date
setting forth:
(i) the amount of the distribution allocable to interest on
each Class of Notes, together with the interest rates applicable with respect
thereto;
(ii) the amount of the distribution allocable to principal of
each Class of Notes;
(iii) the Pool Balance as of the close of business on the
last day of the preceding Collection Period;
(iv) the aggregate outstanding principal balance of each
Class of Notes of such Distribution Date, after giving effect to payments
allocated to principal reported under clause (ii) above;
(v) the amount of the Servicing Fee allocated to the Master
Servicer, the amount of the Administration Fee allocated to the Administrator,
the amount of the Indenture Trustee Fee allocated to the Indenture Trustee, and
the amount of the Eligible Lender Trustee Fee allocated to the Eligible Lender
Trustee, respectively, with respect to such Collection Period; and
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(vi) the amount of the aggregate Realized Losses, if any, for
such Collection Period.
SECTION 2.10. CANCELLATION. All Notes surrendered for payment,
registration of transfer or exchange shall, if surrendered to any Person other
than the Indenture Trustee, be delivered to the Indenture Trustee and shall be
promptly canceled by the Indenture Trustee. The Issuer may at any time deliver
to the Indenture Trustee for cancellation any Notes previously authenticated
and delivered hereunder which the Issuer may have acquired in any manner
whatsoever, and all Notes so delivered shall be promptly canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange
for any Notes canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time, unless the Issuer shall direct by an Issuer
Order that they be returned to it and so long as such Issuer Order is timely
and the Notes have not been previously disposed of by the Indenture Trustee.
SECTION 2.11. AUTHENTICATION AND DELIVERY OF NOTES. Notes of any one
or more Series may from time to time be executed by the Issuer and delivered to
the Indenture Trustee for authentication, and thereupon the same shall be
authenticated and delivered by the Indenture Trustee, upon Issuer Request and
upon receipt by the Indenture Trustee of the following:
(a) an Issuer Order authorizing the execution, authentication
and delivery of such Notes by the Issuer and specifying the Series, the Classes
within such Series, the Final Maturity Date of each Class, the principal amount
and the Class Interest Rate and the method of determining such Class Interest
Rate, of each Class of such Notes to be authenticated and delivered;
(b) in case the Notes to be authenticated and delivered are
of any Series not theretofore created, an appropriate Terms Supplement,
accompanied by an Issuer Order authorizing such Terms Supplement (and, in the
case of the first Series to be authenticated and delivered hereunder,
authorizing this Indenture), designating the new Series to be created and
prescribing, consistent with the applicable provisions of this Indenture, the
terms and provisions relating to the Notes of such Series;
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(c) Opinions of Counsel addressed to the Indenture Trustee
substantially to the effect that:
(i) the Eligible Lender Trustee is an "eligible lender"
under the terms of the Higher Education Act, has corporate power to execute and
deliver the Trust Agreement, the Trust Agreement authorizes the Issuer to
execute and deliver the Terms Supplement relating to such Notes (and, in the
case of the first Series to be authenticated and delivered hereunder, this
Indenture), and to issue such Notes, and the Issuer has duly taken all
necessary action under the Trust Agreement for those purposes;
(ii) the Issuer is a Delaware business trust;
(iii) assuming due execution and delivery thereof by the
Indenture Trustee, this Indenture and the related Terms Supplement, as executed
and delivered by the Issuer, are the valid, legal and binding obligations of
the Issuer, enforceable in accordance with their terms, subject to the effect
of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance
and other similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto, and such counsel need express no opinion
with respect to the availability of equitable remedies, and the execution of
such Terms Supplement is authorized or permitted by Section 9.1 of this
Indenture;
(iv) the Notes then applied for, when issued, delivered,
authenticated and paid for, will be the valid, legal and binding obligations of
the Issuer, entitled to the benefits of this Indenture and the related Terms
Supplement, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other similar laws relating to or
affecting creditors' rights generally and court decisions with respect thereto,
and such counsel need express no opinion with respect to the availability of
equitable remedies;
(v) the Issuer has Granted to the Indenture Trustee a
lien and first perfected security interest in all of its right, title and
interest in each such Financed Student Loan
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(with priority being based solely on UCC searches conducted, as specified in
the opinion and only as to priority over other security interests perfected by
UCC filings);
(vi) the Trust Agreement authorizes the Issuer to Grant
the Indenture Trust Estate to the Indenture Trustee as security for the Notes
of such Series;
(vii) the Terms Supplement delivered to the Indenture
Trustee with such Opinion of Counsel subjects the Financed Student Loans
securing such Series and all previously issued and Outstanding Series and all
proceeds therefrom and the Pledged Accounts or Funds for such Series and all
previously issued and Outstanding Series to the lien and security interest of
this Indenture;
(viii) such action has been taken with respect to
delivery of possession of the Indenture Trust Estate and with respect to the
recording and filing of this Indenture, the Terms Supplement for such Series,
any other indentures supplemental hereto and any other requisite documents and
with respect to the execution and filing of any financing statements as is
necessary to perfect a first priority security interest in the Indenture Trust
Estate for such Series and all previously issued and Outstanding Series, with
either the details of such action being recited therein, or the absence of any
such action being necessary to make such lien and security interest effective
being stated therein; and, with any recording, filing, re-recording and
re-filing of this Indenture, the Terms Supplement for such Series, any other
indentures supplemental hereto and any other requisite documents and any
execution and filing of any financing statements and continuation statements
that will, in the opinion of such counsel, be required to maintain the lien and
security interest created by this Indenture and the related Terms Supplements
in the Indenture Trust Estate for such Series and all previously issued and
Outstanding Series until April 30 of the year in which the first Opinion of
Counsel with respect to such Series is required to be delivered under Section
3.6 being described therein;
(ix) this Indenture and the Terms Supplement for such
Series have been duly qualified under the TIA, or that no qualification of this
Indenture or the related Terms Supplement under the TIA is necessary; the
execution of the Terms
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Supplement for such Series requires the requalification of this Indenture under
the TIA, or that no requalification of the Indenture under the TIA is necessary
by virtue of the execution of such Terms Supplement; and
(x) no authorization, approval or consent of any
governmental body having jurisdiction over the Issuer which has not been
obtained by the Issuer is required for the valid issuance and delivery of the
Notes, 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 opinion
need be given.
(d) an Officer's Certificate of the Administrator on
behalf of the Issuer stating substantially to the effect that:
(i) all instruments furnished to the Indenture Trustee
in connection with such Notes conform to the requirements of this Indenture and
constitute all the documents required to be delivered hereunder for the
Indenture Trustee to authenticate and deliver the Notes then applied for;
(ii) all conditions precedent provided for in this
Indenture relating to the authentication and delivery of the Notes applied for
have been complied with;
(iii) the Issuer is not in Default under this Indenture
and the issuance of the Notes applied for will not result in any breach of any
of the terms, conditions or provisions of, or constitute a default under, the
Trust Agreement, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Issuer is a party or by which it is bound, or any order
of any court or administrative agency entered in any proceeding to which the
Issuer is a party or by which it may be bound or to which it may be subject;
(iv) the Issuer is the owner of each Financed Student
Loan securing such Series and any previously issued Series, has not assigned
any interest or participation in any such Financed Student Loan (or, if any
such interest or participation has been assigned, it has been released) and has
the right to Grant each such Financed Student Loan to the Indenture Trustee;
and
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(v) Except with respect to the first Series of Notes,
attached hereto are true and correct copies of letters signed by each Rating
Agency rating such new Series of Notes confirming that the Notes of such new
Series have been rated in the rating category set forth in the applicable Terms
Supplement by such Rating Agencies and that the issuance of such new Series
will not adversely effect the ratings assigned by such Rating Agencies to any
previously issued Class of Notes the Outstanding.
(e) Unless any of the requirements set forth herein shall be
deleted by the related Terms Supplement, an Officer's Certificate of the
Administrator on behalf of the Issuer stating that all of the Financed Student
Loans and any other assets securing such Series and all previously issued and
Outstanding Series:
(i) satisfy each of the requirements established for
such Financed Student Loans in the related Terms Supplement; and
(ii) have been endorsed as provided in the Transfer and
Servicing Agreement;
(f) Cash in the amount, if any, required by the terms of the
related Terms Supplement to be deposited in the Collection Account and held by
the Indenture Trustee and applied in accordance with the terms hereof or as
otherwise provided in the related Series Supplement;
(g) Cash, Eligible Investments or (if permitted by the
related Terms Supplement) a Qualified Letter of Credit or any other assets
specified in or permitted by the related Terms Supplement in the respective
amounts, if any, required by the terms of the related Terms Supplement to be
maintained in the Reserve Account and held by the Indenture Trustee;
(h) An executed counterpart of the Terms Supplement; and
(i) Such other documents, certificates, instruments or
opinions as may be reasonably required by the terms of the Terms Supplement
creating such Series of Notes.
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SECTION 2.12. RELEASE OF COLLATERAL. Except as otherwise permitted by
Section 11.1 and the terms of the Basic Documents, the Indenture Trustee shall
release property from the lien of this Indenture and the related Terms
Supplement only upon receipt of an Issuer Request accompanied by an Officer's
Certificate of the Issuer, an Opinion of Counsel and Independent Certificates
in accordance with TIA Sections 314(c) and 314(d)(1) or an Opinion of Counsel
in lieu of such Independent Certificates to the effect that the TIA does not
require any such Independent Certificates.
SECTION 2.13. RESTRICTIONS ON TRANSFER. THE PROVISIONS OF THIS SECTION
SHALL APPLY ONLY TO A CLASS OF NOTES ISSUED IN A TRANSACTION NOT REGISTERED
UNDER THE SECURITIES ACT (the "Non-Registered Notes"). Except as otherwise set
forth in a Terms Supplement, the Notes may not be offered or sold except to
institutional "accredited investors" (as defined in Rule 501(a)(1)-(3) under
the Securities Act and "qualified institutional buyers" as defined in Rule 144A
under the Securities Act in reliance on an exemption from the registration
requirements of the Securities Act. The Non-Registered Notes will not have been
registered or qualified under the Securities Act, or any state securities law.
No transfer, sale, pledge or other disposition of any Non-Registered Note shall
be made unless such disposition is made pursuant to an effective registration
statement under the Securities Act and effective registration or qualification
under applicable state securities laws, or is made in a transaction which does
not require such registration or qualification. In the event that a transfer is
to be made in reliance upon an exemption from the Securities Act, the Indenture
Trustee may require, in order to assure compliance with the Securities Act,
that the Noteholders' prospective transferee certify to the Indenture Trustee
in writing the facts surrounding such disposition. Unless the Indenture Trustee
requests otherwise, such certification shall be substantially in the form of
Exhibit B hereto. In the event that such certification of facts does not on its
face establish the availability of an exemption under the Securities Act, the
Trustee may require an opinion of counsel satisfactory to it that such transfer
may be made pursuant to an exemption from the Securities Act, which opinion of
counsel shall not be an expense of the Indenture Trustee or of the Trust.
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(b) Except as otherwise set forth in a Terms Supplement, each
Non-Registered Note will bear a legend substantially to the following effect:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING THIS
NOTE, AGREES THAT THIS NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND (1) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS AN INSTITUTIONAL ACCREDITED
INVESTOR WITHIN THE MEANING OF RULE 501(A)(1)-(3) UNDER THE ACT OR A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF AN INSTITUTIONAL ACCREDITED
INVESTOR OR QUALIFIED INSTITUTIONAL BUYER, OR (2) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT.
THIS NOTE MAY NOT BE TRANSFERRED DIRECTLY OR INDIRECTLY TO (1) EMPLOYEE BENEFIT
PLANS, RETIREMENT ARRANGEMENTS, INDIVIDUAL RETIREMENT ACCOUNTS OR KEOGH PLANS
SUBJECT TO EITHER TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED, OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, OR (2) ENTITIES (INCLUDING INSURANCE COMPANY GENERAL ACCOUNTS) WHOSE
UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF ANY SUCH PLAN'S ARRANGEMENTS
OR ACCOUNT'S INVESTMENT IN SUCH ENTITIES.
THIS NOTE DOES NOT REPRESENT DEPOSITS OR OBLIGATIONS OF OR AN INTEREST IN PNC
BANK, NATIONAL ASSOCIATION, THE FIRST NATIONAL BANK OF CHICAGO OR FIRST CHICAGO
DELAWARE INC.
THIS NOTE IS NOT GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY GOVERNMENTAL AGENCY."
SECTION 2.14. BOOK-ENTRY NOTES. Unless otherwise provided in the
related Terms Supplement, the Notes, upon original issuance, will be issued in
the form of typewritten Notes representing the Book-Entry Notes, to be
delivered to The Depository Trust Company, the initial Clearing Agency, by, or
on behalf of, the Issuer. Such Notes shall initially be registered on the Note
Register in the name of Cede & Co., the nominee of the initial Clearing Agency,
and no Note Owner will receive a Definitive Note (as defined below)
representing such Note Owner's interest in such Note, except as provided in
Section
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2.16. Unless and until definitive, fully registered Notes (the
"Definitive Notes") have been issued to Note Owners pursuant to Section 2.16:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Indenture Trustee may deal with the Clearing Agency
for all purposes (including the payment of principal of and interest and other
amounts on the Notes) as the authorized representative of the Note Owners;
(iii) to the extent that the provisions of this Section
conflict with any other provisions of this Indenture, the provisions of this
Section shall control;
(iv) the rights of Note Owners shall be exercised only
through the Clearing Agency and shall be limited to those established by law
and agreements between such Note Owners and the Clearing Agency and/or the
Clearing Agency Participants pursuant to the Note Depository Agreements. Unless
and until Definitive Notes are issued pursuant to Section 2.16, the initial
Clearing Agency will make book-entry transfers among the Clearing Agency
participants and receive and transmit payments of principal of and interest and
other amounts on the Notes to such Clearing Agency Participants; and
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Noteholders of Notes evidencing
a specified percentage of the Outstanding Amount of the Notes, the Clearing
Agency shall be deemed to represent such percentage only to the extent that it
has received instructions to such effect from Note Owners and/or Clearing
Agency Participants owning or representing, respectively, such required
percentage of the beneficial interest in the Notes and has delivered such
instructions to the Indenture Trustee.
SECTION 2.15. NOTICES TO CLEARING AGENCY. Whenever a notice or other
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Note Owners pursuant to
Section 2.16, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Noteholders to the Clearing
Agency.
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SECTION 2.16. DEFINITIVE NOTES. Unless the Terms Supplement provides
otherwise, and if (i) the Administrator advises the Indenture Trustee in
writing that the Clearing Agency is no longer willing or able to properly
discharge its responsibilities with respect to the Notes, and the Administrator
is unable to locate a qualified successor, or (ii) the Administrator at its
option advises the Indenture Trustee in writing that it elects to terminate the
book-entry system through the Clearing Agency or (iii) after the occurrence of
an Event of Default, a Servicer Default or an Administrator Default, Note
Owners representing beneficial interests aggregating at least a majority of the
Outstanding Amount of the Notes advise the Clearing Agency (which shall then
notify the Indenture Trustee) in writing that the continuation of a book-entry
system through the Clearing Agency is no longer in the best interests of the
Note Owners, then the Indenture Trustee will cause the Clearing Agency to
notify all Note Owners, through the Clearing Agency, of the occurrence of any
such event and of the availability of Definitive Notes to Note Owners
requesting the same. Upon surrender to the Indenture Trustee of the typewritten
Notes representing the Book-Entry Notes by the Clearing Agency, accompanied by
registration instructions, the Issuer shall execute and the Indenture Trustee
shall authenticate the Definitive Notes in accordance with the instructions of
the Clearing Agency. None of the Issuer, the Note Registrar or the Indenture
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Notes, the Indenture Trustee shall recognize
the holders of the Definitive Notes as Noteholders.
ARTICLE III
COVENANTS
SECTION 3.1. PAYMENT TO NOTEHOLDERS. The Issuer will pay or cause to
be duly and punctually paid, from the property of the Issuer, the principal of
and interest on the Notes of each Series in accordance with the terms of such
Notes, this Indenture and the related Terms Supplement and Transfer and
Servicing Agreement. Amounts properly withheld under the Code
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by any Person from a payment to any Noteholder of interest and/or
principal shall be considered as having been paid by the Issuer to such
Noteholder for all purposes of this Indenture.
SECTION 3.2. MAINTENANCE OF OFFICE OR AGENCY. The Issuer will maintain
in the Borough of Manhattan, the City of New York, the State of New York, an
office or agency where Notes may be surrendered for registration of transfer or
exchange, and where notices and demands to or upon the Issuer in respect of the
Notes and this Indenture may be served. The Issuer hereby initially appoints
the Indenture Trustee to serve as its agent for the foregoing purposes. The
Issuer will give prompt written notice to the Indenture Trustee of the
location, and of any change in the location, of any such office or agency. If
at any time the Issuer shall fail to maintain any such office or agency or
shall fail to furnish the Indenture Trustee with the address thereof, such
surrenders, notices and demands may be made or served at the Corporate Trust
Office, and the Issuer hereby appoints the Indenture Trustee as its agent to
receive all such surrenders, notices and demands.
The Issuer may also from time to time designate one or more other
offices or agencies (in or outside the City of New York) where the Notes may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that (i) no such designation or
rescission shall in any manner relieve the Issuer of its obligation to maintain
an office or agency in the Borough of Manhattan, the City of New York, the
State of New York for the purposes set forth in the preceding paragraph, (ii)
presentations or surrenders of Notes for payment may be made only in the City
of New York, the State of New York and (iii) any designation of an office or
agency for payment of Notes shall be subject to Section 3.3. The Issuer will
give prompt written notice to the Indenture Trustee of any such designation or
rescission and of any change in the location of any such other office or
agency.
SECTION 3.3. MONEY FOR PAYMENTS TO BE HELD IN TRUST. As provided in
Section 8.2(a) and (b), all payments of amounts due and payable with respect to
any Notes that are to be made from amounts distributed from the Collection
Account or any other Trust Account pursuant to Section 8.2(c) shall be made on
behalf of the Issuer by the Indenture Trustee or by another Paying
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Agent, and no amounts so distributed from the Collection Account for payments
of Notes shall be paid over to the Issuer except as provided in this Section.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions
of this Section, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed of
as herein provided and pay such sums to such Persons as herein provided;
(ii) give the Indenture Trustee notice of any default by the
Issuer of which it has actual knowledge (or any other obligor upon the Notes)
in the making of any payment required to be made with respect to the Notes;
(iii) at any time during the continuance of any such default,
upon the written request of the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay
to the Indenture Trustee all sums held by it in trust for the payment of Notes
if at any time it ceases to meet the standards required to be met by a Paying
Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any applicable reporting
requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by
Issuer Order direct any Paying Agent to pay to the Indenture Trustee all sums
held in trust by such Paying Agent, such sums to be held by the Indenture
Trustee upon the
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same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for two years
after such amount has become due and payable shall be discharged from such
trust and be paid to the Issuer on Issuer Request; and the Noteholder thereof
shall thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Indenture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Indenture
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense and direction of the Issuer cause to be published once, in
a newspaper published in the English language, customarily published on each
Business Day and of general circulation in The City of New York, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The
Indenture Trustee shall also adopt and employ, at the expense of the Issuer,
any other reasonable means of notification of such repayment (including mailing
notice of such repayment to Noteholders whose right to or interest in moneys
due and payable but not claimed is determinable from the records of the
Indenture Trustee or of any Paying Agent, at the last address of record for
each such Noteholder).
SECTION 3.4. EXISTENCE. The Issuer will keep in full effect its
existence and rights as a trust under the laws of the State of Delaware (unless
it becomes, or any successor Issuer hereunder is or becomes, organized under
the laws of any other State or of the United States of America, in which case
the Issuer will keep in full effect its existence and rights under the laws of
such other jurisdiction) and will obtain and preserve its qualification to do
business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Notes, the Financed Student Loans and each other instrument or agreement
included in the Indenture Trust Estate.
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SECTION 3.5. PROTECTION OF INDENTURE TRUST ESTATE. The Issuer will
from time to time execute and deliver all such supplements and amendments
hereto and all such financing statements, continuation statements, instruments
of further assurance and other instruments, and will take such other action
necessary or advisable to:
(i) maintain or preserve the lien and security interests (and
the priority thereof) of this Indenture or carry out more effectively the
purposes hereof;
(ii) perfect, publish notice of or protect the validity of
any Grant made or to be made by this Indenture or any Terms Supplement;
(iii) enforce any of the Collateral; or
(iv) preserve and defend title to the Indenture Trust Estate
and the rights of the Indenture Trustee and the Noteholders in such Indenture
Trust Estate against the claims of all persons and parties.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section.
SECTION 3.6. OPINIONS AS TO INDENTURE TRUST ESTATE. On or before April
30 in each calendar year, beginning with the first calendar year commencing
more than three months after the Closing Date, the Administrator, on behalf of
the Issuer, shall furnish to the Indenture Trustee an Opinion of Counsel either
stating that, in the opinion of such counsel, such action has been taken with
respect to the recording, filing, re-recording and refiling of this Indenture,
any indentures supplemental hereto and any other requisite documents and with
respect to the execution and filing of any financing statements and
continuation statements as is necessary to maintain the lien and security
interest created by this Indenture and reciting the details of such action or
stating that in the opinion of such counsel no such action is necessary to
maintain such lien and security interest. Such Opinion of Counsel shall also
describe
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the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and the
execution and filing of any financing statements and continuation statements
that will, in the opinion of such counsel, be required to maintain the lien and
security interest of this Indenture until April 30 in the following calendar
year.
SECTION 3.7. PERFORMANCE OF OBLIGATIONS; SERVICING OF FINANCED STUDENT
LOANS. (a) The Issuer will not take any action and will use its best efforts
not to permit any action to be taken by others that would release any Person
from any of such Person's material covenants or obligations under any
instrument or agreement included in the Indenture Trust Estate or that would
result in the amendment, hypothecation, subordination, termination or discharge
of, or impair the validity or effectiveness of, any such instrument or
agreement, except as expressly provided in this Indenture, the related Terms
Supplement or Transfer and Servicing Agreement or such other instrument or
agreement.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officer's Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Initially, the
Issuer has contracted with the Master Servicer and the Administrator to assist
the Issuer in performing its duties under this Indenture.
(c) The Issuer will punctually perform and observe in all material
respects all its obligations and agreements contained in this Indenture, the
other Basic Documents and in the instruments and agreements included in the
Indenture Trust Estate, including filing or causing to be filed all UCC
financing statements and continuation statements required to be filed by the
terms of this Indenture and the related Terms Supplement and Transfer and
Servicing Agreement in accordance with and within the time periods provided for
herein and therein. Except as otherwise expressly provided therein, the Issuer
shall not waive, amend, modify, supplement or terminate any Basic Document or
any provision thereof without the consent of the Indenture Trustee.
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(d) Without derogating from the absolute nature of the assignment
Granted to the Indenture Trustee under any Terms Supplement or the rights of
the Indenture Trustee hereunder, the Issuer agrees that it will not, without
the prior written consent of the Noteholders of at least a majority in
Outstanding Amount of the Notes of each Series then outstanding, amend, modify,
waive, supplement, terminate or surrender, or agree to any amendment,
modification, supplement, termination, waiver or surrender of, the terms of (i)
any portion of the Trust Estate, or, as applicable, (ii) the Basic Documents,
except to the extent otherwise provided in the related Transfer and Servicing
Agreement, or waive timely performance or observance by the Master Servicer,
the Administrator, the Seller, the Issuer or the Eligible Lender Trustee under
the related Transfer and Servicing Agreement; provided, however, that no such
amendment shall (i) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, distributions that are required to be made
for the benefit of the Noteholders, or (ii) reduce the aforesaid percentage of
the Notes which are required to consent to any such amendment, without the
consent of the Noteholders of all the Outstanding Notes. If any such amendment,
modification, supplement or waiver should be so consented to by the Indenture
Trustee or such Noteholders, the Issuer agrees, promptly following a request by
the Indenture Trustee to do so, to execute and deliver, in its own name and at
its own expense, such agreements, instruments, consents and other documents as
the Indenture Trustee may deem necessary or appropriate in the circumstances.
SECTION 3.8. NEGATIVE COVENANTS. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture or any
other Basic Documents, sell, transfer, exchange or otherwise dispose of any of
the properties or assets of the Issuer, including those included in the
Indenture Trust Estate, unless directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the
principal of or interest on any of the Notes (other than amounts properly
withheld from such payments under the Code or applicable state law) or assert
any claim against any present or former Noteholder by reason of the payment of
the taxes levied or assessed upon any part of the Indenture Trust Estate;
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(iii) except as contemplated by the Basic Documents, dissolve
or liquidate in whole or in part; or
(iv) (A) permit the validity or effectiveness of this
Indenture or any Terms Supplement to be impaired, or permit the lien of this
Indenture and any Terms Supplement to be amended, hypothecated, subordinated,
terminated or discharged, or permit any Person to be released from any
covenants or obligations with respect to the Notes under this Indenture except
as may be expressly permitted hereby, (B) permit any lien, charge, excise,
claim, security interest, mortgage or other encumbrance (other than the lien of
this Indenture and any Terms Supplement) to be created on or extend to or
otherwise arise upon or burden the Indenture Trust Estate or any part thereof
or any interest therein or the proceeds thereof (other than tax liens and other
liens that arise by operation of law, in each case arising solely as a result
of an action or omission of the related Obligor, and other than as expressly
permitted by the Basic Documents) or (C) permit the lien of this Indenture and
any Terms Supplement not to constitute a valid first priority (other than with
respect to any such tax or other lien) security interest in the Indenture Trust
Estate.
SECTION 3.9. ANNUAL STATEMENT AS TO COMPLIANCE. The Administrator, on
behalf of the Issuer, will deliver to the Indenture Trustee, on or before April
30 following the first fiscal year of the Issuer that ends more than three
months after the Closing Date for a Series, and on or before April 30 of each
fiscal year thereafter, an Officer's Certificate of the Issuer stating that:
(i) a review of the activities of the Issuer during such year
and of performance under this Indenture has been made under such Authorized
Officers' supervision; and
(ii) to the best of such Authorized Officers' knowledge,
based on such review, the Issuer has complied, in all material respects, with
all conditions and covenants under this Indenture throughout such year, or, if
there has been a default in the compliance in any material respect of any such
condition or covenant, specifying each such default known to such Authorized
Officers and the nature and status thereof.
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SECTION 3.10. ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. (a)
The Issuer shall not consolidate or merge with or into any other Person,
unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and existing
under the laws of the United States of America or any State and shall expressly
assume, by an indenture supplemental hereto, executed and delivered to the
Indenture Trustee, in form reasonably satisfactory to the Indenture Trustee,
the due and punctual payment of the principal of and interest on all Notes and
the performance or observance of every agreement and covenant of this Indenture
and any Terms Supplement on the part of the Issuer to be performed or observed,
all as provided herein or therein;
(ii) immediately after giving effect to such transaction, no
Default shall have occurred and be continuing;
(iii) the Issuer shall have received an Opinion of Counsel
(and shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse Federal or
Illinois or Delaware state income tax consequence to the Issuer, any Noteholder
or any Certificateholder;
(iv) any action as is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(v) the Issuer shall have delivered to the Indenture Trustee
an Officer's Certificate of the Issuer and an Opinion of Counsel each stating
that such consolidation or merger and such supplemental indenture comply with
this Article III and that all conditions precedent herein provided for relating
to such transaction have been complied with (including any filing required by
the Exchange Act) in all material respects.
(b) Except as otherwise permitted by the Basic Documents, the Issuer
shall not convey or transfer all or substantially all its properties or assets,
including those included in the Indenture Trust Estate, to any Person, unless:
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(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of which is
hereby restricted shall (A) be a United States citizen or a Person organized
and existing under the laws of the United States of America or any State, (B)
expressly assumes, by an indenture supplemental hereto, executed and delivered
to the Indenture Trustee, in form satisfactory to the Indenture Trustee, the
due and punctual payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this Indenture on
the part of the Issuer to be performed or observed, all as provided herein, (C)
expressly agrees by means of such supplemental indenture that all right, title
and interest so conveyed or transferred shall be subject and subordinate to the
rights of Noteholders, (D) unless otherwise provided in such supplemental
indenture, expressly agrees to indemnify, defend and hold harmless the Issuer
against and from any loss, liability or expense arising under or related to
this Indenture and the Notes and (E) expressly agrees by means of such
supplemental indenture that such Person (or if a group of Persons, then one
specified Person) shall make all filings with the Commission (and any other
appropriate Person) required by the Exchange Act in connection with the Notes;
(ii) immediately after giving effect to such transaction, no
Default shall have occurred and be continuing;
(iii) the Issuer shall have received an Opinion of Counsel
(and shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse Federal,
Illinois or Delaware state income tax consequence to the Issuer, any Noteholder
or any Certificateholder;
(iv) any action as is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(v) the Issuer shall have delivered to the Indenture Trustee
an Officer's Certificate of the Issuer and an Opinion of Counsel each stating
that such conveyance or transfer and such supplemental indenture comply with
this Article III and that all conditions precedent herein provided for relating
to such transaction have been complied with (including any filing required by
the Exchange Act).
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SECTION 3.11. SUCCESSOR OR TRANSFEREE. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.10(a), the Person formed by
or surviving such consolidation or merger (if other than the Issuer) shall
succeed to, and be substituted for, and may exercise every right and power of,
the Issuer under this Indenture and any Terms Supplement with the same effect
as if such Person had been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.10(b), PNC Student Loan Trust I will be
released from every covenant and agreement of this Indenture to be observed or
performed on the part of the Issuer with respect to the Notes immediately upon
the delivery by the Issuer of written notice to the Indenture Trustee stating
that PNC Student Loan Trust I is to be so released.
SECTION 3.12. NO OTHER BUSINESS. The Issuer shall not engage in any
business other than financing, purchasing, owning, selling, servicing and
managing Financed Student Loans and activities incidental thereto.
SECTION 3.13. NO BORROWING. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes and such other obligations as are authorized
under the Basic Documents.
SECTION 3.14. OBLIGATIONS OF MASTER SERVICER AND ADMINISTRATOR. The
Issuer shall cause the Master Servicer and the Administrator to comply with the
applicable provisions of the Transfer and Servicing Agreement.
SECTION 3.15. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES.
Except as contemplated by the Transfer and Servicing Agreement, this Indenture
or any Terms Supplement, the Issuer shall not make any loan or advance or
credit to, or guarantee (directly or indirectly or by an instrument having the
effect of assuring another's payment or performance on any obligation or
capability of so doing or otherwise), endorse or otherwise become contingently
liable, directly or indirectly, in connection with the obligations, stocks or
dividends of, or own, purchase, repurchase or acquire (or agree contingently to
do so)
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any stock, obligations, assets or securities of, or any other interest in, or
make any capital contribution to, any other Person.
SECTION 3.16. CAPITAL EXPENDITURES. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
SECTION 3.17. RESTRICTED PAYMENTS. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Eligible Lender Trustee or any owner of a beneficial interest
in the Issuer or otherwise with respect to any ownership or equity interest or
security in or of the Issuer or to the Servicer or the Administrator, (ii)
redeem, purchase, retire or otherwise acquire for value any such ownership or
equity interest or security or (iii) set aside or otherwise segregate any
amounts for any such purpose; provided, however, that the Issuer may make, or
cause to be made, distributions to the Master Servicer, the Depositor, the
Eligible Lender Trustee, the Indenture Trustee, the Certificateholders, the
Noteholders, the Administrator, and the Seller as contemplated by, and to the
extent funds are available for such purpose under the Transfer and Servicing
Agreement and the other Basic Documents.
SECTION 3.18. NOTICE OF EVENTS OF DEFAULT. The Issuer shall give the
Indenture Trustee written notice of each Event of Default hereunder and each
default on the part of the Transferor of its obligations under the Transfer and
Servicing Agreement, the Master Servicer of its obligations under the Transfer
and Servicing Agreement or the Administrator of its obligations under the
Transfer and Servicing Agreement or the Administration Agreement. In addition,
the Issuer shall deliver to the Indenture Trustee, within five days after the
foregoing notice of default, written notice in the form of an Officer's
Certificate of the Issuer of any event which with the giving of notice and the
lapse of time would become an Event of Default under Section 5.1(iii), its
status and what action the Issuer is taking or proposes to take with respect
thereto.
SECTION 3.19. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.
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ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture
shall cease to be of further effect with respect to a Series of Notes except as
to (i) rights of registration of transfer and exchange, (ii) substitution of
mutilated, destroyed, lost or stolen Notes of such Series, (iii) rights of
Noteholders to receive payments of principal thereof and interest thereon, (iv)
Sections 3.3, 3.4, 3.5, 3.8, 3.10, 3.12, 3.13 and 3.15 of this Agreement, (v)
the rights, obligations and immunities of the Indenture Trustee hereunder
(including the rights of the Indenture Trustee under Section 6.7 and the
obligations of the Indenture Trustee under Section 4.2), and (vi) the rights of
Noteholders as beneficiaries hereof with respect to the property so deposited
with the Indenture Trustee payable to all or any of them, and the Indenture
Trustee, on demand of and at the expense of the Issuer, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture with
respect to the Notes, when:
(A) either
(1) all Notes of such Series theretofore authenticated and
delivered (other than (i) Notes that have been destroyed, lost or stolen and
that have been replaced or paid as provided in Section 2.7 and (ii) Notes for
whose payment money has theretofore been deposited in trust or segregated and
held in trust by the Issuer and thereafter repaid to the Issuer or discharged
from such trust, as provided in Section 3.3) have been delivered to the
Indenture Trustee for cancellation; or
(2) all Notes of such Series not theretofore delivered to the
Indenture Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable within one year,
and the Issuer, in the case of (i) or (ii) above, has
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irrevocably deposited or caused to be irrevocably deposited with the Indenture
Trustee cash or direct obligations of or obligations guaranteed by the United
States of America (which will mature prior to the date such amounts are
payable), in trust for such purpose, in an amount sufficient to pay and
discharge the entire indebtedness on such Series of Notes not theretofore
delivered to the Indenture Trustee for cancellation when due to the applicable
Final Maturity Date;
(B) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer with respect to such Series; and
(C) in the case of (A)(2) above, the Issuer has delivered to the
Indenture Trustee an Officer's Certificate of the Issuer, an Opinion of Counsel
and (if required by the TIA or the Indenture Trustee) an Independent
Certificate from a firm of certified public accountants, each meeting the
applicable requirement of Section 11.1(a) and, subject to Section 11.2, each
stating that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture with respect to such Series have
been complied with.
SECTION 4.2. APPLICATION OF TRUST MONEY. All moneys deposited with the
Indenture Trustee pursuant to Section 4.1 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Noteholders of the particular Notes for
the payment of which such moneys have been deposited with the Indenture
Trustee, of all sums due and to become due thereon for principal and interest;
but such moneys need not be segregated from other funds except to the extent
required herein or in the Transfer and Servicing Agreement or required by law.
SECTION 4.3. REPAYMENT OF MONEYS HELD BY PAYING AGENT. In connection
with the satisfaction and discharge of this Indenture with respect to a Series
of Notes, all moneys then held by any Paying Agent other than the Indenture
Trustee under the provisions of this Indenture with respect to such Series of
Notes shall, upon demand of the Issuer, be paid to the Indenture Trustee to be
held and applied according to Section 3.3 and thereupon such Paying Agent shall
be released from all further liability with respect to such moneys.
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ARTICLE V
REMEDIES
SECTION 5.1. EVENTS OF DEFAULT. "Event of Default," wherever used
herein, means, with respect to all Outstanding Notes issued hereunder, any one
of the following events (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) default in the payment of any interest on any Note of any
Series when the same becomes due and payable, and such default shall continue
for a period of five Business Days; or
(ii) default in the payment of the principal of any Note of
any Series when the same becomes due and payable, and such default shall
continue for a period of five Business Days; or
(iii) default in the observance or performance of any
covenant or agreement of the Issuer made in this Indenture, or the Transfer and
Servicing Agreement (other than a covenant or agreement, a default in the
observance or performance of which is specifically dealt with elsewhere in this
Section), or any representation or warranty of the Issuer made in this
Indenture or in any certificate or other writing delivered pursuant hereto or
in connection herewith proving to have been incorrect in any material respect
as of the time when the same shall have been made, and such default shall
continue or not be cured, or the circumstance or condition in respect of which
such misrepresentation or warranty was incorrect shall not have been eliminated
or otherwise cured, for a period of 30 days after there shall have been given,
by registered or certified mail, to the Issuer by the Indenture Trustee or to
the Issuer and the Indenture Trustee by the Noteholders of at least 25% of the
Outstanding Amount of the Outstanding Notes, a written notice
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specifying such default or incorrect representation or warranty and requiring
it to be remedied and stating that such notice is a notice of Default
hereunder; or
(iv) the filing of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Issuer or any substantial
part of the Indenture Trust Estate 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 of the Issuer or for any substantial part of
the Indenture Trust Estate, or ordering the winding-up or liquidation of the
Issuer's affairs, and such decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or
(v) the commencement by the Issuer 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 the Issuer to the entry of an order
for relief in an involuntary case under any such law, or the consent by the
Issuer to the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Issuer or
for any substantial part of the Indenture Trust Estate, or the making by the
Issuer of any general assignment for the benefit of creditors, or the failure
by the Issuer generally to pay its debts as such debts become due, or the
taking of action by the Issuer in furtherance of any of the foregoing.
SECTION 5.2. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an
Event of Default should occur and be continuing with respect to any Series of
Notes, then and in every such case the Indenture Trustee or Noteholders of
Notes representing no less than a majority of the Outstanding Amount of the
Outstanding Notes may declare all the Outstanding Notes to be immediately due
and payable, by a notice in writing to the Issuer (and to the Indenture Trustee
if given by Noteholders), and upon any such declaration the unpaid principal
amount of all the Outstanding Notes, together with accrued and unpaid interest
thereon through the date of acceleration, shall become immediately due and
payable.
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At any time after such a declaration of acceleration of maturity of
the Outstanding Notes has been made and before a judgment or decree for payment
of the money due has been obtained by the Indenture Trustee as hereinafter in
this Article V provided, the Noteholders of Notes representing a majority of
the Outstanding Amount of the Outstanding Notes by written notice to the Issuer
and the Indenture Trustee, may, rescind and annul such declaration and its
consequences if:
(i) the Issuer has paid or deposited with the Indenture
Trustee a sum sufficient to pay
(A) all payments of principal of and interest on all
Outstanding Notes and all other amounts that would then be due hereunder or
upon such Notes if the Event of Default giving rise to such acceleration had
not occurred; and
(B) all sums paid or advanced by the Indenture Trustee
hereunder and the reasonable compensation, expenses, disbursements and advances
of the Indenture Trustee and its agents and counsel; and
(ii) all Events of Default, other than the nonpayment of the
principal of the Outstanding Notes that has become due solely by such
acceleration, have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
SECTION 5.3. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
INDENTURE TRUSTEE. (a) The Issuer covenants that if (i) default is made in the
payment of any interest on any Series of Notes when the same becomes due and
payable, and such default continues for a period of five days, or (ii) default
is made in the payment of the principal of or any installment of the principal
of any Series of Notes when the same becomes due and payable, and such default
continues for a period of five days the Issuer will, upon demand of the
Indenture Trustee, pay to the Indenture Trustee, for the benefit of the
Noteholders, the whole amount then due and payable on the Outstanding Notes for
principal and interest, with interest upon the overdue principal, and, to the
extent payment at such rate of interest shall be legally enforceable, upon
overdue installments of interest at the respective Class Interest Rate
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and in addition thereto such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Indenture Trustee and its agents
and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an
express trust, may institute a Proceeding for the collection of the sums so due
and unpaid, and may prosecute such Proceeding to judgment or final decree, and
may enforce the same against the Issuer or other obligor upon any Series of
Notes and collect in the manner provided by law out of the property of the
Issuer or other obligor upon any Series of Notes, wherever situated, the moneys
adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee may, as more particularly provided in Section 5.4, in its discretion,
proceed to protect and enforce its rights and the rights of the Noteholders, by
such appropriate Proceedings as the Indenture Trustee shall deem most effective
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy or legal or
equitable right vested in the Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any
other obligor upon the Notes or any Person having or claiming an ownership
interest in the Indenture Trust Estate, Proceedings under Title 11 of the
United States Code or any other applicable Federal or State bankruptcy,
insolvency or other similar law, or in case a receiver, assignee or trustee in
bankruptcy or reorganization, liquidator, sequestrator or similar official
shall have been appointed for or taken possession of the Issuer or its property
or such other obligor or Person, or in case of any other comparable judicial
Proceedings relative to the Issuer or other obligor upon the Notes, or to the
creditors or property of the Issuer or such other obligor, the Indenture
Trustee, irrespective of whether the principal of any Notes shall then be due
and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Indenture Trustee shall have made
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any demand pursuant to the provisions of this Section, shall be
entitled and empowered, by intervention in such proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount
of principal and interest owing and unpaid in respect of such Series of Notes
and to file such other papers or documents as may be necessary or advisable in
order to have the claims of the Indenture Trustee (including any claim for
reasonable compensation to the Indenture Trustee and each predecessor Indenture
Trustee, and their respective agents, attorneys and counsel, and for
reimbursement of all expenses and liabilities incurred, and all advances made,
by the Indenture Trustee and each predecessor Indenture Trustee, except as a
result of negligence, willful misconduct or bad faith) and of the Noteholders
allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to
vote on behalf of the Noteholders in any election of a trustee, a standby
trustee or Person performing similar functions in any such Proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Noteholders and of the Indenture
Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Indenture Trustee or the Noteholders allowed in any judicial proceedings
relative to the Issuer, its creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture
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Trustee and each predecessor Indenture Trustee except as a result of
negligence, willful misconduct or bad faith.
(e) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Outstanding Notes or the rights of any Noteholder
thereof or to authorize the Indenture Trustee to vote in respect of the claim
of any Noteholder in any such proceeding except, as aforesaid, to vote for the
election of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Outstanding Notes, may be enforced by the Indenture Trustee
without the possession of any of the Outstanding Notes or the production
thereof in any trial or other Proceedings relative thereto, and any such action
or Proceedings instituted by the Indenture Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment, subject to
the payment of the expenses, disbursements and compensation of the Indenture
Trustee, each predecessor Indenture Trustee and their respective agents and
attorneys, shall be for the ratable benefit of the Noteholders.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Noteholders, and it shall not be necessary to make
any Noteholder a party to any such Proceedings.
SECTION 5.4. REMEDIES; PRIORITIES. (a) If an Event of Default shall
have occurred and be continuing in respect of the Outstanding Notes and the
Outstanding Notes have been declared due and payable and such declaration and
its consequences have not been rescinded and annulled, the Indenture Trustee
may do one or more of the following:
(i) institute Proceedings in its own name and as trustee of
an express trust for the collection of all amounts then payable on the
Outstanding Notes or under this Indenture with respect of Notes, whether by
declaration or otherwise, enforce any judgment obtained, and collect from the
Issuer and any other obligor upon such Outstanding Notes moneys adjudged due;
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(ii) institute Proceedings from time to time for the complete
or partial foreclosure of this Indenture with respect to the Indenture Trust
Estate securing the Outstanding Notes;
(iii) exercise any remedies of a secured party under the UCC
and take any other appropriate action to protect and enforce the rights and
remedies of the Indenture Trustee and the Noteholders; and
(iv) sell the Indenture Trust Estate or any portion thereof
or rights or interest therein, at one or more public or private sales called
and conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Indenture Trust Estate following an Event of Default, other than
an Event of Default described in Section 5.1(i) or (ii), unless (A) the
Noteholders of 66-2/3% of the Outstanding Amount of the Notes of such Series
consent thereto, (B) the proceeds of such sale or liquidation distributable to
the Noteholders are sufficient to discharge in full all amounts then due and
unpaid upon the Outstanding Notes for principal and interest or (C) the
Indenture Trustee determines that the Indenture Trust Estate will not continue
to provide sufficient funds for the payment of principal of and interest on the
Notes as they would have become due if the Outstanding Notes had not been
declared due and payable, and the Indenture Trustee obtains the consent of
Noteholders of 66-2/3% of the Outstanding Amount of all the Outstanding Notes.
In determining such sufficiency or insufficiency with respect to clause (B) and
(C), the Indenture Trustee may, but need not, obtain and rely upon an opinion
of an Independent investment banking or accounting firm of national reputation
as to the feasibility of such proposed action and as to the sufficiency of the
Indenture Trust Estate for such purpose.
(b) If the Indenture Trustee collects any money or property pursuant
to this Article V, it shall pay out the money or property in the following
order:
FIRST: to the Indenture Trustee for amounts due under Section
6.7; and
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SECOND: to Senior Noteholders for amounts due and unpaid on
each Series of Senior Notes for interest, ratably, according to the amounts due
and payable on each Series of Senior Notes for interest;
THIRD: to Senior Noteholders for amounts due and unpaid on
the Senior Notes of each Series for principal, ratably according to the amounts
due and payable on the Senior Notes of each Series for principal;
FOURTH: to Subordinated Noteholders for amounts due and
unpaid on each Series of Subordinated Notes for interest, ratably, according to
the amounts due and payable on each Series of Senior Notes for interest;
FIFTH: to Subordinated Noteholders for amounts due and unpaid
on the Subordinated Notes of each Series for principal, ratably according to
the amounts due and payable on the Subordinated Notes of each Series for
principal;
SIXTH: to the Eligible Lender Trustee for amounts due under
the Trust Agreement and the Transfer and Servicing Agreement.
SEVENTH: to the Issuer, for distribution in accordance with
the terms of the Transfer and Servicing Agreement.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section. At least 15 days before such
record date, the Issuer shall mail to each Noteholder and the Indenture Trustee
a notice that states the record date, the payment date and the amount to be
paid.
SECTION 5.5. OPTIONAL PRESERVATION OF THE FINANCED STUDENT LOANS. If
the Outstanding Notes have been declared to be due and payable under Section
5.2 following an Event of Default and such declaration and its consequences
have not been rescinded and annulled, the Indenture Trustee may, but need not,
elect to maintain possession of the Indenture Trust Estate. It is the desire of
the parties hereto and the Noteholders that there be
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at all times sufficient funds for the payment of principal of and interest on
the Notes, and the Indenture Trustee shall take such desire into account when
determining whether or not to maintain possession of the Indenture Trust
Estate. In determining whether to maintain possession of the Indenture Trust
Estate, the Indenture Trustee may, but need not, obtain and rely upon an
opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Indenture Trust Estate for such purpose.
SECTION 5.6. LIMITATION OF SUITS. No Noteholder of any Series shall
have any right to institute any Proceeding, judicial or otherwise, with respect
to this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless:
(i) such Noteholder has previously given written notice to
the Indenture Trustee of a continuing Event of Default;
(ii) Noteholders of not less than 25% of the Outstanding
Notes have made written request to the Indenture Trustee to institute such
Proceeding in respect of such Event of Default in its own name as Indenture
Trustee hereunder;
(iii) such Noteholder or Noteholders have offered to the
Indenture Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has 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
Noteholders of a majority of the Outstanding Amount of the Notes of such
Series;
it being understood and intended that no one or more Noteholders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other
Noteholders or to obtain or
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to seek to obtain priority or preference over any other Noteholders or to
enforce any right under this Indenture, except in the manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Noteholders,
each representing less than a majority of the Outstanding Amount of the
Outstanding Notes, the Indenture Trustee in its sole discretion may determine
what action, if any, shall be taken, notwithstanding any other provisions of
this Indenture based upon the larger percentage of Noteholders as of a date
certain.
SECTION 5.7. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL
AND INTEREST. Notwithstanding any other provisions in this Indenture, any
Noteholder shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture and to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Noteholder.
SECTION 5.8. RESTORATION OF RIGHTS AND REMEDIES. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had
been instituted.
SECTION 5.9. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to the Indenture Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall
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not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
SECTION 5.10. DELAY OR OMISSION NOT A WAIVER. No delay or omission of
the Indenture Trustee or any Noteholder to exercise any right or remedy
accruing upon any Default shall impair any such right or remedy or constitute a
waiver of any such Default or an acquiescence therein. Every right and remedy
given by this Article V or by law to the Indenture Trustee or to the
Noteholders may be exercised from time to time, and as often as may be deemed
expedient, by the Indenture Trustee or by the Noteholders, as the case may be.
SECTION 5.11. CONTROL BY NOTEHOLDERS. The Noteholders of a majority of
the Outstanding Amount of the Notes shall have the right to direct the time,
method and place of conducting any Proceeding for any remedy available to the
Indenture Trustee with respect to the Notes or exercising any trust or power
conferred on the Indenture Trustee; provided that
(i) such direction shall not be in conflict with any rule of
law or with this Indenture;
(ii) subject to the express terms of Section 5.4, any
direction to the Indenture Trustee to sell or liquidate the Trust Estate shall
be by the Noteholders of not less than 66-2/3% of the Outstanding Amount of the
Notes of each Series;
(iii) if the conditions set forth in Section 5.5 have been
satisfied and the Indenture Trustee elects to retain the Indenture Trust Estate
pursuant to such Section, then any direction to the Indenture Trustee by
Noteholders of less than 66-2/3% of the Outstanding Amount of the Notes of each
Series to sell or liquidate the Trust Estate shall be of no force and effect;
(iv) the Indenture Trustee may take any other action deemed
proper by the Indenture Trustee that is not inconsistent with such direction;
provided, however, that, subject to Section 6.1, the Indenture Trustee need not
take any action that it determines might involve it in liability or might
materially adversely affect the rights of any Noteholders not consenting to
such action.
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SECTION 5.12. WAIVER OF PAST DEFAULTS. Prior to the time a judgment or
decree for payment of money due has been obtained as described in Section 5.2,
the Noteholders of not less than a majority of the Outstanding Amount of the
Notes of a Series may waive any past Default hereunder and its consequences
except a Default (a) in payment when due of principal of or interest on any of
the Outstanding Notes or (b) in respect of a covenant or provision hereof which
cannot be modified or amended without the consent of each Noteholder. In the
case of any such waiver, the Issuer, the Indenture Trustee and the Noteholders
shall be restored to their former positions and rights hereunder, respectively;
but no such waiver shall extend to any subsequent or other Default or impair
any right consequent thereto.
Upon any such waiver, such Default shall cease but to exist and be
deemed to have been cured and not to have occurred for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default
or impair any right consequent thereto.
SECTION 5.13. UNDERTAKING FOR COSTS. All parties to this Indenture
agree, not in their individual capacity but solely in their capacity as
Indenture Trustee or Eligible Lender Trustee, as applicable, and each
Noteholder by such Noteholder's acceptance of any Note shall be deemed to have
agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Outstanding Notes or (c) any suit instituted by any
Noteholder for the enforcement of the payment of principal of or interest on
any Note on or after the respective due dates expressed in such Note.
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SECTION 5.14. WAIVER OF STAY OR EXTENSION LAWS. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that
it will not hinder, delay or impede the execution of any power herein granted
to the Indenture Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
SECTION 5.15. ACTION ON NOTES. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture and each Terms
Supplement nor any rights or remedies of the Indenture Trustee or the
Noteholders of any Series shall be impaired by the recovery of any judgment by
the Indenture Trustee against the Issuer or by the levy of any execution under
such judgment upon any portion of the Indenture Trust Estate or upon any of the
assets of the Issuer. Any money or property collected by the Indenture Trustee
shall be applied in accordance with Section 5.4(b).
SECTION 5.16. PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS. (a)
Promptly following a request from the Indenture Trustee to do so and at the
Administrator's expense, the Issuer shall take all such lawful action as the
Indenture Trustee may request to compel or secure the performance and
observance by the Seller, the Administrator and the Master Servicer, as
applicable, of each of their obligations to the Issuer under or in connection
with the Transfer and Servicing Agreement (and with respect to the
Administrator only, the Administration Agreement) in accordance with the terms
thereof, and to exercise any and all rights, remedies, powers and privileges
lawfully available to the Issuer under or in connection with the Transfer and
Servicing Agreement (and the Administration Agreement) to the extent and in the
manner directed by the Indenture Trustee, including the transmission of notices
of default on the part of the Seller, the Administrator or the Servicer
thereunder and the institution of legal or
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administrative actions or proceedings to compel or secure performance by the
Seller, the Administrator or the Servicer of each of their obligations under
the Transfer and Servicing Agreement (and the Administration Agreement).
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and at the direction (which direction shall be in
writing) of the Noteholders of 66-2/3% of the Outstanding Amount of the
Outstanding Notes shall exercise all rights, remedies, powers, privileges and
claims of the Issuer against the Seller, the Administrator or the Master
Servicer under or in connection with the Transfer and Servicing Agreement (and
the Administration Agreement), including the right or power to take any action
to compel or secure performance or observance by the Seller, the Administrator
or the Servicer of each of their obligations to the Issuer thereunder and to
give any consent, request, notice, direction, approval, extension or waiver
under the Transfer and Servicing Agreement (and the Administration Agreement)
and any right of the Issuer to take such action shall be suspended.
ARTICLE VI
THE INDENTURE TRUSTEE
SECTION 6.1. DUTIES OF INDENTURE TRUSTEE. (a) If an Event of Default
has occurred and is continuing, the Indenture Trustee shall exercise the rights
and powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture and any
Terms Supplement and no implied covenants or obligations shall be read into
this Indenture or any Terms Supplement against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed
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therein, upon certificates or opinions furnished to the Indenture Trustee and
conforming to the requirements of this Indenture; provided, however, that the
Indenture Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own bad faith, its own negligent failure to act or
its own willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Indenture Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer unless it is proved
that the Indenture Trustee was negligent in ascertaining the pertinent facts;
and
(iii) the Indenture Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.11.
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this
Section.
(e) The Indenture Trustee shall not be liable for interest on any
money received by it except as the Indenture Trustee may agree in writing with
the Issuer.
(f) Money held in trust by the Indenture Trustee need not be
segregated from other funds except to the extent required by law or the terms
of this Indenture or the Transfer and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that
repayments of such funds or adequate indemnity satisfactory to it against any
loss, liability or expense is not reasonably
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assured to it; provided, however, that the Indenture Trustee shall not refuse
or fail to perform any of its duties hereunder solely as a result of nonpayment
of its normal fees and expenses and further provided that nothing in this
Section 6.1(g) shall be construed to limit the exercise by the Indenture
Trustee of any right or remedy permitted under this Indenture or otherwise in
the event of the Issuer's failure to pay the Indenture Trustee's fees and
expenses pursuant to Section 6.7.
(h) Except as expressly provided in the Basic Documents, the Indenture
Trustee shall have no obligation to administer, service or collect the Financed
Student Loans or to maintain, monitor or otherwise supervise the
administration, servicing or collection of the Financed Student Loans.
(i) In the event that the Indenture Trustee is the Paying Agent or the
Note Registrar, the rights and protections afforded to the Indenture Trustee
pursuant to this Indenture shall also be afforded to the Indenture Trustee in
its capacity as Paying Agent or Note Registrar.
(j) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provision of this Section and to the provisions of the
TIA.
SECTION 6.2. RIGHTS OF INDENTURE TRUSTEE. (a) The Indenture Trustee
may conclusively rely on any document believed by it to be genuine and to have
been signed or presented by the proper Person. The Indenture Trustee need not
investigate any fact or matter stated in such document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate of the Issuer or an Opinion of Counsel. The
Indenture Trustee shall not be liable for any action it takes or omits to take
in good faith in reliance on such Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any willful misconduct or negligence on the part of, or
for the supervision of, any such agent, attorney, custodian or nominee
appointed with due care by it hereunder.
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(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; PROVIDED, HOWEVER, that the Indenture Trustee's conduct does
not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
SECTION 6.3. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Paying Agent, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.4. INDENTURE TRUSTEE'S DISCLAIMER. Neither the Indenture
Trustee nor the Eligible Lender Trustee shall be responsible for and neither
makes any representation as to the validity or adequacy of this Indenture or
the Notes, neither shall be accountable for the Issuer's use of the proceeds
from the sale of the Notes, and neither shall be responsible for any statement
of the Issuer in the Indenture or in any document issued in connection with the
sale of the Notes or in the Notes other than the Indenture Trustee's
certificate of authentication.
SECTION 6.5. NOTICE OF DEFAULTS. If a Default occurs and is continuing
and if it is either actually known or written notice of the existence thereof
has been delivered to a Responsible Officer of the Indenture Trustee, the
Indenture Trustee shall mail notice of the Default to each Noteholder within 90
days after it occurs. Except in the case of a Default in payment of principal
of or interest on any Note, the Indenture Trustee may withhold the notice if
and so long as a
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committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of Noteholders.
SECTION 6.6. REPORTS BY INDENTURE TRUSTEE TO NOTEHOLDERS. The
Indenture Trustee shall deliver to each Noteholder (and to each Person who was
a Noteholder at any time during the applicable calendar year) such information
as may be requested of it to enable such holder to prepare its Federal and
state income tax returns.
Within 60 days after each December 31 beginning with the December 31
following the first issuance of a Series of Notes, the Indenture Trustee shall
mail to each Noteholder a brief report as of such December 31 that complies with
TIA Section 313(a) if required by said section. The Indenture Trustee shall also
comply with TIA Section 313(b). If the issuance of any Series of Notes has been
registered under the Securities Act of 1933, as amended, a copy of each such
report required pursuant to TIA Sections 313(a) or (b) shall, at the time of
such transmission to Noteholders, be filed by the Indenture Trustee with the
Commission and with each securities exchange, if any, upon which the Notes of
such Series are listed, provided that the Issuer has previously notified the
Indenture Trustee of such listing.
SECTION 6.7. COMPENSATION AND INDEMNITY. The Issuer shall pay to the
Indenture Trustee for its services, a fee equal to the amount agreed to in
writing between the Indenture Trustee and the Administrator (the "Indenture
Trustee Fee") at the times set forth in Section 5.5 of the Transfer and
Servicing Agreement and shall or shall cause the Administrator from its own
funds to reimburse the Indenture Trustee for all reasonable out-of-pocket
expenses incurred or made by it in accordance with any provision of this
Indenture. The Indenture Trustee's compensation shall not be limited by any law
on compensation of a trustee of an express trust. The Issuer shall or shall
cause the Administrator from its own funds to indemnify the Indenture Trustee,
its directors, officers, agents and employees against any and all loss,
liability or expense (including reasonable attorneys' fees) incurred by it in
connection with the administration of this Trust and the performance of its
duties hereunder and the other Basic Documents. The Indenture Trustee shall
notify the Issuer and the Administrator promptly of any claim for which it may
seek indemnity. Failure by the Indenture Trustee to so notify the Issuer and
the Administrator shall not
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relieve the Issuer or the Administrator of its obligations hereunder and under
the other Basic Documents. The Issuer shall or shall cause the Administrator to
defend the claim and the Administrator shall not be liable for any separate
legal fees and expenses of the Indenture Trustee after it has assumed such
defense; provided, however, that, in the event that there may be a conflict
between the positions of the Indenture Trustee and the Administrator in
conducting the defense of such claim, the Indenture Trustee shall be entitled
to separate counsel the reasonable fees and expenses of which shall be paid by
the Administrator from its own funds on behalf of the Issuer. Neither the
Issuer nor the Administrator need reimburse any expense or indemnify against
any loss, liability or expense incurred by the Indenture Trustee or directors,
officers, agents and employees to the extent any such loss, liability or
expenditure arises out of or results from the Indenture Trustee's own willful
misconduct, negligence or bad faith or a breach of the representations,
warranties and covenants of the Indenture Trustee in the Agreement.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section shall survive the discharge of this Indenture or the resignation
or removal of the Indenture Trustee. When the Indenture Trustee incurs expenses
after the occurrence of a Default specified in Section 5.1(iv) or (v) with
respect to the Issuer, the expenses are intended to constitute expenses of
administration under Title 11 of the United States Code or any other applicable
Federal or State bankruptcy, insolvency or similar law.
SECTION 6.8. REPLACEMENT OF INDENTURE TRUSTEE. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.8. The Indenture Trustee
may resign at any time by so notifying the Issuer. The Issuer shall remove the
Indenture Trustee if:
(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) an Insolvency Event occurs with respect to the Indenture
Trustee;
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(iii) a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of
acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in
such event being referred to herein as the retiring Indenture Trustee), the
Issuer shall promptly appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of
its appointment to the retiring Indenture Trustee, and to the Issuer. Thereupon
the resignation or removal of the retiring Indenture Trustee shall become
effective, and the successor Indenture Trustee shall have all the rights,
powers and duties of the Indenture Trustee under this Indenture. The successor
Indenture Trustee shall mail a notice of its succession to Noteholders. The
retiring Indenture Trustee shall promptly transfer all property held by it as
Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Noteholders of a majority in Outstanding
Amount of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's and the Administrator's obligations under Section
6.7 shall continue for the benefit of the retiring Indenture Trustee.
SECTION 6.9. SUCCESSOR INDENTURE TRUSTEE BY MERGER. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another
corporation or banking association, the
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resulting, surviving or transferee corporation without any further act shall be
the successor Indenture Trustee; provided that such corporation or banking
association shall be otherwise qualified and eligible under Section 6.11.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created
by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Indenture Trustee may adopt the
certificate of authentication of any predecessor trustee, and deliver such
Notes so authenticated; and in case at that time any of the Notes shall not
have been authenticated, any successor to the Indenture Trustee may
authenticate such Notes either in the name of any predecessor hereunder or in
the name of the successor to the Indenture Trustee; and in all such cases such
certificates shall have the full force which it is anywhere in the Notes or in
this Indenture provided that the certificate of the Indenture Trustee shall
have.
SECTION 6.10. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE. (a)
Notwithstanding any other provisions of this Indenture, at any time, for the
purpose of meeting any legal requirement of any jurisdiction in which any part
of the Indenture Trust Estate may at the time be located, the Indenture Trustee
shall have the power and may execute and deliver all instruments to appoint one
or more Persons to act as co-trustee or co-trustees, or separate trustee or
separate trustees, of all or any part of the Indenture Trust Estate, and to
vest in such Person or Persons, in such capacity and for the benefit of the
Noteholders, such title to the Indenture Trust Estate, or any part hereof, and,
subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Indenture Trustee may consider necessary
or desirable. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor trustee under Section 6.11 and no
notice to Noteholders of the appointment of any co-trustee or separate trustee
shall be required under Section 6.8 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
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(i) all rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon and
exercised or performed by the Indenture Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Indenture Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed the
Indenture Trustee shall be incompetent or unqualified to perform such act or
acts, in which event such rights, powers, duties and obligations (including the
holding of title to the Indenture Trust Estate or any portion thereof in any
such jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of a co-trustee.
(c) Any notice, request or other writing given to the Indenture
Trustee shall be deemed to have been given to each of the then separate
trustees and co-trustees, as effectively as if given to each of them. Every
instrument appointing any separate trustee or co-trustee shall refer to this
Indenture and the conditions of this Article VI. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Indenture Trustee or separately, as may be provided therein,
subject to all the provisions of this Indenture, specifically including every
provision of this Indenture relating to the conduct of, affecting the liability
of, or affording protection to, the Indenture Trustee. Every such instrument
shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect
of this Indenture on its behalf and in its name. If any separate trustee or
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co-trustee shall die, become incapable of acting, resign or be removed, all its
estates, properties, rights, remedies and trusts shall vest in and be exercised
by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
SECTION 6.11. ELIGIBILITY; DISQUALIFICATION. The Indenture Trustee
shall at all times satisfy the requirements of TIA Section 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least $50,000,000 as set
forth in its most recent published annual report of condition and it shall have
a long term debt rating of Baa3 or better by Moody's or BBB or better by
Standard & Poor's Corporation. The Indenture Trustee shall at all times meet the
eligibility criteria for an "eligible lender" under the terms of the Higher
Education Act. The Indenture Trustee shall comply with TIA Section 310(b),
including the optional provision permitted by the second sentence of TIA Section
310(b)(9); provided, however, that there shall be excluded from the operation of
TIA Section 310(b)(1) any indenture or indentures under which other securities
of the Issuer are outstanding if the requirements for such exclusion set forth
in TIA Section 310(b)(1) are met.
SECTION 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER. The
Indenture Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). An Indenture Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.1. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES
OF NOTEHOLDERS. The Issuer will furnish or cause to be furnished to the
Indenture Trustee (a) not more than five days after the earlier of (i) each
Record Date for a Series and (ii) three months after the last Record Date for
such Series, a list, in such form as the Indenture Trustee may reasonably
require, of the names and addresses of the Noteholders of such Series as of
such Record Date, (b) at such other times as the Indenture Trustee may request
in writing, within 30 days after receipt by the Issuer of any such request, a
list of similar
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form and content as of a date not more than 10 days prior to the time such list
is furnished; provided, however, that so long as the Indenture Trustee is the
Note Registrar, no such list shall be required to be furnished.
SECTION 7.2. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
NOTEHOLDERS. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Noteholders contained
in the most recent list furnished to the Indenture Trustee as provided in
Section 7.1 and the name and addresses of Noteholders received by the Indenture
Trustee in its capacity as Note Registrar. The Indenture Trustee may destroy
any list furnished to it as provided in such Section 7.1 upon receipt of a new
list so furnished.
(b) Noteholders may communicate pursuant to TIA Section 312(b) with
other Noteholders with respect to their rights under this Indenture or under the
Notes. Upon receipt by the Indenture Trustee of any request by a Noteholder to
receive a copy of the current list of Noteholders (whether or not made pursuant
to TIA Section 312(b)), the Indenture Trustee shall promptly notify the
Administrator thereof by providing to the Administrator a copy of such request
and a copy of the list of Noteholders produced in response thereto.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall
have the protection of TIA Section 312(c).
(d) The Indenture Trustee shall furnish to the Noteholders promptly
upon receipt of a written request therefor, duplicates or copies of all
reports, notices, requests, demands, certificates, financial statements and any
other instruments furnished to the Indenture Trustee under the Basic Documents.
SECTION 7.3. FISCAL YEAR OF ISSUER. Unless the Issuer otherwise
determines, the fiscal year of the Issuer shall end on December 31 of each
year.
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ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1. COLLECTION OF MONEY. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The
Indenture Trustee shall apply all such money received by it on behalf of the
Noteholders pursuant to the Transfer and Servicing Agreement as provided in
this Indenture. Except as otherwise expressly provided in this Indenture, if
any default occurs in the making of any payment or performance under any
agreement or instrument that is part of the Trust Estate, the Indenture Trustee
may take such action as may be appropriate to enforce such payment or
performance, including the institution and prosecution of appropriate
Proceedings. Any such action shall be without prejudice to any right to claim a
Default under this Indenture and any right to proceed thereafter as provided in
Article V.
SECTION 8.2. TRUST ACCOUNTS. (a) On or prior to the Closing Date of
the first Series, the Indenture Trustee shall establish and maintain, in the
name of and with the Indenture Trustee, for the benefit of the Noteholders and
the Certificateholders, the Trust Accounts as provided in Section 5.1 of the
Transfer and Servicing Agreement with the exception of the Certificate
Distribution Account and the Certificate Monthly Advance Account.
(b) On or before the Business Day preceding each Distribution Date,
all Available Funds for the related Class of Notes with respect to the
preceding Collection Period will be deposited in the Collection Account as
provided in Section 5.2 of the Transfer and Servicing Agreement. On or before
each Distribution Date for each Class of Notes, the appropriate Noteholders'
Distribution Amount, with respect to the preceding Collection Period will be
distributed from the Collection Account and any other Trust Account to the
Indenture Trustee (or any other Paying Agent) on behalf of the Noteholders as
provided in Sections 5.5 and 5.6 of the Transfer and Servicing Agreement.
(c) On each Distribution Date, the Indenture Trustee (or any other
Paying Agent) shall distribute all amounts received by it on behalf of
Noteholders of a particular Class pursuant to paragraph (b) above to such
Noteholders in respect of the Notes
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to the extent of amounts due and unpaid on the Notes of such Class as provided
in the related Terms Supplement.
SECTION 8.3. GENERAL PROVISIONS REGARDING ACCOUNTS. (a) So long as no
Default shall have occurred and be continuing, all or a portion of the funds in
the Trust Accounts shall be invested in Eligible Investments and reinvested by
the Indenture Trustee upon Issuer Order, subject to the provisions of Section
5.1(b) of the Transfer and Servicing Agreement. All income or other gain from
investments of moneys deposited in the Trust Accounts with the exception of the
Certificate Distribution Account and the Certificate Monthly Advance Account
relating to a particular Series shall be deposited by the Indenture Trustee in
the Collection Account, and any loss resulting from such investments shall be
charged to such Trust Account.
(b) Subject to Section 6.1(c), the Indenture Trustee shall not in any
way be held liable by reason of any insufficiency in any of the Trust Accounts
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Indenture Trustee's failure to make payments on such
Eligible Investments issued by the Indenture Trustee in its commercial capacity
as principal obligor and not as trustee, in accordance with their terms.
(c) If (i) the Issuer shall have failed to give investment directions
for any funds on deposit in the Trust Accounts to the Indenture Trustee by
10:00 a.m. New York City time (or such other time as may be agreed by the
Issuer and Indenture Trustee) on any Business Day; or (ii) a Default shall have
occurred and be continuing with respect to the Notes but the Notes shall not
have been declared due and payable pursuant to Section 5.2, or, if such Notes
shall have been declared due and payable following an Event of Default, amounts
collected or receivable from the Indenture Trust Estate are being applied in
accordance with Section 5.5 as if there had not been such a declaration; the
Indenture Trustee shall, to the fullest extent practicable, invest and reinvest
funds in the Trust Accounts with the exception of the Certificate Distribution
Account and the Certificate Monthly Advance Account in one or more Eligible
Investments listed in paragraph (7) of the definition of Eligible Investments.
SECTION 8.4. [Reserved]
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SECTION 8.5. [Reserved]
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
(a) Without the consent of any Noteholders, the Issuer and the Indenture
Trustee, when authorized by an Issuer Order, from time to time, may enter into
one or more indentures supplemental hereto (which shall conform to the
provisions of the Trust Indenture Act, to the extent this Indenture is
qualified under the Trust Indenture Act, as in force at the date of the
execution thereof),in form satisfactory to the Indenture Trustee, for any of
the following purposes:
(i) to correct or amplify the description of any property at
any time subject to the lien of each Terms Supplement, or better to assure,
convey and confirm unto the Indenture Trustee any property subject or required
to be subjected to the lien of each Terms Supplement, or to subject to the lien
of each Terms Supplement additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another Person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein and in
the Notes contained;
(iii) to add to the covenants of the Issuer, for the benefit
of the Noteholders of all Notes or of the Notes of any Series, or to surrender
any right or power herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture which may be inconsistent
with any other provision herein or in any supplemental indenture or to make any
other provisions with respect to matters or questions arising under this
Indenture or in any supplemental indenture; provided that such action shall not
materially adversely affect the interests of the Noteholders of any Series;
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(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes and to
add to or change any of the provisions of this Indenture as shall be necessary
to facilitate the administration of the trusts hereunder by more than one
trustee, pursuant to the requirements of Article VI;
(vii) to add to the conditions, limitations and restrictions
on the authorized amount, terms and purposes of the issuance, authentication
and delivery of any Series of Notes, as herein set forth, additional
conditions, limitations and restrictions thereafter to be observed;
(viii) to set forth the terms of, and security for, any
Series that has not theretofore been authorized by a Terms Supplement;
(ix) to modify or eliminate any of the terms of this
Indenture; provided, however, that
(A) such supplemental indenture shall expressly provide
that any such modifications or eliminations shall not be effective with respect
to any Outstanding Note of any Series created prior to the execution of such
supplemental indenture; and
(B) the Indenture Trustee may, in its discretion, decline
to enter into any such supplemental indenture which, in its opinion, would
adversely affect its own rights, duties or immunities; or
(C) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the qualification of
this Indenture under the TIA or under any similar Federal statute hereafter
enacted and to add to this Indenture such other provisions as may be expressly
required by the TIA.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
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(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Order, may enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or of modifying in any manner the
rights of the Noteholders under this Indenture; provided, however, that such
action shall not, as evidenced by an Opinion of Counsel, adversely affect in
any material respect the interests of any Noteholder.
SECTION 9.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS. The
Issuer and the Indenture Trustee, when authorized by an Issuer Order, also may
with the consent of the Noteholders of not less than a majority of the
Outstanding Amount of all the Notes in case Outstanding Notes of all Series are
to be affected, or with the consent of the Noteholders of not less than a
majority of the Outstanding Amount of the Notes to be affected in case one or
more, but less than all, of the Series of Outstanding Notes are to be affected,
by Act of such Noteholders delivered to the Issuer and the Indenture Trustee,
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture relating to such Series or of modifying in any
manner the rights of the Noteholders of such Series under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Noteholders of each Outstanding Note affected thereby:
(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 this Indenture relating to
the application of collections on, or the proceeds of the sale of, the
Indenture Trust Estate 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 the interest thereon is payable, or impair the right to institute suit for
the enforcement of the provisions of this Indenture requiring the application
of funds available therefor, as provided in Article V, to the payment of any
such amount due on the Notes on or after the respective due dates thereof;
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(ii) reduce the percentage of the Outstanding Amount of the
Notes of any Series, the consent of the Noteholders of which is required for
any such supplemental indenture, or the consent of the Noteholders of which is
required for any waiver of compliance with certain provisions of this Indenture
or certain defaults hereunder and their consequences provided for in this
Indenture;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(iv) reduce the percentage of the Outstanding Amount of the
Notes of any Series required to direct the Indenture Trustee to direct the
Issuer to sell or liquidate the Indenture Trust Estate pursuant to Section 5.4;
(v) modify any provision of this Section except to increase
any percentage specified herein or to provide that certain additional
provisions of this Indenture or the other Basic Documents cannot be modified or
waived without the consent of the Noteholder of each Outstanding Note affected
thereby;
(vi) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of any payment of interest
or;
(vii) permit the creation of any lien ranking prior to or on
a parity with the lien of this Indenture with respect to any part of the
Indenture Trust Estate or, except as otherwise permitted or contemplated
herein, terminate the lien of this Indenture on any property at any time
subject hereto or deprive any Noteholder of any Note of the security provided
by the lien of this Indenture.
It shall not be necessary for any Act of Noteholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee
of any supplemental indenture pursuant to this Section, the Indenture Trustee
shall mail to the Noteholders of the Notes of each Series to which such
amendment or supplemental
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indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
SECTION 9.3. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modifications thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.1 and 6.2, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects
the Indenture Trustee's own rights, duties, liabilities or immunities under
this Indenture or otherwise.
SECTION 9.4. EFFECT OF SUPPLEMENTAL INDENTURE. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and be deemed to be modified and amended in accordance therewith with
respect to the Notes of each Series affected thereby, and the respective
rights, limitations of rights, obligations, duties, liabilities and immunities
under this Indenture of the Indenture Trustee, the Issuer and the Noteholders
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
SECTION 9.5. CONFORMITY WITH TRUST INDENTURE ACT. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect to the extent this Indenture is qualified under the Trust Indenture
Act.
SECTION 9.6. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX which relates to the Series of which such Notes are
a part
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may, and if required by the Indenture Trustee shall, bear a notation in form
approved by the Indenture Trustee as to any matter provided for in such
supplemental indenture. If the Issuer or the Indenture Trustee shall so
determine, new Notes so modified as to conform, in the opinion of the Indenture
Trustee and the Issuer, to any such supplemental indenture which relates to the
Series of which such Notes are a part may be prepared and executed by the
Issuer and authenticated and delivered by the Indenture Trustee in exchange for
Outstanding Notes of such Series.
ARTICLE X
[Intentionally Omitted]
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. COMPLIANCE CERTIFICATES AND OPINIONS, ETC. (a) Upon any
application or request by the Issuer to the Indenture Trustee to take any
action under any provision of this Indenture, the Issuer, or the Administrator
on behalf of the Issuer, shall furnish to the Indenture Trustee (i) an
Officer's Certificate of the Issuer stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with, (ii) an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with and
(iii) (if required by the TIA) an Independent Certificate from a firm of
certified public accountants meeting the applicable requirements of this
Section, except that, in the case of any such application or request as to
which the furnishing of such documents is specifically required by any
provision of this Indenture, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
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(i) a statement that such signatory of such certificate or
opinion has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(iii) a statement that, in the opinion of each such
signatory, such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.
(b) (i) Other than any property released as contemplated by
clause (iii) below, whenever any property or securities are to be released from
the lien of this Indenture and the related Terms Supplements, the Issuer shall
also furnish to the Indenture Trustee an Officer's Certificate of the Issuer
certifying or stating the opinion of each person signing such certificate as to
the fair value (within 90 days of such release) of the property or securities
proposed to be released and stating that in the opinion of such person the
proposed release will not impair the security under this Indenture in
contravention of the provisions hereof.
(ii) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate of the Issuer certifying or stating
the opinion of any signer thereof as to the matters described in clause (i)
above, the Issuer shall also furnish to the Indenture Trustee an Independent
Certificate as to the same matters if the fair value of the property or
securities and of all other property, other than property as contemplated by
clause (iii) below, or securities released from the lien of this Indenture and
the related Terms Supplements since the commencement of the then-current
calendar year, as set forth in the certificates required by clause (i) above
and this clause (ii), equals 10% or more of the Outstanding Amount of the
Notes, but such certificate need not be furnished in the case of any release of
property or securities if the fair value thereof
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as set forth in the related Officer's Certificate is less than $25,000 or less
than one percent of the then Outstanding Amount of the Notes Outstanding.
(iii) Notwithstanding Section 2.12 or any other provisions of
this Section, the Issuer may, without compliance with the requirements of
Section 2.12 or the other provisions of this Section, (A) collect, liquidate,
sell, service, convey, administer, manage or otherwise dispose of Financed
Student Loans as and to the extent permitted or required by the Basic
Documents, (B) make cash payments out of the Trust Accounts as and to the
extent permitted or required by the Basic Documents and (C) convey to Seller
those specified Financed Student Loans as and to the extent permitted or
required by and in accordance with Section 2.3 of the Transfer and Servicing
Agreement, so long as the Issuer shall deliver to the Indenture Trustee every
six months, commencing six months after the first issuance of a Series of
Notes, an Officer's Certificate of the Issuer stating that all the dispositions
of any portion of the Indenture Trust Estate described in clauses (A), (B) or
(C) above that occurred during the immediately preceding six calendar months
were applied in accordance with the Basic Documents.
SECTION 11.2. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may
certify or give an opinion with respect to some matters and one or more other
such Persons as to other matters, and any such Person may certify or give an
opinion as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer
or Opinion of Counsel may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or
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officers of the Servicer, the Seller, the Issuer or the Administrator, stating
that the information with respect to such factual matters is in the possession
of the Servicer, the Seller, the Issuer or the Administrator, unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of
the facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
SECTION 11.3. ACTS OF NOTEHOLDERS. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except
as herein otherwise expressly provided such action shall become effective when
such instrument or instruments are delivered to the Indenture Trustee, and,
where it is hereby expressly required, to the Issuer. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Noteholders signing such instrument
or instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
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and (subject to Section 6.1) conclusive in favor of the Indenture Trustee and
the Issuer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Noteholder of any Notes shall bind the Noteholder
of every Note issued upon the registration thereof or in exchange therefor or
in lieu thereof, in respect of anything done, omitted or suffered to be done by
the Indenture Trustee or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Note.
SECTION 11.4. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER AND RATING
AGENCIES. Any request, demand, authorization, direction, notice, consent,
waiver or Act of Noteholders or other documents provided or permitted by this
Indenture shall be in writing and if such request, demand, authorization,
direction, notice, consent, waiver or Act of Noteholders is to be made upon,
given or furnished to or filed with:
(a) the Indenture Trustee by any Noteholder or by the Issuer
shall be sufficient for every purpose hereunder if made, given, furnished or
filed in writing and mailed, first class, postage prepaid or sent by overnight
courier or by facsimile transmission to or with the Indenture Trustee at its
Corporate Trust Office, or
(b) the Issuer by the Indenture Trustee or by any Noteholder
shall be sufficient for every purpose hereunder if in writing and mailed,
first-class, postage prepaid, or via overnight courier to the Issuer addressed
to: PNC Student Loan Trust I, Attention: Corporate Trust Department, The First
National Bank of Chicago, One Federal Plaza, Chicago, Illinois 60670; with a
copy to the Administrator addressed to: PNC Bank, National Association, 2600
West Liberty Avenue, Pittsburgh, Pennsylvania, Attention: John Peters; or at
any other address previously furnished in writing to the Indenture
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Trustee by the Issuer or the Administrator. The Issuer shall promptly transmit
any notice received by it from the Noteholders to the Indenture Trustee.
SECTION 11.5. NOTICES TO NOTEHOLDERS; WAIVER. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner
herein provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed
to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default.
SECTION 11.6. ALTERNATE PAYMENT AND NOTICE PROVISIONS. Notwithstanding
any provision of this Indenture or any of the Notes to the contrary, the Issuer
and the Indenture Trustee may enter into any agreement with any Noteholder
providing for a
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method of payment, or notice by the Indenture Trustee or any Paying Agent to
such Noteholder, that is different from the methods provided for in this
Indenture for such payments or notices. The Issuer will furnish to the Indenture
Trustee a copy of each such agreement and the Indenture Trustee will cause
payments to be made and notices to be given in accordance with such agreements.
SECTION 11.7. [Reserved]
SECTION 11.8. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
SECTION 11.9. SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee
in this Indenture shall bind the successors, co-trustees and agents (excluding
any legal representatives or accountants) of the Indenture Trustee.
SECTION 11.10. SEPARABILITY. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
SECTION 11.11. BENEFITS OF INDENTURE. Nothing in this Indenture or in
the Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders, and any other party
secured hereunder, and any other Person with an ownership interest in any part
of the Indenture Trust Estate, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 11.12. LEGAL HOLIDAYS. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment 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 on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
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SECTION 11.13. GOVERNING LAW. This Indenture, each Terms Supplement
and the Notes 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 and thereunder shall
be determined in accordance with such laws.
SECTION 11.14. COUNTERPARTS. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.15. RECORDING OF INDENTURE. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Issuer or any other counsel reasonably acceptable
to the Indenture Trustee) to the effect that such recording is necessary either
for the protection of the Noteholders or any other Person secured hereunder or
for the enforcement of any right or remedy granted to the Indenture Trustee
under this Indenture.
SECTION 11.16. TRUST OBLIGATIONS. No recourse may be taken, directly
or indirectly, with respect to the obligations of the Issuer, the Eligible
Lender Trustee or the Indenture Trustee on the Notes or under this Indenture or
any certificate or other writing delivered in connection herewith or therewith,
against (i) the Indenture Trustee or the Eligible Lender Trustee in its
individual capacity or (ii) any partner, owner, beneficiary, custodian,
officer, director, employee or agent of the Indenture Trustee or the Eligible
Lender Trustee in its individual capacity, any holder or owner of a beneficial
interest in the Issuer, the Eligible Lender Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Eligible Lender
Trustee in its individual capacity, except as any such Person may have
expressly agreed (it being understood that the Indenture Trustee and the
Eligible Lender Trustee have no such obligations in their individual capacity)
and except that any such partner, owner or beneficiary shall be fully liable,
to the extent provided by applicable law, for any unpaid consideration for
stock, unpaid capital
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contribution or failure to pay any installment or call owing to such entity.
For all purposes of this Indenture, in the performance of any duties or
obligations of the Issuer hereunder, the Eligible Lender Trustee shall be
subject to, and entitled to the benefit of, the terms and provisions of Article
VI, VII and VIII of the Trust Agreement.
SECTION 11.17. NO PETITION. The Indenture Trustee, by entering into
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that prior to the date which is one year and a day after to the
termination of this Indenture, they will not at any time institute against the
Issuer, or join in any institution against the Issuer of, any bankruptcy,
reorganization, arrangement, insolvency, receivership or liquidation
proceedings, or other proceedings under any United States Federal or State
bankruptcy or similar law in connection with any obligations relating to the
Notes, this Indenture or any of the other Basic Documents.
SECTION 11.18. INSPECTION. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports, and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by Independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees and Independent certified public accountants, all at such
reasonable times and as often as may be reasonably requested; provided however
that the Indenture Trustee may only cause the books of the Issuer to be audited
on an annual basis, unless there occurs an Event of Default hereunder. The
Indenture Trustee shall and shall cause its representatives to hold in
confidence all such information except to the extent disclosure may be required
by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Indenture Trustee may reasonably
determine with advice of counsel and after consultation with the Issuer and
Administrator that such disclosure is consistent with its obligations
hereunder.
Notwithstanding anything herein to the contrary, the foregoing shall
not be construed to prohibit (i) disclosure of any and all information that is
or becomes publicly known
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through no fault of the Indenture Trustee, (ii) disclosure of any and all
information (which makes reference to the Issuer, the Administrator or the PNC
Student Loan Trust I transaction) obtained by the Indenture Trustee from
sources (other than the Issuer, Eligible Lender Trustee, the Administrator or
the Master Servicer) that have not notified the Indenture Trustee that such
information is subject to a confidentiality obligation with the Issuer, the
Eligible Lender Trustee, the Administrator or the Master Servicer (iii)
disclosure of any and all information (A) if required to do so by any
applicable statute, law, rule or regulation, (B) to any government agency or
regulatory body having or claiming authority to regulate or oversee any aspects
of the Indenture Trustee's business or that of its affiliates, (C) pursuant to
any subpoena, civil investigative demand or similar demand or request of any
court, regulatory authority, arbitrator or arbitration to which the Indenture
Trustee or an affiliate or an officer, director or employee thereof is a party,
(D) in any preliminary or final offering circular, registration statement or
contract or other document pertaining to the transactions contemplated herein
approved in advance by the Issuer or (E) to any affiliate, independent or
internal auditor, agent, employee or attorney of the Indenture Trustee having a
need to know the same, provided that the Indenture Trustee advises such
recipient of the confidential nature of the information being disclosed or (iv)
any other disclosure authorized by the Issuer.
SECTION 11.19. USURY. The amount of interest payable or paid on any
Note under the terms of this Indenture shall be limited to an amount which
shall not exceed the maximum non usurious rate of interest allowed by the
applicable laws of the United States or the lesser of New York or Pennsylvania
(whichever shall permit the higher rate), which could lawfully be contracted
for, charged or received (the "Highest Lawful Rate"). If any payment of
interest on any Note exceeds the Highest Lawful Rate, the Issuer stipulates
that such excess amount will be deemed to have been paid as a result of an
error on the part of both the Indenture Trustee, acting on behalf of the
Noteholder of such Note, and the Issuer, and the Noteholder receiving such
excess payment shall promptly, upon discovery of such error or upon notice
thereof from the Issuer or the Indenture Trustee, refund the amount of such
excess and, at the option of the Indenture Trustee, apply the excess to the
payment of principal of such Note, if any, remaining unpaid.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
this Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all 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: /s/ JEFFREY L. KINNEY
-------------------------------
Name:
Title:
BANKERS TRUST COMPANY,
not in its individual capacity but
solely as Indenture Trustee,
By: /s/ LINDA A. RAKOLTA
-------------------------------
Name:
Title:
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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 Jeffrey L. Kinney, 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
Assistant Vice President 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 27th day of March,
1997.
/s/ JAMES L. BURNS
-------------------------
Notary Public in and for
the State of New York.
[SEAL]
My commission expires:
- ----------------------
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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 Linda Rakolta, 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 27th day of March,
1997.
/s/ JAMES L. BURNS
-------------------------
Notary Public in and for
the State of New York.
[SEAL]
My commission expires:
- ----------------------
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APPENDIX A
TO THE INDENTURE
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
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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.
"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, with a copy to the
Majority Noteholder, 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, with a copy to the Majority Noteholder, 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, with a copy to the Majority Noteholder, 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, with a copy to the Majority Noteholder, on the Closing Date
(as such list may be modified or supplemented from time to time thereafter).
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"AVAILABLE FUNDS" means, with respect to a Distribution Date,
the 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 collecting
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 Trust during
such Collection Period (including but not limited to Financed Student Loans
repurchased by the Transferor or its designee or purchased by a Third Party
Purchaser pursuant to the provisions of Article X of the Transfer and Servicing
Agreement); (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
repurchased 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 and (vii) Investments Earnings 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.
"BASIC DOCUMENTS" means the Trust Agreement, the Indenture,
each Terms Supplement, the Transfer and Servicing Agreement, the Administration
Agreement, the Guarantee Agreements, the Purchase 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
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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.
"BUSINESS DAY" means 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 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%.
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"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 Certificate Distribution Date on and
after the Notes have been paid in full, the Certificateholders' Principal
Distribution Amount for such Distribution Date.
"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
Certificate 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; provided, however, that the Certificateholders'
Interest Distribution Amount will not include any Certificateholders' Interest
Carryover.
"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 of (i) the sum of the Certificateholders' Principal
Distribution Amount on
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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 Collection Period in the immediately 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 Distribution
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.
"CLASS" means any class of Notes.
"CLASS INITIAL RATE" means, with respect to any Class, the
rate identified as such in the related Terms Supplement.
"CLASS INITIAL RATE ADJUSTMENT DATE" means, with respect to
any Class of Notes, May 15, 1997.
"CLASS INTEREST RATE" means, with respect to any Class, the
interest rate determined as set forth in the related Terms Supplement.
"CLOSING DATE" means March 27, 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, with respect to the first
Distribution Date, the period beginning March 26, 1997 and ending on April 30,
1997, inclusive, and with respect to each subsequent Distribution Date
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.
"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 the Majority
Noteholder 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).
"CUT-OFF DATE" means, the close of business on March 25, 1997.
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"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.
"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 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
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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 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
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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 (i) the Business Day immediately
following the end of an Interest Period, commencing May 15, 1997 and (ii) any
day on which a deposit is made into the Collection Account pursuant to Article
X of the Transfer and Servicing Agreement.
"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
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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
- 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;
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(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
(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
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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 approved in writing by the Majority
Noteholder; and
(10) other forms of investments (including repurchase agreements)
approved in writing by the Majority Noteholder.
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 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;
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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, the Indenture Trustee and the Majority
Noteholder.
"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.
"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 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
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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 related Terms Supplement or Trust Agreement,
respectively.
"FINANCED STUDENT LOAN" means the Federal Loans set forth in
Schedule A to the Transfer and Servicing Agreement, as amended from time to
time by the 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.
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"FINANCED STUDENT LOAN FILES" means the documents specified
in Section 3.3 of the Transfer and Servicing Agreement.
"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.
"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
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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 any Terms
Supplement, each as amended or supplemented from time to time, with respect to
which the Notes issued thereunder are still Outstanding.
"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 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 related Transfer and Servicing Agreement or Supplemental
Transfer and Servicing Agreement.
"INITIAL CERTIFICATE BALANCE" means $1,000, representing the
Certificate Balance as of the Closing Date.
"INITIAL PERIOD" means, as to the Series 1997-1 Notes and the
Certificates, the period commencing on the Closing Date and continuing through
and including May 14, 1997.
"INITIAL POOL BALANCE" means $536,975,870.94 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
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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 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 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.
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"LIBOR RATE" means, with respect to any Class of 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 or Trust Agreement, as the case
may be.
"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.
"MAJORITY NOTEHOLDER" means Smith Barney Mortgage Capital
Group, Inc. regardless of the amount of Notes held by it.
"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.
"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
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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.
"MOODY'S" means Moody's Investor's Service, Inc.
"NOTES" means the notes issued by the Issuer pursuant to the
Master Indenture and a Terms Supplement.
"NOTE DISTRIBUTION ACCOUNT" means the account designated as
such, established and maintained pursuant to Section 5.1 of the Transfer and
Servicing Agreement.
"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 relating to such Notes, the sum of
the related Noteholders' Interest Distribution Amount and the Noteholders'
Principal Distribution Amount for such Note 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 Note 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
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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.
"NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, with
respect to any Class of Notes, 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, (A) on
the Distribution Dates occurring in May, June, July and August 1997, $0, and
(B) on the Final Maturity Date the Noteholders' Principal Distribution Amount
will include the amount required to reduce the Outstanding Amount of such Notes
to zero.
"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
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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 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 the Majority Noteholder, and which
opinion or opinions shall be addressed to the Indenture Trustee as Indenture
Trustee and the Majority Noteholder, shall comply with any applicable
requirements of Section 11.1 of the Master Indenture, and shall be in form and
substance satisfactory to the Indenture Trustee and the Majority Noteholder 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 acceptable to the Indenture Trustee, the Eligible Lender Trustee and the
Majority Noteholder.
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"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;
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.
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"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
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 and (ii) the principal portion of all
Purchase Amounts received by the Trust for such Collection Period.
"PREDECESSOR NOTE" means, with respect to any particular
Note, every previous Note evidencing all or a portion
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of the same debt as that evidenced by such particular Note; and, 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.
"PREMIUM" means [Reserved].
"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 DISTRIBUTION AMOUNT" means, with respect to any
Collection Period, 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 (including but not limited to Financed Student Loans
repurchased by the Transferor or its designee or purchased by a Third Party
Purchaser pursuant to the provisions of Article X of the Transfer and Servicing
Agreement); (iii) all Realized Losses incurred during the related Collection
Period; and (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; 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.
"PROCEEDING" means any suit in equity, action at law or other
judicial or administrative proceeding.
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"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.
"PUT OPTION" has the meaning set forth in Section 10.1(a) of
the Transfer and Servicing Agreement.
"PUT OPTION NOTICE" shall have the meaning set forth in
Section 10.1(a) of the Transfer and Servicing Agreement.
"PUT OPTION EXERCISE DATE" shall have the meaning set forth
in Section 10.1(a) of the Transfer and Servicing Agreement
"PUT OPTION PRICE" means, as to the Financed Student Loans on
any date of determination, 103.775% times the aggregate amount required to
prepay in full the outstanding principal balance of such Financed Student Loans
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 date the Put Option Price is deposited into the Collection Account
pursuant to Section 10.1(b) of the Transfer and Servicing Agreement.
"PUT OPTION PURCHASE DATE" has the meaning set forth in
Section 10.1(a) of the 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;
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<PAGE> 113
(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 and the Majority Noteholder;
(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 or reasonably required by the Majority
Noteholder.
"QUALIFIED INSTITUTIONAL BUYER" has the meaning ascribed to
such term in Rule 144A under the Securities Act.
"RATE ADJUSTMENT DATE" means, with respect to each Class of
Notes, the 15th day of each month, commencing May 15, 1997, which is the date
on which the applicable Class Interest Rate is effective and means, with
respect to each such Class of Notes, the date of commencement of each related
Interest Period.
"RATE DETERMINATION DATE" means the date which is both two
Business Days and two London Business Days preceding the related Rate
Adjustment Date.
"RATING AGENCY" means Moody's and Standard & Poor's. 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
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Indenture Trustee, the Eligible Lender Trustee, the Servicer and the
Majority Noteholder.
"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.
"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 related 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 $0.
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"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.
"SALE CLOSING DATE" has the meaning set forth in section
10.2(b) of the Transfer and Servicing Agreement.
"SALE PRICE" has the meaning set forth in Section 10.2(a) of
the Transfer and Servicing Agreement.
"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. The Schedule relating to the Indenture shall be a master
list of all Financed Student Loans then subject to the Lien of the Indenture.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"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 related Terms
Supplement, be divided into two or more Classes.
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<PAGE> 116
"SERIES 1997-1 NOTES" means the Notes designated as the
Issuer's Asset-Backed Notes, Series 1997-1, issued pursuant to the terms of the
Master Indenture and a Terms Supplement dated March 27, 1997 and having an
original principal amount equal to $544,931,645.
"SERVICER" means AFSA, USA Group, Great Lakes, PHEAA or
another entity appointed, with the prior written consent of the Majority
Noteholder, 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.
"SERVICING FEE" means, 115% of the aggregated amount paid
each month by the Master Servicer to each Servicer pursuant to the terms of the
Subservicing Agreement.
"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, $0.
"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.
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<PAGE> 117
"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.
"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.
"SUCCESSOR MASTER SERVICER" has the meaning specified in
Section 3.7(e) of the Indenture.
"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 initially, the Terms Supplement to
the Indenture dated as of March 27, 1997 between the Issuer and The Indenture
Trustee and thereafter, each indenture supplement to the Indenture which
authorizes a particular Series.
"THIRD PARTY PURCHASERS" has the meaning set forth in Section
10.2 of the Transfer and Servicing Agreement.
"TRANSACTION FEES" means, collectively, the Servicing Fee,
the Administration Fee, Indenture Trustee Fee and the Eligible Lender Trustee
Fee.
"TRANSFER AND SERVICING AGREEMENT" means the Transfer and
Servicing Agreement dated as of March 27, 1997, among the Issuer, the
Transferor, the Administrator, the Eligible Lender Trustee and the Master
Servicer, as amended from time to time.
35
<PAGE> 118
"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.
"TRUST INDENTURE ACT" or "TIA" means the Trust Indenture Act
of 1939 as in force on the date hereof, unless otherwise specifically provided.
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<PAGE> 119
"UCC" means, unless the context otherwise requires, the
Uniform Commercial Code, as in effect in the relevant jurisdiction, as amended
from time to time.
"UNAMORTIZED PREMIUM" [Reserved].
"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.
DEFINITIONS AND USAGE
[See Appendix A to the Transfer and Servicing Agreement]
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<PAGE> 120
EXHIBIT A-1
[FORM OF CLASS __ NON-REGISTERED NOTE]
PNC STUDENT LOAN TRUST I
ASSET BACKED NOTES
SERIES 1997-1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING THIS
NOTE, AGREES THAT THIS NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND (1) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS AN INSTITUTIONAL ACCREDITED
INVESTOR WITHIN THE MEANING OF RULE 501(A)(1)-(3) UNDER THE ACT OR A QUALIFIED
INSTITUTIONAL BUYER AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF AN INSTITUTIONAL ACCREDITED
INVESTOR, OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT.
THIS NOTE MAY NOT BE TRANSFERRED DIRECTLY OR INDIRECTLY TO (1) EMPLOYEE BENEFIT
PLANS, RETIREMENT ARRANGEMENTS, INDIVIDUAL RETIREMENT ACCOUNTS OR KEOGH PLANS
SUBJECT TO EITHER TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED, OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, OR (2) ENTITIES (INCLUDING INSURANCE COMPANY GENERAL ACCOUNTS) WHOSE
UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF ANY SUCH PLAN'S ARRANGEMENTS
OR ACCOUNT'S INVESTMENT IN SUCH ENTITIES.
THIS NOTE DOES NOT REPRESENT DEPOSITS OR OBLIGATIONS OF OR AN INTEREST IN PNC
BANK, NATIONAL ASSOCIATION, THE FIRST NATIONAL BANK OF CHICAGO OR FIRST CHICAGO
DELAWARE INC.
THIS NOTE IS NOT GUARANTEED OR INSURED BY FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY GOVERNMENTAL AGENCY.
No. $__________
FINAL
MATURITY DATED INTEREST
CLASS DATE DATE RATE
1
<PAGE> 121
REGISTERED NOTEHOLDER: _____________________
PRINCIPAL AMOUNT:
PNC 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, as
reduced from time to time as described herein, 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 in this
Series 199_-_ Note, capitalized terms used in this Series 199_-_ Note shall
have the respective meanings given to such terms in the Master Indenture dated
as of March __, 1997 (the "Master Indenture"), as supplemented by the ______
Terms Supplement dated as of _______ __, 199_, (the "______ Terms Supplement"
and, together with the Master Indenture, the "Indenture") between the Issuer
and [ ], as Indenture Trustee.
This Series 199_-_ Note is one of a duly authorized issue of
notes of the Issuer designated as PNC Student Loan Trust 19971-1 Asset-Backed
Notes, Series 199_-_" (herein referred to by specific Class as the "Series
199_-_, Notes" and collectively as the "Series 199_-_ Notes"), in the aggregate
principal amount of $_________ issued under the Indenture. The Series 199_-_
Notes are issued to finance the acquisition of Financed Student Loans, and to
make certain deposits to the Trust 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 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, definitions of
certain capitalized terms used in this Series 199_-_ Note, the nature and the
extent of
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<PAGE> 122
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 terms and conditions under which additional
Notes may be issued, 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 Series 199_-_ Note, the
registered owner hereof assents to all of the provisions of the Indenture.
The unpaid principal amount hereof from time to time
outstanding shall bear interest at a Class Interest Rate, as described below,
payable on each applicable Distribution Date to the extent of interest accrued
on the principal then outstanding, such interest to accrue from the later of
the date hereof or the date through which interest has been paid or duly
provided for. Interest at a Class Interest Rate established pursuant to the
_______ Terms Supplement shall be computed for the actual number of days
elapsed on the basis of a year consisting of 360 days.
This Series 199_-_ Note shall bear interest at a rate set
forth in the First Terms Supplement.
Distributions of principal will made 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.
The Noteholder of this Series 199_-_ 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.
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<PAGE> 123
The transfer of this Series 199_-_ Note may be registered
only upon surrender hereof to the Indenture Trustee together with a certificate
substantially in the form of Exhibit B of the Master Indenture 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 Series 199_-_ 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
Series 199_-_ Note a new Series 199_-_ 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 Series 199_-_ Note and bearing the same
interest as this Series 199_-_ Note.
In any case where the date fixed for the payment of principal
of or interest on this Series 199_-_ 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 Series 199_-_ Note have happened, do exist and have been
performed in due time, form and manner as required by law.
This Series 199_-_ 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.
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<PAGE> 124
IN WITNESS WHEREOF, the Issuer has caused this Series 199_-_
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:
-------------------------------
5
<PAGE> 125
CERTIFICATE OF AUTHENTICATION
This Note is one of the Series 199_-_ 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:
- -----------------------
6
<PAGE> 126
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):___________________________
[END OF FORM OF Series 199_-_ Note)
7
<PAGE> 127
EXHIBIT A-2
[FORM OF REGISTERED NOTE]
PNC STUDENT LOAN TRUST I
ASSET BACKED NOTES
SERIES 1997-1
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 AN INTEREST IN PNC
BANK, NATIONAL ASSOCIATION, THE FIRST NATIONAL BANK OF CHICAGO OR FIRST CHICAGO
DELAWARE INC.
THIS NOTE IS NOT GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION ANY GOVERNMENTAL AGENCY.
No. $__________
FINAL
MATURITY DATED INTEREST
CLASS DATE DATE RATE
1
<PAGE> 128
REGISTERED NOTEHOLDER: CEDE & CO.
PRINCIPAL AMOUNT: ___________________
PNC STUDENT LOAN TRUST ____, 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, as
reduced from time to time as described herein, 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 in this
Series 199_-_ Note, capitalized terms used in this Series 199_-_ Note shall
have the respective meanings given to such terms in the Master Indenture dated
as of March 27, 1997 (the "Master Indenture"), as supplemented by the First
Terms Supplement dated as of March 27, 1997, (the Terms Supplement" and,
together with the Master Indenture, the "Indenture") between the Issuer and
[______], as Indenture Trustee.
This Series 199_-_ Note is one of a duly authorized issue of
notes of the Issuer designated as PNC Student Loan Trust 19971-1 Asset-Backed
Notes, Series 199_-_" (herein referred to by specific Class as the "Series
199_-_, Notes" and collectively as the "Series 199_-_ Notes"), in the aggregate
principal amount of $_________ issued under the Indenture. The Series 199_-_
Notes are issued to finance the acquisition of Financed Student Loans, and to
make certain deposits to the Trust 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 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, definitions of
certain capitalized terms used in this Series 199_-_ Note, 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
2
<PAGE> 129
the payment of the principal of and the interest on the Notes, the terms and
conditions under which additional Notes may be issued, 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
Series 199_-_ Note, the registered owner hereof assents to all of the
provisions of the Indenture.
The unpaid principal amount hereof from time to time
outstanding shall bear interest at a Class Interest Rate, as described below,
payable on each applicable Distribution Date to the extent of interest accrued
on the principal then outstanding, such interest to accrue from the later of
the date hereof or the date through which interest has been paid or duly
provided for. Interest at a Class Interest Rate established pursuant to the
First Terms Supplement shall be computed for the actual number of days elapsed
on the basis of a year consisting of 360 days.
This Series 199_-_ Note shall bear interest at a rate set
forth in the First Terms Supplement.
Distributions of principal will made on each Distribution
Date to the Series 199_ Notes 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.
The Noteholder of this Series 199_-_ 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 Series 199_-_ Note may be registered
only upon surrender hereof to the Indenture Trustee
3
<PAGE> 130
together with a certificate substantially in the form of Exhibit B of the
Master Indenture 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 Series 199_-_
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 Series 199_-_ Note a new Series
199_-_ 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 Series 199_-_ Note and bearing the same interest as this Series 199_-_
Note.
In any case where the date fixed for the payment of principal
of or interest on this Series 199_-_ 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 Series 199_-_ Note have happened, do exist and have been
performed in due time, form and manner as required by law.
This Series 199_-_ 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.
4
<PAGE> 131
IN WITNESS WHEREOF, the Issuer has caused this Series 199_-_
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:
--------------------------------
5
<PAGE> 132
CERTIFICATE OF AUTHENTICATION
This Note is one of the Series 199_-_ 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:
- -----------------------
6
<PAGE> 133
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):___________________________
[END OF FORM OF Series 199_-_ Note)
7
<PAGE> 1
Exhibit 4.3
TRUST AGREEMENT
among
PNC BANK, NATIONAL ASSOCIATION
as Depositor
THE FIRST NATIONAL BANK OF CHICAGO,
as Eligible Lender Trustee
and
FIRST CHICAGO DELAWARE INC.,
as Delaware Trustee
Dated as of March 27, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
Definitions and Usage............................................................................. 1
ARTICLE II
ORGANIZATION
SECTION 2.1. Name............................................................................ 1
SECTION 2.2. Office and Situs of the Trust................................................... 1
SECTION 2.3. Purposes and Powers............................................................. 1
SECTION 2.4. Appointment of Eligible Lender Trustee and Delaware Trustee..................... 3
SECTION 2.5. Initial Capital Contribution of Trust
Estate ....................................................................... 3
SECTION 2.6. Declaration of Trust............................................................ 4
SECTION 2.7. No Liability of the Certificateholders.......................................... 4
SECTION 2.8. Title to Trust Property......................................................... 4
SECTION 2.9. Representations and Warranties of the
Depositor..................................................................... 5
SECTION 2.10. Federal Income Tax Allocations.................................................. 6
ARTICLE III
TRUST CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.1. Initial Beneficial Ownership.................................................... 7
SECTION 3.2 The Trust Certificates.......................................................... 8
SECTION 3.3. Authentication of Trust Certificates............................................ 8
SECTION 3.4. Registration of Transfer and Exchange
of Trust Certificates......................................................... 9
SECTION 3.5. Restrictions on Transfer ....................................................... 10
SECTION 3.6. Mutilated, Destroyed, Lost or Stolen
Trust Certificates............................................................ 12
SECTION 3.7. Persons Deemed Owners........................................................... 12
SECTION 3.8. Access to List of Certificateholders'
Names and Addresses........................................................... 13
SECTION 3.9. Maintenance of Office or Agency................................................. 13
SECTION 3.10. Appointment of Certificate Paying Agent......................................... 14
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV
ACTIONS BY ELIGIBLE LENDER TRUSTEE
SECTION 4.1. Prior Notice to Certificateholders with
Respect to Certain Matters................................................... 15
SECTION 4.2. Action by Certificateholders with
Respect to Certain Matters................................................... 16
SECTION 4.3. Action by Certificateholders with
Respect to Bankruptcy........................................................ 16
SECTION 4.4. Restrictions on Certificateholders'
Power ....................................................................... 16
SECTION 4.5. Majority Control ....................................................................... 16
ARTICLE V
APPLICATION OF TRUST FUNDS;
CERTAIN DUTIES
SECTION 5.1. Application of Trust Funds.............................................................. 17
SECTION 5.2. Method of Payment....................................................................... 18
SECTION 5.3. Segregation of Moneys; No Interest...................................................... 18
SECTION 5.4. Accounting and Reports to the Note-
holders, Certificateholders,
the Internal Revenue Service and
Others ............................................................................... 18
SECTION 5.5. Signature on Returns; Tax Matters
Partner...................................................................... 19
ARTICLE VI
AUTHORITY AND DUTIES OF ELIGIBLE LENDER TRUSTEE
SECTION 6.1. General Authority....................................................................... 20
SECTION 6.2. General Duties.......................................................................... 20
SECTION 6.3. Action upon Instruction................................................................. 21
SECTION 6.4. No Duties Except as Specified in this
Agreement, the Transfer and Servicing
Agreement, any Supplemental Transfer
and Servicing Agreement or in
Instructions.......................................................................... 22
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 6.5. No Action Except Under Specified
Documents or Instructions.................................................... 23
SECTION 6.6. Restrictions................................................................... 23
ARTICLE VII
CONCERNING THE ELIGIBLE LENDER TRUSTEE
SECTION 7.1. Acceptance of Trusts and Duties................................................ 24
SECTION 7.2. Furnishing of Documents........................................................ 26
SECTION 7.3. Representations and Warranties................................................. 26
SECTION 7.4. Reliance; Advice of Counsel.................................................... 27
SECTION 7.5. Not Acting in Individual Capacity.............................................. 28
SECTION 7.6. Eligible Lender Trustee Not Liable for
Trust Certificates or Financed
Student Loans................................................................ 28
SECTION 7.7. Eligible Lender Trustee May Own Trust
Certificates and Notes....................................................... 29
SECTION 7.8. Representations and Warranties of Delaware Trustee............................. 29
ARTICLE VIII
COMPENSATION OF ELIGIBLE LENDER TRUSTEE
SECTION 8.1. Eligible Lender Trustee's Fees and
Expenses..................................................................... 30
SECTION 8.2. Payments to the Eligible Lender
Trustee...................................................................... 30
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
SECTION 9.1. Termination of Trust Agreement................................................. 31
SECTION 9.2. Dissolution upon Insolvency of Depositor....................................... 32
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE X
SUCCESSOR ELIGIBLE LENDER TRUSTEES AND
ADDITIONAL ELIGIBLE LENDER TRUSTEES
SECTION 10.1. Eligibility Requirements for
Eligible Lender Trustee...................................................... 34
SECTION 10.2. Resignation or Removal of Eligible
Lender Trustee............................................................... 34
SECTION 10.3. Successor Eligible Lender Trustee.............................................. 36
SECTION 10.4. Merger or Consolidation of Eligible
Lender Trustee............................................................... 37
SECTION 10.5. Appointment of Co-Eligible Lender
Trustee or Separate Eligible Lender
Trustee...................................................................... 37
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Supplements and Amendments..................................................... 39
SECTION 11.2. No Legal Title to Trust Estate in
Certificateholders........................................................... 41
SECTION 11.3. Limitations on Rights of Others................................................ 40
SECTION 11.4. Notices........................................................................ 41
SECTION 11.5. Severability................................................................... 42
SECTION 11.6. Separate Counterparts.......................................................... 42
SECTION 11.7. Successors and Assigns......................................................... 42
SECTION 11.8. No Petition.................................................................... 42
SECTION 11.9. No Recourse.................................................................... 43
SECTION 11.10. Headings....................................................................... 43
SECTION 11.11. Governing Law.................................................................. 43
EXHIBIT A Form of Trust Certificate
EXHIBIT B Form of Purchaser's Representation and Warranty
Letter
APPENDIX A Definitions and Usage
</TABLE>
- iv -
<PAGE> 6
TRUST AGREEMENT dated as of March 27, 1997, between PNC BANK,
NATIONAL ASSOCIATION, as Depositor (the "Depositor"), and THE FIRST NATIONAL
BANK OF CHICAGO, not in its individual capacity but solely as Eligible Lender
Trustee (the "Eligible Lender Trustee") and FIRST CHICAGO DELAWARE INC., not in
its individual capacity but solely as Delaware Trustee (the "Delaware
Trustee").
The Depositor and the Eligible Lender Trustee hereby agree as
follows:
ARTICLE I
DEFINITIONS AND USAGE
Capitalized terms used but not defined herein are defined in
Appendix A attached hereto, which also contains rules as to construction and
usage that are applicable herein.
ARTICLE II
ORGANIZATION
SECTION 2.1. NAME. The Trust created hereby shall be known as
"PNC Student Loan Trust I," in which name the Eligible Lender Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
SECTION 2.2. OFFICE AND SITUS OF THE TRUST. The registered
office of the Issuer in Delaware of the Delaware Trustee shall be the office at
300 King Street, Wilmington, Delaware 19801 and the situs of the Trust shall be
at the corporate trust office of the Eligible Lender Trustee located at One
First National Plaza, Suite 0126, Chicago, IL 60670-0126.
SECTION 2.3. PURPOSES AND POWERS. The purpose of the Trust is
to engage in the following activities:
(i) to issue one or more Classes of the Trust
Certificates pursuant to this Agreement and, if applicable, one or
more Trust Supplements, and to sell the Trust Certificates in one or
more transactions;
<PAGE> 7
(ii) to issue one or more Series of Notes pursuant to the
Master Indenture and the applicable Terms Supplement and to sell the
Notes in one or more transactions in accordance with instructions
received from the Administrator;
(iii) with the proceeds of the sale of the Notes and the
Trust Certificates, to acquire, from time to time, the Financed
Student Loans;
(iv) to assign, grant, transfer, pledge, mortgage and
convey the Trust Estate pursuant to the Indenture and the applicable
Terms Supplement and to hold, manage and distribute to the
Certificateholders pursuant to the terms of the Transfer and Servicing
Agreement any portion of the Trust Estate released from the Lien of,
and remitted to the Trust pursuant to, the Indenture and the
applicable Terms Supplement;
(v) from time to time to sell and dispose of the Financed
Student Loans in accordance with the terms of the Basic Documents;
(vi) to enter into and perform its obligations under the
Basic Documents to which it is to be a party;
(vii) to engage in those activities, including entering
into agreements, that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or connected
therewith; and
(viii) to engage in such other activities as may be
required in connection with conservation of the Trust Estate and the
making of distributions to the Certificateholders, the Noteholders and
the others specified in Article V of the Transfer and Servicing
Agreement and or contemplated by the Basic Documents.
The Trust shall not engage in any activity other than in connection with the
foregoing or other than as required or authorized by the terms of this
Agreement or the other Basic Documents. Notwithstanding anything in this
Agreement or the
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<PAGE> 8
Basic Documents to the contrary, for so long as the Depositor is a
Certificateholder, the Trust's activities shall be limited to activities that
are part of, or incidental to, the business of banking.
This Section 2.3 shall not be amended without the prior
written unanimous consent of the Certificateholders, including the Depositor.
SECTION 2.4. APPOINTMENT OF ELIGIBLE LENDER TRUSTEE AND
DELAWARE TRUSTEE. (a) The Depositor hereby (i) appoints the Eligible Lender
Trustee as trustee of the Trust effective as of the date hereof, to have all
the rights, powers and duties set forth herein, and (ii) ratifies all actions
of the Eligible Lender Trustee taken on behalf of the Trust prior to the
execution hereof.
(b) The Delaware Trustee is hereby appointed to serve as
the trustee of the Trust in the State of Delaware for the sole purpose of
satisfying the requirement of Section 3807 of the Business Trust Statute that
the Trust have at least one trustee with a principal place of business in
Delaware. It is understood and agreed by the parties hereto and the
Certificateholders that the Delaware Trustee shall have none of the duties or
liabilities of the Eligible Lender Trustee. The duties of the Delaware Trustee
shall be limited to (a) accepting legal process served on the Trust in the
State of Delaware and (b) the execution of any certificates required to be
filed with the Delaware Secretary of State, which the Delaware Trustee is
required to execute under Section 3811 of the Business Trust Statute. To the
extent that, at law or in equity, the Delaware Trustee has duties (including
fiduciary duties) and liabilities relating to the Trust or the
Certificateholders, it is hereby understood and agreed by the other parties
hereto and the Certificateholders that such duties and liabilities are replaced
by the duties and liabilities of the Delaware Trustee expressly set forth in
this Agreement.
SECTION 2.5. INITIAL CAPITAL CONTRIBUTION OF TRUST ESTATE.
The Depositor hereby sells, assigns, transfers, conveys and sets over to the
Eligible Lender Trustee, as of the date hereof, the sum of $10.00. The Eligible
Lender Trustee hereby acknowledges receipt in trust from the Depositor of the
foregoing contribution, which shall constitute the initial Trust Estate and
shall be deposited in the Collection Account.
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<PAGE> 9
SECTION 2.6. DECLARATION OF TRUST. The Eligible Lender
Trustee hereby declares that it will hold the Trust Estate in trust upon and
subject to the conditions set forth herein for the use and benefit of the
Certificateholders, subject to the obligations of the Trust under the other
Basic Documents. It is the intention of the parties hereto that the Trust
constitute a business trust under Delaware law and that this Agreement
constitute the governing instrument of such trust. If for any reason it is
determined that the Trust does not qualify as a business trust under Delaware
law, it shall be a trust, nonetheless, under the common law of Delaware. It is
the intention of the parties hereto that, solely for federal, state and local
income, franchise and similar tax purposes, the Trust shall be treated as a
partnership, with the assets of the partnership being the Financed Student
Loans and other assets held by the Trust, the partners of the partnership being
the Certificateholders and the Notes being debt of the partnership. The parties
agree that, unless otherwise required by appropriate federal, state or local
tax authorities, they shall treat the Trust as a partnership for Federal tax
purposes, and the Trust will file or cause to be filed annual or other
necessary returns, reports and other forms consistent with the characterization
of the Trust as a partnership for Federal tax purposes, and Depositor will not
make, or cause to be made, an election under the provisions of Treasury
Regulation Section 301.7701-3 to classify the Trust an association and shall
take, or cause to be taken, necessary and appropriate actions consistent with
carrying out the intent of this Section 2.6. Effective as of the date hereof,
the Eligible Lender Trustee shall have all rights, powers and duties set forth
herein with respect to accomplishing the purposes of the Trust.
SECTION 2.7. NO LIABILITY OF THE CERTIFICATEHOLDERS.
No Certificateholder shall have any personal liability for any liability or
obligation of the Trust.
SECTION 2.8. TITLE TO TRUST PROPERTY. Legal title to all the
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Trust Estate to be vested in a trustee or trustees, in which case
title shall be deemed to be vested in the Eligible Lender Trustee, a co-trustee
and/or a separate trustee, as the case may be; provided that legal title to the
Financed Student Loans shall be vested at all times in the Eligible Lender
Trustee on behalf of the Trust.
-4-
<PAGE> 10
SECTION 2.9. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR.
The Depositor hereby represents and warrants to the Eligible Lender Trustee
that:
(a) The Depositor is duly organized, validly existing as a
national banking association, with corporate 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 Depositor.
(b) The Depositor has the requisite corporate power and
authority to execute and deliver this Agreement and to carry out its
terms; the Depositor has requisite corporate power and authority to
sell and assign the property to be sold and assigned to and deposited
with the Trust (or with the Eligible Lender Trustee on behalf of the
Trust) and the Depositor has duly authorized such sale and assignment
and deposit to the Trust (or to the Eligible Lender Trustee on behalf
of the Trust) by all necessary corporate action on the Depositor's
part; and the execution, delivery and performance of this Agreement
has been duly authorized by the Depositor by all necessary corporate
action on their respective parts.
(c) This Agreement has been duly executed and delivered by
the Depositor, and constitutes a legal, valid and binding obligation
of the Depositor enforceable against the Depositor in accordance with
its terms, subject to the effect of applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws
relating to or affecting creditors' rights generally and court
decisions with respect thereto and subject to the application of
equitable principles in any proceeding, whether at law or in equity.
(d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not violate with,
result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time or both) a default
under, the articles of incorporation or by-laws of the Depositor, or
-5-
<PAGE> 11
any material indenture, agreement or other material instrument to
which the Depositor is a party or by which it is 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 law or, to the Depositor's knowledge, any
order, rule or regulation applicable to the Depositor of any court or
of any Federal or State regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over the
Depositor or its properties except for such violations which would not
have a material adverse effect on the Depositor.
(e) No consent of any Federal or state governmental or
administrative authority is required to be obtained by the Depositor
prior to its entering into this Agreement or in connection with its
consummation of the transactions expressly contemplated by the Basic
Documents, other than those that have been obtained except such as may
be required by the blue sky laws of any jurisdiction in connection
with the sale of and distribution of the Notes and Certificates for
which no representation is being made.
SECTION 2.10. Federal Income Tax Allocations. Interest
payments on the Certificates at the Certificate rate (including interest on
amounts previously due on the Certificates but not yet distributed) shall be
treated as "guaranteed payments" under Section 707(c) of the Code. Net income
of the Trust for tax year as determined for federal income tax purposes (and
each item of income, gain, loss and deduction entering into the computation
thereof) shall be allocated:
(a) among Certificateholders in proportion to their ownership
of principal amount of Trust Certificates on such date, an amount of
net income up to the sum of (i) the portion of the market discount on
the Financed Student Loans accrued during such tax year that is
allocable to the excess, if any, of the initial aggregate principal
amount of the Trust Certificates over their initial aggregate issue
price, (ii) prepayment premium, if any, payable to the
Certificateholders for such tax year and (iii) any other amounts of
income payable to the Certificateholders for such tax year; and such
sum of amounts specified in
-6-
<PAGE> 12
clauses (i) through (iii) of this sentence shall be reduced by any
amortization by the Trust of premium on Financed Student Loans that
corresponds to any excess of the issue price of Certificates over
their principal amount; and
(b) any remaining net income shall thereafter be allocated to
the Depositor.
If the net income of the Trust for any tax year is insufficient for the
allocations described in clause (a) above, subsequent net income shall first be
allocated to make up such shortfall before being allocated as provided in the
preceding sentence. Net losses of the Trust, if any, for any tax year as
determined for federal income tax purposes (and each item of income, gain, loss
and deduction entering into the computation thereof) shall be allocated to the
Depositor to the extent the Depositor is reasonably expected to bear the
economic burden of such net losses, and any remaining net losses shall be
allocated among the Certificateholders as of the close of business on the last
day of such tax year in proportion to their ownership of principal amount of
Trust Certificates on such day. The Depositor is authorized to modify the
allocations in this paragraph is necessary or appropriate, in its sole
discretion, for the allocations to fairly reflect the economic income, gain or
loss to the Depositor or to the Certificateholder, or as otherwise required by
the Code.
For purposes of Treasury regulation Section 1.752-3(a)(3),
the Depositor's interest in the Trust shall be equal to one hundred percent
(100%) and, accordingly, the Depositor's share of the "nonrecourse liabilities"
of the Trust under Section 752 of the Code and the Depositor's share of the
"nonrecourse deductions" of the Trust under Section 704 of the Code shall be
one hundred percent (100%).
ARTICLE III
TRUST CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.1. INITIAL BENEFICIAL OWNERSHIP. Upon the formation
of the Trust by the contribution by the Depositor pursuant to Section 2.5 and
until the initial issuance of the Trust Certificates, the Depositor shall be
the sole beneficial owner of the Trust.
-7-
<PAGE> 13
SECTION 3.2. THE TRUST CERTIFICATES. The Trust Certificates
shall be substantially in the form of Exhibit A. The Trust Certificates shall
be issued in minimum denominations of $10.00 and integral multiples of $10 in
excess thereof. The Trust Certificates shall be executed on behalf of the Trust
by manual or facsimile signature of an authorized officer of the Eligible
Lender Trustee. Trust Certificates bearing the manual or facsimile signatures
of individuals who were, at the time when such signatures shall have been
affixed, authorized to sign on behalf of the Trust, shall be valid and binding
obligations of the Trust, notwithstanding that such individuals or any of them
shall have ceased to be so authorized prior to the authentication and delivery
of such Trust Certificates or did not hold such offices at the date of
authentication and delivery of such Trust Certificates
SECTION 3.3. AUTHENTICATION OF TRUST CERTIFICATES. (a) On the
Closing Date, the Eligible Lender Trustee shall cause the Trust Certificates in
an aggregate principal amount equal to $1,000 to be executed on behalf of the
Trust, authenticated and delivered to or upon the written order of the
Depositor, signed by its chairman of the board, its president or any vice
president, without further action by the Depositor, in authorized denominations
in exchange for the amount contributed to the Trust pursuant to Section 2.5 and
$990 in cash payable by the initial Certificateholders on the Closing Date.
Such Trust Certificates shall be designated as the PNC Student Loan Trust
1997-1 Asset-Backed Certificates. No Trust Certificate shall entitle its holder
to any benefit under this Agreement, or shall be valid for any purpose, unless
there shall appear on such Trust Certificate a certificate of authentication
substantially in the form set forth in Exhibit A, executed by the Eligible
Lender Trustee by manual signature; such authentication shall constitute
conclusive evidence that such Trust Certificate shall have been duly
authenticated and delivered hereunder. All Trust Certificates shall be dated
the date of their authentication. No further Trust Certificates shall be issued
except pursuant to Section 3.4 or 3.5 hereunder.
(b) In connection with the initial issuance of the Trust Certificates
the Depositor hereby makes the following representations and warranties:
-8-
<PAGE> 14
(i) It is not (1) an employee benefit plan, retirement arrangement,
individual retirement account or Keogh plan subject to either Title I of the
Employee Retirement Income Security Act of 1974, as amended, or Section 4975 of
the Internal Revenue Code of 1986, as amended, or (2) an entity (including an
insurance company general account) whose underlying assets include plan assets
by reason of any such plan's arrangements or account's investment in any such
entity.
(ii) It is a U.S. Person as defined in Section 7701(a)(30) of the
Code.
(iii) It understands that the Trust Certificates will be offered in a
transaction not involving any public offering within the meaning of the
Securities Act, and that, if in the future it decides to resell, pledge or
otherwise transfer any Trust Certificates, such Trust Certificates may be
resold, pledged or transferred only (a) to a person who the seller reasonably
believes is an institutional "accredited investor" as defined in Rule
501(a)(1)-(3) under the Securities Act that purchases for its own account or
for the account of another institutional accredited investor or (b) pursuant to
an effective registration statement under the Securities Act.
SECTION 3.4. REGISTRATION OF TRANSFER AND EXCHANGE OF TRUST
CERTIFICATES. The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 3.9, a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Eligible
Lender Trustee shall provide for the registration of Trust Certificates and of
transfer and exchanges of Trust Certificates as provided herein. The Eligible
Lender Trustee shall be the Certificate Registrar.
Upon surrender for registration of transfer of any Trust
Certificate at the office or agency maintained pursuant to Section 3.9, and
compliance with the provisions set forth in Section 3.5, the Eligible Lender
Trustee shall execute, authenticate and deliver in the name of the designated
transferee or transferees, one or more new Trust Certificates in authorized
denominations of a like aggregate amount dated the date of authentication by
the Eligible Lender Trustee or any authenticating agent. At the option of a
Certificateholder, Trust Certificates may be exchanged for other Trust
Certificates of authorized denominations of a like aggregate amount upon
surrender of the Trust Certificates to be exchanged at the office or agency
maintained pursuant to Section 3.9.
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Every Trust Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Eligible Lender Trustee and
the Certificate Registrar duly executed by the Certificateholder or his
attorney duly authorized in writing, with such signature guaranteed by an
entity acceptable to the Eligible Lender Trustee. Each Trust Certificate
surrendered for registration of transfer or exchange shall be canceled and
subsequently disposed of by the Eligible Lender Trustee in accordance with its
customary practice.
No service charge shall be made for any registration of
transfer or exchange of Trust Certificates, but the Eligible Lender Trustee or
the Certificate Registrar may require payment of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any transfer
or exchange of Trust Certificates.
The preceding provisions of this Section 3.4 notwithstanding,
the Eligible Lender Trustee shall not be required to make and the Certificate
Registrar need not register transfers or exchanges of Trust Certificates for a
period of 15 days preceding any Distribution Date.
SECTION 3.5. RESTRICTIONS ON TRANSFER. (a) Except for the initial
sale of the Trust Certificates, the Trust Certificates may not be offered or
sold except to institutional "accredited investors" (as defined in Rule
501(a)(1)-(3) under the Securities Act who are U.S. Persons (as defined in
Section 7701(a)(30) of the Code) in reliance on an exemption from the
registration requirements of the Securities Act.
The Trust Certificates have not been registered or qualified under
the Securities Act, or any state securities law. No transfer, sale, pledge or
other disposition of any Trust Certificate shall be made unless such
disposition is made pursuant to an effective registration statement under the
Securities Act and effective registration or qualification under applicable
state securities laws, or is made in a transaction which does not require such
registration or qualification. In the event that a transfer is to be made in
reliance upon an exemption from the Securities Act, the Eligible Lender Trustee
may require, in order to assure compliance with the Securities Act, that the
Certificateholder's prospective transferee certify
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to the Eligible Lender Trustee in writing the facts surrounding such
disposition. Unless the Eligible Lender Trustee requests otherwise, such
certification shall be substantially in the form of Exhibit B hereto. In the
event that such certification of facts does not on its face establish the
availability of an exemption under the Securities Act, the Eligible Lender
Trustee may require an opinion of counsel satisfactory to it that such transfer
may be made pursuant to an exemption from the Securities Act, which opinion of
counsel shall not be an expense of the Eligible Lender Trustee or of the Trust.
(b) Each Trust Certificate will bear a legend substantially
to the following effect:
"THIS TRUST CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS. THE HOLDER HEREOF,
BY PURCHASING THIS TRUST CERTIFICATE, AGREES THAT THIS TRUST CERTIFICATE MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN ACCORDANCE WITH ANY APPLICABLE
STATE SECURITIES LAWS AND (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS
AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(A)(1)-(3)
UNDER THE ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF AN
INSTITUTIONAL ACCREDITED INVESTOR, OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT.
THIS TRUST CERTIFICATE MAY NOT BE TRANSFERRED DIRECTLY OR INDIRECTLY TO (1)
EMPLOYEE BENEFIT PLANS, RETIREMENT ARRANGEMENTS, INDIVIDUAL RETIREMENT ACCOUNTS
OR KEOGH PLANS SUBJECT TO EITHER TITLE I OF THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED, OR SECTION 4975 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, OR (2) ENTITIES (INCLUDING INSURANCE COMPANY GENERAL
ACCOUNTS) WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF ANY SUCH
PLAN'S ARRANGEMENTS OR ACCOUNT'S INVESTMENT IN SUCH ENTITIES. FURTHER, THIS
TRUST CERTIFICATE MAY BE TRANSFERRED ONLY TO A UNITED STATES PERSON WITHIN THE
MEANING OF SECTION 7701(A)(30) OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED.
THIS TRUST CERTIFICATE DOES NOT REPRESENT DEPOSITS OR OBLIGATIONS OF OR ANY
INTEREST IN PNC BANK, NATIONAL ASSOCIATION, THE FIRST NATIONAL BANK OF CHICAGO
OR FIRST CHICAGO DELAWARE INC.
THIS TRUST CERTIFICATE IS NOT GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY GOVERNMENTAL AGENCY.
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AS LONG AS THE SERIES 1997-1 NOTES ARE OUTSTANDING, THIS TRUST CERTIFICATE MAY
NOT BE SOLD, PLEDGED OR TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT OF SMITH
BARNEY MORTGAGE CAPITAL GROUP, INC., WHICH MAY NOT BE UNREASONABLY WITHHELD."
(c) The Trust Certificates may not at any time be sold,
pledged or otherwise transferred without the prior written consent of Smith
Barney Mortgage Capital Group, Inc., which may not be unreasonably withheld.
SECTION 3.6. MUTILATED, DESTROYED, LOST OR STOLEN TRUST
CERTIFICATES. If (a) any mutilated Trust Certificate shall be surrendered to
the Certificate Registrar, or if the Certificate Registrar shall receive
evidence to its satisfaction of the destruction, loss or theft of any Trust
Certificate and (b) there shall be delivered to the Certificate Registrar and
the Eligible Lender Trustee such security or indemnity as may be required by
them to save each of them harmless, then in the absence of notice that such
Trust Certificate shall have been acquired by a bona fide purchaser, the
Eligible Lender Trustee on behalf of the Trust shall execute and the Eligible
Lender Trustee shall authenticate and deliver, in exchange for or in lieu of
any such mutilated, destroyed, lost or stolen Trust Certificate, a new Trust
Certificate of like tenor and denomination. In connection with the issuance of
any new Trust Certificate under this Section, the Eligible Lender Trustee and
the Certificate Registrar may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Trust Certificate issued pursuant to this Section
shall constitute conclusive evidence of ownership in the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Trust
Certificate shall be found at any time.
SECTION 3.7. PERSONS DEEMED OWNERS. Prior to due presentation
of a Trust Certificate for registration of transfer, the Eligible Lender
Trustee or the Certificate Registrar and any agent of any thereof may treat the
Person in whose name any Trust Certificate shall be registered in the
Certificate Register as the owner of such Trust Certificate for the purpose of
receiving distributions pursuant to Section 5.1 and for all other purposes
whatsoever, and neither the Eligible Lender Trustee or the Certificate
Registrar nor any agent of any thereof shall be bound by any notice to the
contrary.
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SECTION 3.8. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND
ADDRESSES. The Eligible Lender Trustee shall furnish or cause to be furnished
to the Depositor within 15 days after receipt by the Eligible Lender Trustee of
a request therefor from the Depositor in writing, a list, in such form as the
Depositor may reasonably require, of the names and addresses of the
Certificateholders as of the most recent Record Date. If three or more
Certificateholders or one or more Certificateholders evidencing not less than
25% of the Certificate Balance apply in writing to the Eligible Lender Trustee,
and such application states that the applicants desire to communicate with
other Certificateholders with respect to their rights under this Agreement or
under the Trust Certificates and such application is accompanied by a copy of
the communication that such applicants propose to transmit, then the Eligible
Lender Trustee shall, within five Business Days after the receipt of such
application, afford such applicants access during normal business hours to the
current list of Certificateholders. Upon receipt of any such application, the
Eligible Lender Trustee will promptly notify the Depositor by providing a copy
of such application and a copy of the list of Certificateholders produced in
response thereto. Each Certificateholder, by receiving and holding a Trust
Certificate shall be deemed to have agreed not to hold any of the Depositor,
the Certificate Registrar or the Eligible Lender Trustee accountable by reason
of the disclosure of its name and address, regardless of the source from which
such information was derived.
SECTION 3.9. MAINTENANCE OF OFFICE OR AGENCY. The Eligible
Lender Trustee shall maintain in (Borough of Manhattan, City of New York) an
office or offices or agency or agencies where Trust Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Eligible Lender Trustee in respect of the Trust
Certificates and the other Basic Documents may be served. The Eligible Lender
Trustee initially designates its corporate trust office at The First National
Bank of Chicago, One First National Plaza, Suite 0126, Chicago, Illinois 60670,
as such office. The Eligible Lender Trustee shall give prompt written notice to
the Depositor and to the Certificateholders of any change in the location of
the Certificate Register or any such office or agency.
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SECTION 3.10. APPOINTMENT OF CERTIFICATE PAYING AGENT. The
Certificate Paying Agent shall make distributions to Certificateholders from
the amounts received from the Indenture Trustee out of the Trust Accounts
pursuant to Section 5.1 and shall report the amounts of such distributions to
the Eligible Lender Trustee. Any Certificate Paying Agent shall have the
revocable power to receive such funds from the Indenture Trustee for the
purpose of making the distributions referred to above. The Eligible Lender
Trustee may revoke such power and remove the Certificate Paying Agent if the
Majority Certificateholder determines in its sole discretion that the
Certificate Paying Agent shall have failed to perform its obligations under
this Agreement in any material respect. The Certificate Paying Agent shall
initially be the Eligible Lender Trustee, and any co-paying agent chosen by the
Eligible Lender Trustee acceptable to the Majority Certificateholder, which
consent shall not be unreasonably withheld. The Eligible Lender Trustee shall
furnish the Indenture Trustee and the Majority Certificateholder with a notice
identifying each co-paying agent within two days of any such appointment. The
Eligible Lender Trustee shall be permitted to resign as Certificate Paying
Agent upon 30 days' written notice to the Eligible Lender Trustee and the
Majority Certificateholder. If the Eligible Lender Trustee shall no longer be
the Certificate Paying Agent, the Eligible Lender Trustee, subject to the prior
written consent of the Majority Certificateholder (which consent shall not be
unreasonably withheld), shall appoint a successor to act as Certificate Paying
Agent (which shall be a bank or trust company). The Eligible Lender Trustee
shall cause such successor Certificate Paying Agent or any additional
Certificate Paying Agent appointed by the Eligible Lender Trustee to execute
and deliver to the Eligible Lender Trustee an instrument in which such
successor Certificate Paying Agent or additional Certificate Paying Agent shall
agree with the Eligible Lender Trustee that, as Certificate Paying Agent, such
successor Certificate Paying Agent or additional Certificate Paying Agent will
hold all sums, if any, held by it for payment to the Certificateholders in
trust for the benefit of the Certificateholders entitled thereto until such
sums shall be paid to such Certificateholders. The Certificate Paying Agent
shall return all unclaimed funds to the Eligible Lender Trustee and upon
removal of a Certificate Paying Agent such Certificate Paying Agent shall also
return all funds in its possession to the Eligible Lender Trustee. The
provisions of Sections 7.1, 7.3, 7.4, 7.5 and 8.1 shall apply to
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the Eligible Lender Trustee also in its role as Certificate Paying Agent, for
so long as the Eligible Lender Trustee shall act as Certificate Paying Agent
and, to the extent applicable, to any other paying agent appointed hereunder.
Any reference in this Agreement to the Certificate Paying Agent shall include
any co-paying agent unless the context requires otherwise.
ARTICLE IV
ACTIONS BY ELIGIBLE LENDER TRUSTEE
SECTION 4.1. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT
TO CERTAIN MATTERS. With respect to the following matters, the Eligible Lender
Trustee shall not take action unless at least 30 days before the taking of such
action the Eligible Lender Trustee shall have notified the Certificateholders
in writing of the proposed action and the Majority Certificateholder shall not
have notified the Eligible Lender Trustee in writing prior to the 30th day
after such notice is given that the Majority Certificateholder has withheld
consent:
(a) the initiation of any material claim or lawsuit by the
Trust (except claims or lawsuits brought in connection with the
collection of the Financed Student Loans) and the compromise of any
material action, claim or lawsuit brought by or against the Trust
(except with respect to the aforementioned claims or lawsuits for
collection of Financed Student Loans);
(b) the amendment of the Indenture or a Terms Supplement by a
supplemental indenture;
(c) the amendment, change or modification of the
Administration Agreement; or
(d) the appointment pursuant to the Indenture or a Terms
Supplement of a successor Note Registrar or Indenture Trustee or
pursuant to this Agreement of a successor Certificate Registrar or
Certificate Paying Agent, or the consent to the assignment by the Note
Registrar, Certificate Paying Agent or Indenture Trustee or
Certificate Registrar of its obligations under the Indenture or this
Agreement, as applicable.
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SECTION 4.2. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO
CERTAIN MATTERS. The Eligible Lender Trustee shall not have the power, except
upon the direction of the Majority Certificateholders or, with the Majority
Certificateholder's consent, to (a) remove the Master Servicer or the
Administrator under the Transfer and Servicing Agreement pursuant to Section
8.1 thereof or (b) except as expressly provided in the Basic Documents, sell
the Financed Student Loans after the termination of the Indenture. The Eligible
Lender Trustee shall take the actions referred to in the receding sentence only
upon written instructions signed by the Majority Certificateholder.
SECTION 4.3. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO
BANKRUPTCY. The Eligible Lender Trustee shall not have the power to commence a
voluntary proceeding in bankruptcy relating to the Trust without the unanimous
prior approval of all Certificateholders and the delivery to the Eligible
Lender Trustee by each such Certificateholder of a certificate certifying that
such Certificateholder reasonably believes that the Trust is insolvent.
SECTION 4.4. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER. The
Certificateholders shall not direct the Eligible Lender Trustee to take or
refrain from taking any action if such action or inaction would be contrary to
any obligation of the Trust or the Eligible Lender Trustee under this Agreement
or any of the other Basic Documents or would be contrary to Section 2.3 nor
shall the Eligible Lender Trustee be permitted to follow any such direction, if
given.
SECTION 4.5. MAJORITY CONTROL. Except as expressly provided
herein, any action that may be taken by the Certificateholders under this
Agreement may be taken by the Majority Certificateholders evidencing not less
than 50.1% of the Certificate Balance. Except as expressly provided herein, any
written notice of the Certificateholders delivered pursuant to this Agreement
shall be effective if signed by the Majority Certificateholders evidencing not
less than 50.1% of the Certificate Balance at the time of the delivery of such
notice.
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ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
SECTION 5.1. APPLICATION OF TRUST FUNDS. (a) No later than
the close of business on the day it receives funds distributed by the Indenture
Trustee pursuant to Sections 5.5, 5.6 and 5.10 of the Transfer and Servicing
Agreement, the Certificate Paying Agent will distribute such amounts to Trust
Certificateholders on a pro rata basis, based upon the portion of the
Certificate Balance held by such Certificateholder; provided, however, that if
the Eligible Lender Trustee receives funds for distribution to
Certificateholders after 11:00 a.m. on any day it shall use all reasonable
efforts to distribute such funds to the applicable Certificateholders on such
day but shall not be liable for any damages if such funds are distributed on
the following Business Day. Notwithstanding the foregoing, all amounts received
by the Eligible Lender Trustee from the Indenture Trustee representing amounts
in the Reserve Account in excess of the Specified Reserve Account Balance shall
be distributed to the Depositor (but such distributions shall not reduce the
principal amount of the Trust Certificates held by the Depositor) and no other
Certificateholder shall be entitled to have a claim for such amounts.
(b) No later than the Business Day following its receipt
thereof, the Eligible Lender Trustee shall send to each Trust Certificateholder
the statement provided to the Eligible Lender Trustee by the Administrator
pursuant to Section 5.7 of the Transfer and Servicing Agreement relating to
such Certificate Distribution Date.
(c) If any withholding tax is imposed on the Trust's payment
(or allocations of income) to a Certificateholder, such tax shall reduce the
amount otherwise distributable to the Certificateholder in accordance with this
Section. The Eligible Lender Trustee is hereby authorized to and shall, upon
receipt of written instructions of the Administrator identifying the
appropriate amount, to retain from amounts otherwise distributable to the
Certificateholders sufficient funds for the payment of any tax that is legally
owed by the Trust (but such authorization shall not prevent the Eligible Lender
Trustee from contesting any such tax in appropriate proceedings, and
withholding payment of such tax, if permitted by law, pending
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the outcome of such proceedings). The amount of any withholding tax imposed
with respect to a Certificateholder shall be treated as cash distributed to
such Certificateholder at the time it is withheld by the Trust to be remitted
to the appropriate taxing authority. If there is a possibility that withholding
tax is payable with respect to a distribution (such as a distribution to a
non-U.S. Certificateholder), the Eligible Lender Trustee in its sole
discretion may (but unless otherwise required by law shall not be obligated to)
withhold such amounts in accordance with this paragraph (c). In the event that
a Certificateholder wishes to apply for a refund of any such withholding tax,
the Eligible Lender Trustee and the Administrator shall reasonably cooperate
with such Certificateholder in making such claim so long as such
Certificateholder agrees to reimburse the Eligible Lender Trustee and the
Administrator for any reasonable out-of-pocket expenses incurred.
SECTION 5.2. METHOD OF PAYMENT. Subject to Section 9.1(c),
distributions required to be made to Certificateholders on any Distribution
Date shall be made to each Certificateholder of record on the applicable Record
Date either by wire transfer, in immediately available funds, to the account of
such Certificateholder at a bank or other entity having appropriate facilities
therefore, if such Certificateholder shall have provided to the Certificate
Registrar appropriate written instructions (which may be standing instructions)
at least five Business Days prior to such Distribution Date or, if not, by
check mailed to such Certificateholder at the address of such Certificateholder
appearing in the Certificate Register.
SECTION 5.3. SEGREGATION OF MONEYS; NO INTEREST. Subject to
Section 5.1, moneys received by the Eligible Lender Trustee hereunder shall be
deposited in the Certificate Distribution Account and invested in Eligible
Investments in accordance with instructions received from the Administrator.
The Eligible Lender Trustee shall not be liable for any interest thereon.
SECTION 5.4. ACCOUNTING AND REPORTS TO THE NOTEHOLDERS,
CERTIFICATEHOLDERS, THE INTERNAL REVENUE SERVICE AND OTHERS. The Administrator,
on behalf of the Eligible Lender Trustee, shall (a) maintain (or cause to be
maintained) the books of the Trust on a calendar year basis on the accrual
method of accounting, (b) deliver to each Certificateholder (and to each Person
who was a Certificateholder at any time during
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the applicable calendar year), as may be required by the Code and applicable
Treasury Regulations, such information as may be required (including Schedule
K-1) to enable each such Certificateholder to prepare its Federal and state
income tax returns, (c) file such tax returns relating to the Trust (including
a partnership information return, Internal Revenue Service Form 1065), and make
such elections as may from time to time be required or appropriate under any
applicable state or federal statute or rule or regulation thereunder so as to
maintain the Trust's characterization as a partnership for federal, state and
local income tax purposes, (d) cause such tax returns to be signed in the
manner required by law and (e) collect or cause to be collected any withholding
tax as described in and in accordance with Section 5.1(c) with respect to
income or distributions to Certificateholders. The Administrator, on behalf of
the Eligible Lender Trustee, shall elect under Section 1278 of the Code to
include in income currently any market discount that accrues with respect to
the Financed Student Loans. Neither the Eligible Lender Trustee nor the
Administrator on behalf of the Eligible Lender Trustee shall make the election
provided under Section 754 of the Code.
SECTION 5.5. SIGNATURE ON RETURNS; TAX MATTERS PARTNER. (a)
The Depositor shall sign on behalf of the Trust the tax returns of the Trust
unless otherwise required by applicable law.
(b) The Depositor shall be designated the "tax matters
partner" of the Trust pursuant to Section 6231(a)(7)(A) of the Code and
applicable Treasury Regulations.
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ARTICLE VI
AUTHORITY AND DUTIES OF ELIGIBLE LENDER TRUSTEE
SECTION 6.1. GENERAL AUTHORITY. The Eligible Lender Trustee
is authorized and directed to execute and deliver the Basic Documents to which
the Trust is to be a party and each certificate or other document attached as
an exhibit to or contemplated by the Basic Documents to which the Trust is to
be a party, in each case, in such form as the Depositor shall approve as
evidenced conclusively by the Eligible Lender Trustee's execution thereof, and,
on behalf of the Trust, to direct the Indenture Trustee to authenticate and
deliver such Notes as may from time to time be authorized by the Indenture and
any related Terms Supplement. The Eligible Lender Trustee is also authorized
and directed on behalf of the Trust (i) to acquire and hold legal title to the
Financed Student Loans and (ii) to take all actions required pursuant to
Section 4.2(c) of the Transfer and Servicing Agreement, and otherwise follow
the direction of and cooperate with the Administrator in submitting, pursuing
and collecting any claims to and with the Department and any Guarantor with
respect to any Interest Subsidy Payments, Special Allowance Payments, and any
other payments relating to the Financed Student Loans.
In addition to the foregoing, the Eligible Lender Trustee is
authorized to take all actions required of the Trust pursuant to the Basic
Documents. The Eligible Lender Trustee is further authorized from time to time
to take such action as the Administrator directs or instructs with respect to
the Basic Documents or with respect to the administration of the Trust and is
directed to take such action to the extent that the Administrator is expressly
required pursuant to the Basic Documents to cause the Eligible Lender Trustee
to act.
SECTION 6.2. GENERAL DUTIES. It shall be the duty of the
Eligible Lender Trustee to discharge (or cause to be discharged) all its
responsibilities pursuant to the terms of this Agreement and the other Basic
Documents to which the Trust is a party and to administer the Trust in the best
interests of the Certificateholders, subject to and in accordance with the
provisions of this Agreement and the other Basic Documents. Notwithstanding the
foregoing, the Eligible Lender Trustee shall be deemed to have discharged its
duties and responsibilities hereunder and under the other Basic Documents to
the extent the
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Administrator has agreed in the Administration Agreement to perform any act or
to discharge any duty of the Eligible Lender Trustee hereunder or under any
other Basic Document, and the Eligible Lender Trustee shall not be held liable
for the default or failure of the Administrator to carry out its obligations
under the Administration Agreement. Except as expressly provided in the Basic
Documents, the Eligible Lender Trustee shall have no obligation to administer,
service or collect the Financed Student Loans or to maintain, monitor or
otherwise supervise the administration, servicing or collection of the Financed
Student Loans.
SECTION 6.3. ACTION UPON INSTRUCTION. (a) The Eligible Lender
Trustee shall not be required to take any action hereunder or under any other
Basic Document if the Eligible Lender Trustee shall have reasonably determined,
or shall have been advised by counsel, that such action is likely to result in
liability on the part of the Eligible Lender Trustee or is contrary to the
terms hereof or of any other Basic Document or is otherwise contrary to law.
(b) Whenever the Eligible Lender Trustee is unable to
determine the appropriate course of action between alternative courses of
action permitted or required by the terms of this Agreement or under any other
Basic Document, the Eligible Lender Trustee shall promptly give notice (in such
form as shall be appropriate under the circumstances) to the Certificateholders
and the Administrator requesting instruction as to the course of action to be
adopted, and to the extent the Eligible Lender Trustee acts in good faith in
accordance with any written instruction received from the Administrator, the
Eligible Lender Trustee shall not be liable on account of such action to any
Person. If the Eligible Lender Trustee shall not have received appropriate
instruction within 30 days of such notice (or within such shorter period of
time as reasonably may be specified in such notice or may be necessary under
the circumstances) it may, but shall be under no duty to, take or refrain from
taking such action, not inconsistent with this Agreement or the other Basic
Documents, as it shall deem to be in the best interests of the
Certificateholders, and shall have no liability to any Person for such action
or inaction.
(c) If the Eligible Lender Trustee is unsure as to the
application of any provision of this Agreement or any other Basic Document or
any agreement entered into by the Eligible
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Lender Trustee on behalf of the Trust or any such provision is ambiguous as to
its application, or is, or appears to be, in conflict with any other applicable
provision, or if this Agreement permits any determination by the Eligible
Lender Trustee or is silent or is incomplete as to the course of action that
the Eligible Lender Trustee is required to take with respect to a particular
set of facts, the Eligible Lender Trustee may give notice (in such form as
shall be appropriate under the circumstances) to the Certificateholders
requesting instruction and, to the extent that the Eligible Lender Trustee acts
or refrains from acting in good faith in accordance with any such instruction
received from the Certificateholders, the Eligible Lender Trustee shall not be
liable, on account of such action or inaction, to any Person. If the Eligible
Lender Trustee shall not have received appropriate instruction within 30 days
of such notice (or within such shorter period of time as reasonably may be
specified in such notice or may be necessary under the circumstances) it may,
but shall be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement or the other Basic Documents or such other
agreements, as it shall deem to be in the best interests of the
Certificateholders, and shall have no liability to any Person for such action
or inaction.
SECTION 6.4. NO DUTIES EXCEPT AS SPECIFIED IN THIS AGREEMENT,
THE TRANSFER AND SERVICING AGREEMENT, ANY SUPPLEMENTAL TRANSFER AND SERVICING
AGREEMENT OR IN INSTRUCTIONS. The Eligible Lender Trustee shall not have any
duty or obligation to manage, make any payment with respect to, register,
record, sell, service, dispose of or otherwise deal with the Trust Estate, or
to otherwise take or refrain from taking any action under, or in connection
with, any document contemplated hereby to which the Eligible Lender Trustee is
a party, except as expressly provided by the terms of this Agreement, the
Transfer and Servicing Agreement, or in any document or written instruction
received by the Eligible Lender Trustee pursuant to Section 6.3; and no implied
duties or obligations shall be read into this Agreement or any other Basic
Document against the Eligible Lender Trustee. The Eligible Lender Trustee shall
have no responsibility for filing any financing or continuation statement in
any public office at any time or to otherwise perfect or maintain the
perfection of any security interest or lien granted to it hereunder or to
prepare or file any Commission filing for the Trust or to record this Agreement
or any other Basic Document. The Eligible Lender Trustee
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nevertheless agrees that it will, at its own cost and expense, promptly take
all action as may be necessary to discharge any liens on any part of the Trust
Estate that result from actions by, or claims against, The First National Bank
of Chicago in its individual capacity or as the Eligible Lender Trustee that
are not related to the ownership or the administration of the Trust Estate.
SECTION 6.5. NO ACTION EXCEPT UNDER SPECIFIED DOCUMENTS OR
INSTRUCTIONS. The Eligible Lender Trustee shall not manage, control, use, sell,
service, dispose of or otherwise deal with any part of the Trust Estate except
(i) in accordance with the powers granted to and the authority conferred upon
the Eligible Lender Trustee pursuant to this Agreement, (ii) in accordance with
the other Basic Documents to which it or the Trust is a party and (iii) in
accordance with any document or instruction delivered to the Eligible Lender
Trustee pursuant to Section 6.3.
SECTION 6.6. RESTRICTIONS. The Eligible Lender Trustee shall
not take any action (a) that is inconsistent with the purposes of the Trust set
forth in Section 2.3 or (b) that, to the actual knowledge of the Eligible
Lender Trustee, would result in the Trust's becoming taxable as a corporation
for Federal income tax purposes. The Certificateholders shall not direct the
Eligible Lender Trustee to take any action that would violate the provisions of
this Section.
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ARTICLE VII
CONCERNING THE ELIGIBLE LENDER TRUSTEE
SECTION 7.1. ACCEPTANCE OF TRUSTS AND DUTIES. The Eligible
Lender Trustee accepts the trusts hereby created and agrees to perform its
duties hereunder with respect to such trusts but only upon the terms of this
Agreement for the benefit of the Certificateholders. The Eligible Lender
Trustee also agrees to disburse all moneys actually received by it constituting
part of the Trust Estate under the terms of this Agreement and the other Basic
Documents. The Eligible Lender Trustee shall not be answerable or accountable
hereunder or under any other Basic Document under any circumstances, except (i)
for its own willful misconduct, bad faith or negligence or (ii) in the case of
the inaccuracy of any representation or warranty contained in Section 7.3
expressly made by the Eligible Lender Trustee; provided, however, that in no
event shall the Eligible Lender Trustee 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 Eligible Lender Trustee has been advised of
the possibility of such damages. In particular, but not by way of limitation
(and subject to the exceptions set forth in the preceding sentence):
(a) the Eligible Lender Trustee shall not be liable for any
error of judgment made in good faith by a responsible officer of the
Eligible Lender Trustee unless it is proved that the Eligible lender
Trustee was negligent in ascertaining the pertinent facts;
(b) the Eligible Lender Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in accordance
with the direction or instructions of the Administrator, the Depositor
or the Certificateholders of Certificates evidencing the requisite
percentage of the Certificate Balance;
(c) no provision of this Agreement or any other Basic
Document shall require the Eligible Lender Trustee to expend or risk
funds or otherwise incur any financial
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liability in the performance of any of its rights or powers hereunder
or under any other Basic Document, if the Eligible Lender Trustee
shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured or provided to it;
(d) under no circumstances shall the Eligible Lender Trustee
be liable for indebtedness evidenced by or arising under any of the
Basic Documents, including the principal of and interest on the Notes
or for any amounts owing under the Trust Certificates;
(e) the Eligible Lender Trustee shall not be responsible for
or in respect of the validity or sufficiency of this Agreement or for
the due execution hereof by the Depositor or for the form, character
genuineness, sufficiency, value or validity of any of the Trust Estate
or for or in respect of the validity or sufficiency of the Basic
Documents, other than the certificate of authentication on the Trust
Certificates and the Eligible Lender Trustee shall in no event assume
or incur any liability, duty or obligation to any Noteholder or to any
Certificateholder, other than as expressly provided for herein and in
the other Basic Documents;
(f) the Eligible Lender Trustee shall not be liable for the
action or inaction, default or misconduct of the Depositor,
Administrator, the Seller, the Indenture Trustee or the Master
Servicer under this Agreement or any of the other Basic Documents or
otherwise and the Eligible Lender Trustee shall have no obligation or
liability to perform the obligations of the Trust under this Agreement
or the other Basic Documents that are required to be performed by the
Administrator under the Transfer and Servicing Agreement, the
Indenture Trustee under the Indenture or any Terms Supplement or the
Master Servicer under the Transfer and Servicing Agreement; and
(g) the Eligible Lender Trustee shall be under no obligation
to exercise any of the rights or powers vested in it by this
Agreement, or to institute, conduct or defend any litigation under
this Agreement or otherwise or in relation to this Agreement or any
other Basic Document, at the request, order or direction of any of the
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Certificateholders, unless such Certificateholders have offered to the
Eligible Lender Trustee security or indemnity reasonably satisfactory
to it against the costs, expenses and liabilities that may be incurred
by the Eligible Lender Trustee therein or thereby. The right of the
Eligible Lender Trustee to perform any discretionary act enumerated in
this Agreement or in any other Basic Document shall not be construed
as a duty, and the Eligible Lender Trustee shall not be answerable for
other than its negligence, bad faith or willful misconduct in the
performance of any such act.
SECTION 7.2. FURNISHING OF DOCUMENTS. The Eligible Lender
Trustee shall furnish to the Certificateholders promptly upon receipt of a
written request therefor duplicates or copies of all reports, notices,
requests, demands, certificates, financial statements and any other instruments
furnished to the Eligible Lender Trustee under the Basic Documents.
SECTION 7.3. REPRESENTATIONS AND WARRANTIES. The Eligible
Lender Trustee hereby represents and warrants to the Depositor, for the benefit
of the Certificateholders that:
(a) It is a national banking association duly organized and
validly existing in good standing under the laws of The United States.
It has all requisite corporate power and authority to execute, deliver
and perform its obligations under this Agreement.
(b) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement, and this Agreement
has been executed and delivered by one of its officers who is duly
authorized to execute and deliver this Agreement on its behalf, and
when so executed shall be a legal, valid and binding obligation of the
Eligible Lender Trustee, enforceable against the Eligible Lender
Trustee in accordance with its terms.
(c) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will, contravene any Federal or state law, governmental rule or
regulation governing the banking or trust powers of the Eligible
Lender Trustee or any judgment or order binding on it, or
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constitute any default under its charter documents or by-laws or any
indenture, mortgage, contract, agreement or instrument to which it is
a party or by which any of its properties may be bound.
(d) It is an "eligible lender", as such term is defined in
Section 435(d) of the Higher Education Act, for purposes of holding
legal title to the Financed Student Loans as contemplated by this
Agreement and the other Basic Documents has obtained a lender
identification number with respect to the Trust from the Department
and has in effect a Guarantee Agreement with each of the guarantors
with respect to the Financed Student Loans.
SECTION 7.4. RELIANCE; ADVICE OF COUNSEL. (a) The Eligible
Lender Trustee shall incur no liability to anyone in acting upon any signature,
instrument, direction, notice, resolution, request, consent, order,
certificate, report, opinion, bond, or other document or paper believed by it
to be genuine and believed by it to be signed by the proper party or parties.
As to any fact or matter the method of the determination of which is not
specifically prescribed herein, the Eligible Lender Trustee may for all
purposes hereof rely on a certificate, signed by the president or any vice
president or by the treasurer or other authorized officers of the relevant
party, as to such fact or matter and such certificate shall constitute full
protection to the Eligible Lender Trustee for any action taken or omitted to be
taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder
and in the performance of its duties and obligations under this Agreement or
the other Basic Documents, the Eligible Lender Trustee (i) may act directly or
through its agents, including the Administrator, or attorneys pursuant to
agreements entered into with any of them, and the Eligible Lender Trustee shall
not be liable for the conduct or misconduct of such agents or attorneys if such
agents or attorneys shall have been selected by the Eligible Lender Trustee
with reasonable care or by the Administrator or Depositor, and (ii) may consult
with counsel, accountants and other skilled persons to be selected with
reasonable care and employed by it or selected and employed by the
Administrator or Depositor. The Eligible Lender Trustee shall not be liable for
anything done, suffered or omitted in good faith by it in accordance with the
opinion or advice of any
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such counsel, accountants or other such persons and not contrary to this
Agreement or any other Basic Document.
SECTION 7.5. NOT ACTING IN INDIVIDUAL CAPACITY. Except for
the representations and warranties set forth in Section 7.3, in accepting the
trusts hereby created The First National Bank of Chicago acts solely as
Eligible Lender Trustee hereunder and not in its individual capacity and all
Persons having any claim against the Eligible Lender Trustee by reason of the
transactions contemplated by this Agreement or any other Basic Document shall
look only to the Trust Estate for payment or satisfaction thereof.
SECTION 7.6. ELIGIBLE LENDER TRUSTEE NOT LIABLE FOR TRUST
CERTIFICATES OR FINANCED STUDENT LOANS. The recitals contained in any Trust
Supplement and in the Trust Certificates (other than the signature and
countersignature of the Eligible Lender Trustee on the Trust Certificates)
shall be taken as the statements of the Depositor and the Eligible Lender
Trustee assumes no responsibility for the correctness thereof. The Eligible
Lender Trustee makes no representations as to the validity or sufficiency of
this Agreement, the Trust Certificates or any other Basic Document (other than
the signature and countersignature of the Eligible Lender Trustee on the Trust
Certificates) or the Notes, or of any Financed Student Loan or related
documents. Except as to a Guarantor or the U.S. Secretary of Education, the
Eligible Lender Trustee shall at no time have any responsibility or liability
(except for willfully or negligently terminating or allowing to be terminated
any of the Guarantee Agreements) for or with respect to the legality, validity,
enforceability and eligibility for Guarantee Payments of any Financed Student
Loan, or for or with respect to the sufficiency of the Trust Estate or its
ability to generate the payments to be distributed to Certificateholders under
this Agreement or the Noteholders under the Indenture, including without
limitation: the existence and contents of any computer or other record of any
Financed Student Loan; the validity of the assignment of any Financed Student
Loan to the Trust; the completeness of any Financed Student Loan; the
performance or enforcement (except as expressly set forth in any Basic
Document) of any Financed Student Loan; the compliance by the Depositor,
Administrator, Seller or the Master Servicer with any warranty or
representation made under any Basic Document or in any related document or the
accuracy of any such warranty or representation or any action or inaction of
the Depositor,
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Seller, Administrator, the Indenture Trustee or the Master Servicer or any
subservicer taken in the name of the Eligible Lender Trustee; and the failure
of the Financed Student Loans to be serviced in conformity with applicable
regulations.
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.
SECTION 7.7. ELIGIBLE LENDER TRUSTEE MAY OWN TRUST
CERTIFICATES AND NOTES. The Eligible Lender Trustee in its individual or any
other capacity may become the owner or pledgee of the Trust Certificates or
Notes and may deal with the Depositor, the Administrator, the Indenture
Trustee, the Master Servicer and the Guarantors in banking or trust
transactions with the same rights as it would have if it were not Eligible
Lender Trustee, including serving as a trustee of other trusts dealing in any
student loans, including trusts which purchase student loans from the Trust.
SECTION 7.8 REPRESENTATIONS AND WARRANTEES OF DELAWARE
TRUSTEE. The Delaware Trustee hereby represents and warrants to the Depositor,
for the benefit of the Certificateholders that:
(a) It is a Delaware banking corporation duly organized and
validly existing in good standing under the laws of Delaware. It has
all requisite corporate power and authority to execute, deliver and
perform its obligations under this Agreement.
(b) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement, and this Agreement
has been executed and delivered by one of its officers who is duly
authorized to execute and deliver this Agreement on its behalf, and
when so executed shall be a legal, valid and binding obligation of the
Delaware Trustee, enforceable against the Delaware Trustee in
accordance with its terms.
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(c) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will, contravene any Federal or state law, governmental rule or
regulation governing the banking or trust powers of the Delaware
Trustee or any judgment or order binding on it, or constitute any
default under its charter documents or by-laws or any indenture,
mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound.
ARTICLE VIII
COMPENSATION OF ELIGIBLE LENDER TRUSTEE
SECTION 8.1. ELIGIBLE LENDER TRUSTEE'S FEES AND EXPENSES. The
Eligible Lender Trustee shall receive as compensation for its services
hereunder such fees as have been separately agreed upon before the date hereof
between the Depositor and the Eligible Lender Trustee. Such fee shall be
payable as provided in Section 5.5 of the Transfer and Servicing Agreement.
SECTION 8.2. PAYMENTS TO THE ELIGIBLE LENDER TRUSTEE. Any
amounts paid to the Eligible Lender Trustee pursuant to this Agreement or the
Transfer and Servicing Agreement shall be deemed not to be a part of the Trust
Estate immediately after such payment.
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ARTICLE IX
TERMINATION OF TRUST AGREEMENT
SECTION 9.1. TERMINATION OF TRUST AGREEMENT. (a) This Trust
shall terminate upon the earlier of (i) the final distribution by the Eligible
Lender Trustee of all moneys or other property or proceeds of the Trust Estate
in accordance with the terms of the Indenture, any related Terms Supplement,
the Transfer and Servicing Agreement, Article V hereof and any Trust
Supplement, (ii) the expiration of 21 years from the death of the last survivor
of the descendants of Joseph P. Kennedy, the late Ambassador of the United
States to the Court of St. James, living on the date hereof, and (iii) the time
provided in Section 9.2. The bankruptcy, liquidation, dissolution, death or
incapacity of any Certificateholder, other than the Depositor as described in
Section 9.2, shall not (x) operate to terminate this Agreement or the Trust,
nor (y) entitle such Certificateholder's legal representatives or heirs to
claim an accounting or to take any action or proceeding in any court for a
partition or winding up of all or any part of the Trust or Trust Estate nor (z)
otherwise affect the rights, obligations and liabilities of the parties hereto.
(b) Except as provided in Section 9.1(a), neither the
Depositor nor any Certificateholder shall be entitled to revoke or terminate
the Trust without the prior written consent of the Indenture Trustee
(c) Notice of any termination of the Trust, specifying the
Distribution Date upon which the Certificateholders shall surrender their Trust
Certificates to the Certificate Paying Agent for payment of the final
distribution and cancellation, shall be given promptly by the Eligible Lender
Trustee by letter to Certificateholders mailed within five Business Days of
receipt of notice of such termination from the Administrator given pursuant to
Section 9.1(c) of the Transfer and Servicing Agreement, stating (i) the
Distribution Date upon which final payment of the Trust Certificates shall be
made upon presentation and surrender of the Trust Certificates at the office of
the Certificate Paying Agent therein designated, (ii) the amount of any such
final payment and (iii) that the Record Date otherwise applicable to such
Distribution Date is not applicable, payments being made
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only upon presentation and surrender of the Trust Certificates at the office of
the Certificate Paying Agent therein specified. The Eligible Lender Trustee
shall give such notice to the Certificate Registrar (if other than the Eligible
Lender Trustee) and the Certificate Paying Agent at the time such notice is
given to Certificateholders. Upon presentation and surrender of the Trust
Certificates the Certificate Paying Agent shall cause to be distributed to
Certificateholders amounts distributable on such Distribution Date pursuant to
Section 5.1. Certificates shall cease to earn interest as of the termination
date of the Trust.
(d) If all the Certificateholders shall not surrender their
Trust Certificates for cancellation within six months after the date specified
in the above-mentioned written notice, the Eligible Lender Trustee shall give a
second written notice to the remaining Certificateholders to surrender their
Trust Certificates for cancellation and receive the final distribution with
respect thereto. If within one year after the second notice all the Trust
Certificates shall not have been surrendered for cancellation, the Eligible
Lender Trustee may take appropriate steps, or may appoint an agent to take
appropriate steps, to contact the remaining Certificateholders concerning
surrender of their Trust Certificates and the cost thereof shall be paid out of
the funds and other assets that shall remain subject to this Agreement. Any
funds remaining in the Trust after exhaustion of such remedies and no later
than five years after the first such notice shall be distributed by the
Eligible Lender Trustee to the Depositor.
(e) Upon termination of the Trust in accordance with Article
IX, the Eligible Lender Trustee or Delaware Trustee shall cause the Certificate
of Trust to be canceled by filing a Certificate of Cancellation with the
Delaware Secretary of State under applicable law.
SECTION 9.2. DISSOLUTION UPON INSOLVENCY OF DEPOSITOR. If an
Insolvency Event shall occur with respect to the Depositor, the Trust shall be
terminated in accordance with Section 9.1 90 days after the date of such
Insolvency Event, unless, before the end of such 90-day period, the Eligible
Lender Trustee shall have received written instructions from the Majority
Certificateholder to the effect that each such party disapproves of the
liquidation of the Financed Student Loans and termination of the Trust, in
which event the Trust shall
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continue in accordance with the Basic Documents. Promptly after the occurrence
of any Insolvency Event with respect to the Depositor (i) the Depositor shall
give the Indenture Trustee and the Eligible Lender Trustee and the Majority
Certificateholder written notice of such Insolvency Event, (ii) the Eligible
Lender Trustee shall, upon the receipt of such written notice from the
Depositor give prompt written notice to the Certificateholders and the
Indenture Trustee, of the occurrence of such event and (iii) the Indenture
Trustee shall, upon receipt of written notice of such Insolvency Event from the
Eligible Lender Trustee or the Depositor, give prompt written notice to the
Noteholders of the occurrence of such event; provided, however, that any
failure to give a notice required by this sentence shall not prevent or delay,
in any manner, a termination of the Trust pursuant to the first sentence of
this Section 9.2. Upon a termination pursuant to this Section 9.2, the
Eligible Lender Trustee shall 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 of such a
sale of the assets of the Trust shall be treated as collections under the
Transfer and Servicing Agreement.
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ARTICLE X
SUCCESSOR ELIGIBLE LENDER TRUSTEES AND
ADDITIONAL ELIGIBLE LENDER TRUSTEES
SECTION 10.1. ELIGIBILITY REQUIREMENTS FOR ELIGIBLE LENDER
TRUSTEE. The Eligible Lender Trustee shall at all times be a corporation or
association (i) qualifying as an "eligible lender" as such term is defined in
Section 435(d) of the Higher Education Act for purposes of holding legal title
to the Financed Student Loans on behalf of the Trust, with a valid lender
identification number with respect to the Trust from the Department; (ii) being
authorized to exercise corporate trust powers and hold legal title to the
Financed Student Loans; (iii) having in effect Guarantee Agreements with each
of the Guaranty Agencies then guaranteeing Financed Student Loans; (iv) having
a combined capital and surplus of at least $50,000,000 and being subject to
supervision or examination by Federal or state authorities; and (v), with
respect to any successor Eligible Lender Trustees, having (or having a parent
which has) a rating of at least Baa3 by Moody's and at least BBB by Standard &
Poor's. If the Eligible Lender Trustee shall publish reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purpose of this Section 10.1,
the combined capital and surplus of the Eligible Lender Trustee shall be deemed
to be its combined capital and surplus as set forth in its most recent report
of condition so published. In case at any time the Eligible Lender Trustee
shall cease to be eligible in accordance with the provisions of this Section
10.1, the Eligible Lender Trustee shall resign immediately in the manner and
with the effect specified in Section 10.2.
SECTION 10.2. RESIGNATION OR REMOVAL OF ELIGIBLE LENDER
TRUSTEE. The Eligible Lender Trustee may at any time resign and be discharged
from the trusts hereby created by giving written notice thereof to the
Administrator and the Administrator may dismiss the Eligible Lender Trustee or
any co-paying agent at any time for its failure to act in accordance with the
terms of this Agreement; provided, however, that prior to any such dismissal,
the Administrator shall have given the Eligible Lender Trustee or the co-paying
agent, as the case may be, notice identifying such failure, and shall have
given the
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Eligible Lender Trustee or the co-paying agent, as the case may be, two
Business Days to cure such failure, if such failure relates to the distribution
of funds to Certificateholders, and 30 days to cure all other failures. Upon
receiving such notice of resignation or dismissal, the Majority
Certificateholder with notice to the Administrator shall promptly appoint a
successor Eligible Lender Trustee meeting the eligibility requirements of
Section 10.1 by written instrument, in duplicate, one copy of which instrument
shall be delivered to the resigning Eligible Lender Trustee and one copy to the
successor Eligible Lender Trustee. If no successor Eligible Lender Trustee
shall have been so appointed and have accepted appointment within 30 days after
the giving of such notice of resignation or dismissal, the resigning or
dismissed Eligible Lender Trustee, as the case may be, may petition any court
of competent jurisdiction for the appointment of a successor Eligible Lender
Trustee; provided, however, that such right to appoint or to petition for the
appointment of any such successor shall in no event relieve the resigning or
dismissed Eligible Lender Trustee, as the case may be, from any obligations
otherwise imposed on it under the Basic Documents until such successor has in
fact assumed such appointment.
If at any time the Eligible Lender Trustee shall cease to be
eligible in accordance with the provisions of Section 10.1 and shall fail to
resign after written request therefor by the Administrator, or if at any time
an Insolvency Event with respect to the Eligible Lender Trustee shall have
occurred and be continuing, then the Administrator may remove the Eligible
Lender Trustee. If the Administrator shall remove the Eligible Lender Trustee
under the authority of the immediately preceding sentence, the Administrator
shall promptly appoint, with the prior approval of the Majority
Certificateholder, a successor Eligible Lender Trustee by written instrument,
in duplicate, one copy of which instrument shall be delivered to the outgoing
Eligible Lender Trustee so removed and one copy to the successor Eligible
Lender Trustee and payment of all fees owed to the outgoing Eligible Lender
Trustee.
Any resignation or removal of the Eligible Lender Trustee and
appointment of a successor Eligible Lender Trustee pursuant to any of the
provisions of this Section shall not become effective until acceptance of
appointment by the successor Eligible Lender Trustee pursuant to Section 10.3
and payment of all fees and expenses owed to the outgoing Eligible
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Lender Trustee. The Administrator shall provide notice of such resignation or
removal of the Eligible Lender Trustee to the Majority Certificateholder.
Certificateholders and ,if any Notes or Certificates are then rated by any of
the Rating Agencies, the Rating Agencies.
SECTION 10.3. SUCCESSOR ELIGIBLE LENDER TRUSTEE. Any
successor Eligible Lender Trustee appointed pursuant to Section 10.2 shall
execute, acknowledge and deliver to the Administrator and to its predecessor
Eligible Lender Trustee an instrument accepting such appointment under this
Agreement, and thereupon the resignation or removal of the predecessor Eligible
Lender Trustee shall become effective and such successor Eligible Lender
Trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties, and obligations of its predecessor under
this Agreement, with like effect as if originally named as Eligible Lender
Trustee. The predecessor Eligible Lender Trustee shall upon payment of its
fees and expenses deliver to the successor Eligible Lender Trustee all
documents, statements, moneys and properties held by it under this Agreement
and shall assign, if permissible, to the successor Eligible Lender Trustee the
lender identification number obtained from the Department on behalf of the
Trust; and the Administrator and the predecessor Eligible Lender Trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the successor
Eligible Lender Trustee all such rights, powers, duties and obligations.
No successor Eligible Lender Trustee shall accept appointment
as provided in this Section 10.3 unless at the time of such acceptance such
successor Eligible Lender Trustee shall be eligible pursuant to Section 10.1
and shall have made the representations and warranties set forth in Section 7.3
to the Depositor, for the benefit of the Certificateholders.
Upon acceptance of appointment by a successor Eligible Lender
Trustee pursuant to this Section, the Administrator shall mail notice of the
successor of such Eligible Lender Trustee to all Certificateholders, the
Indenture Trustee the Noteholders. If the Administrator shall fail to mail such
notice within 10 days after acceptance of appointment by the successor Eligible
Lender Trustee, the successor Eligible Lender Trustee shall cause such notice
to be mailed at the expense of the Administrator.
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SECTION 10.4. MERGER OR CONSOLIDATION OF ELIGIBLE LENDER
TRUSTEE. Any corporation into which the Eligible Lender Trustee may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Eligible Lender
Trustee shall be a party, or any corporation succeeding to all or substantially
all the corporate trust business of the Eligible Lender Trustee, shall, without
the execution or filing of any instrument or any further act on the part of any
of the parties hereto, anything herein to the contrary notwithstanding, be the
successor of the Eligible Lender Trustee hereunder; provided that such
corporation shall be eligible pursuant to Section 10.1; provided further that
the Eligible Lender Trustee shall mail notice of such merger or consolidation
to the Depositor.
SECTION 10.5. APPOINTMENT OF CO-ELIGIBLE LENDER TRUSTEE OR
SEPARATE ELIGIBLE LENDER TRUSTEE. Notwithstanding any other provisions of this
Agreement, at any time, for the purpose of meeting any legal requirements of
any jurisdiction in which any part of the Trust may at the time be located, the
Administrator and the Eligible Lender Trustee acting jointly shall have the
power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Eligible Lender Trustee, the Majority
Certificateholder, and if the Notes or the Certificates are then rated by any
of the Rating Agencies, the Rating Agencies, meeting the eligibility
requirements of clauses (i) through (iii) of Section 10.1, to act as
co-trustee, jointly with the Eligible Lender Trustee, or separate trustee or
separate trustees, of all or any part of the Trust Estate, and to vest in such
Person, in such capacity, such title to the Trust Estate, or any part thereof,
and, subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Administrator and the Eligible Lender
Trustee may consider necessary or desirable. If the Administrator shall not
have joined in such appointment within 15 days after the receipt by it of a
request so to do, the Eligible Lender Trustee alone shall have the power to
make such appointment. No co-trustee or separate trustee under this Agreement
shall be required to meet the terms of eligibility as a successor trustee
pursuant to clauses (iv), (v) and (vi) of Section 10.1 and no notice of the
appointment of any co-trustee or separate trustee shall be required pursuant to
Section 10.3. The expenses incurred in connection with the retention of any
co-trustee shall be deemed an Expense of the Issuer to be borne by the
Depositor.
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Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Eligible Lender Trustee shall be conferred upon and
exercised or performed by the Eligible Lender Trustee and such
separate trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act separately
without the Eligible Lender Trustee joining in such act), except to
the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed, the Eligible Lender
Trustee shall be incompetent or unqualified to perform such act or
acts, in which event such rights, powers, duties, and obligations
(including the holding of title to the Trust or any portion thereof in
any such jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, solely at the direction of the
Eligible Lender Trustee;
(ii) no trustee under this Agreement shall be personally
liable by reason of any act or omission of any other trustee under
this Agreement; and
(iii) the Administrator and the Eligible Lender Trustee acting
jointly may at any time accept the resignation of or remove any
separate trustee or co-trustee.
Any notice, request or other writing given to the Eligible
Lender Trustee shall be deemed to have been given to each of the then separate
trustees and co-trustees, as effectively as if given to each of them. Every
instrument appointing any separate trustee or co-trustee shall refer to this
Agreement and the conditions of this Article. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Eligible Lender Trustee or separately, as may be provided
therein, subject to all the provisions of this Agreement, specifically
including every provision of this Agreement relating to the conduct of,
affecting the liability of, or
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affording protection to, the Eligible Lender Trustee. Each such instrument
shall be filed with the Eligible Lender Trustee and a copy thereof given to the
Administrator.
Any separate trustee or co-trustee may at any time appoint
the Eligible Lender Trustee as its agent or attorney-in-fact with full power
and authority, to the extent not prohibited by law, to do any lawful act under
or in respect of this Agreement on its behalf and in its name. If any separate
trustee or co-trustees shall die, become incapable of acting, resign or be
removed, all its estates, properties, rights, remedies and trusts shall vest in
and be exercised by the Eligible Lender Trustee, to the extent permitted by
law, without the appointment of a new or successor trustee.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. SUPPLEMENTS AND AMENDMENTS. (a) This Agreement,
including the Exhibits, Attachments and Annexes hereto, may be amended by the
Depositor and the Eligible Lender Trustee, but without the consent of any of
the Noteholders or the other Certificateholder to cure any ambiguity, to change
the registered office of the Trust in Delaware set forth in Section 2.2 hereof,
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, adversely affect in any
material respect the interests of any Noteholder or Certificateholder.
(b) Subject to the last sentence of Section 2.3, this
Agreement may also be amended from time to time by the Depositor and the
Eligible Lender Trustee, with the consent of (i) the Noteholders of Notes
evidencing not less than 50.1% of the Outstanding Amount of the Notes, and (ii)
the Majority Certificateholders 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
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manner the amount of, or accelerate or delay the timing of, collections of
payments on Financed Student Loans or distributions that shall be required to
be made for the benefit of the Noteholders or the Certificateholders, (b)
reduce the aforesaid percentage of the Outstanding Amount of the Notes and the
Certificate Balance of Trust Certificates required to consent to any such
amendment, without the consent of all the outstanding Noteholders and
Certificateholders or (c) modify Section 2.7 (or any other Sections without an
Opinion of Counsel that such amendment will not cause the Trust to be taxed as
a corporation).
Promptly after the execution of any such amendment or
consent, the Eligible Lender Trustee shall furnish written notification of the
substance of such amendment or consent to each Certificateholder and, if the
Notes or Certificates are then rated by any Rating Agency, the Rating Agencies.
It shall not be necessary for the consent of
Certificateholders, the Noteholders or the Indenture Trustee 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.
The manner of obtaining such consents (and any other consents of
Certificateholders provided for in this Agreement or in any other Basic
Document) and of evidencing the authorization of the execution thereof by
Certificateholders shall be subject to such reasonable requirements as the
Eligible Lender Trustee may prescribe.
(c) Prior to the execution of any amendment to this
Agreement, the Eligible Lender 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. The Eligible Lender Trustee may, but
shall not be obligated to, enter into any such amendment which affects the
Eligible Lender Trustee's own rights, duties or immunities under this Agreement
or otherwise.
(d) Notwithstanding anything to the contrary contained in
this Section 11.1, or elsewhere in this Agreement, the Depositor and the
Eligible Lender Trustee (upon written direction from the Depositor), at any
time and from time to time, may enter into one or more Trust Supplements to set
forth the terms of any Class of Trust Certificates that have not theretofore
been authorized by a Trust Supplement.
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<PAGE> 46
SECTION 11.2. NO LEGAL TITLE TO TRUST ESTATE IN
CERTIFICATEHOLDERS. The Certificateholders shall not have legal title to any
part of the Trust Estate. The Certificateholders shall be entitled to receive
distributions with respect to their undivided beneficial ownership interest
therein only in accordance with Articles V and IX. No transfer, by operation of
law or otherwise, of any right, title, or interest of the Certificateholders to
and in their beneficial ownership interest in the Trust Estate shall operate to
terminate this Agreement or the trusts hereunder or entitle any transferee to
an accounting or to the transfer to it of legal title to any part of the Trust
Estate.
SECTION 11.3. LIMITATIONS ON RIGHTS OF OTHERS. The provisions
of this Agreement are solely for the benefit of the Eligible Lender Trustee,
the Depositor, the Certificateholders, the Administrator and, to the extent
expressly provided herein, the Indenture Trustee and the Noteholders, 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 11.4. NOTICES. (a) Unless otherwise expressly
specified or permitted by the terms hereof, all notices shall be in writing and
shall be deemed given upon receipt by the intended recipient or three Business
Days after mailing if mailed by certified mail, postage prepaid (except that
notice to the Eligible Lender Trustee shall be deemed given only upon actual
receipt by the Eligible Lender Trustee), if to the Eligible Lender Trustee, to
The First National Bank of Chicago, addressed to its Corporate Trust Office at
One First National Plaza, Suite 0126; Chicago, Illinois 60670; if to the
Depositor, to PNC Bank, National Association, addressed to 2600 Liberty Avenue,
Suite 200; Pittsburgh, Pennsylvania 15222; Attention: John Peters; 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, or, as to each party, at such other address or facsimile
number as shall be designated by such party in a written notice to each other
party.
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<PAGE> 47
(b) Any notice required or permitted to be given to a
Certificateholder shall be given (i) by first-class mail, postage prepaid, at
the address of such Certificateholder as shown in the Certificate Register, or
(ii) by facsimile if the Certificate Register contains a facsimile number for
such Certificateholder. Any notice so mailed or sent by facsimile within the
time prescribed in this Agreement shall be conclusively presumed to have been
duly given, whether or not the Certificateholder receives such notice.
SECTION 11.5. 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 11.6. 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 11.7. SUCCESSORS AND ASSIGNS. All covenants and
agreements contained herein shall be binding upon, and inure to the benefit of,
the Depositor and its successors, the Eligible Lender Trustee and its
successors, each Certificateholder and its successors and permitted assigns,
all as herein provided. Any request, notice, direction, consent, waiver or
other instrument or action by a Certificateholder shall bind the successors and
assigns of such Certificateholder.
SECTION 11.8. NO PETITION. (a) Prior to the date which is one
year and a day after the termination of the Trust pursuant to Section 9.1, the
Depositor will not institute against the Trust any bankruptcy proceedings under
any United States Federal or State bankruptcy or similar law in connection with
any obligations relating to the Trust Certificates, the Notes, this Agreement
or any of the other Basic Documents.
(b) The Eligible Lender Trustee (not in its individual
capacity but solely as Eligible Lender Trustee), by entering into this
Agreement, and each Certificateholder, by
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<PAGE> 48
accepting a Trust Certificate hereby covenant and agree that they will not at
any time institute against the Depositor or the Trust, or join in any
institution against the Depositor or the Trust of, any bankruptcy,
reorganization, arrangement, insolvency, receivership or liquidation
proceedings, or other proceedings under any United States Federal or State
bankruptcy or similar law in connection with any obligations relating to the
Trust Certificates the Notes, this Agreement or any of the other Basic
Documents.
SECTION 11.9. NO RECOURSE. Each Certificateholder by
accepting a Trust Certificate acknowledges that such Certificateholder's Trust
Certificates represent beneficial interests in the Trust only and do not
represent interests in or obligations of the Depositor, the Seller, the Master
Servicer, the Administrator, the Eligible Lender Trustee, the Indenture Trustee
or any Affiliate thereof or any officer, director or employee of any thereof
and no recourse may be had against such parties or their assets, except as may
be expressly set forth in this Agreement, the Trust Certificates or the other
Basic Documents.
SECTION 11.10. 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 11.11. GOVERNING LAW. This Agreement shall be
construed in accordance with the laws of the State of Delaware, 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. The Trust created by this Agreement shall be a business trust subject to
Delaware law.
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<PAGE> 49
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed by their respective officers hereunto duly
authorized, as of the day and year first above written.
THE FIRST NATIONAL BANK OF CHICAGO, as
Eligible Lender Trustee
By: /S/ JEFFREY L. KINNEY
--------------------------------
Name: Jeffrey L. Kinney
Title: Assistant Vice
President
FIRST CHICAGO DELAWARE INC., as
Delaware Trustee
By: /S/ JOHN R. PRENDIVILLE
--------------------------------
Name: John R. Prendiville
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION, as
Depositor,
By: /S/ BRYAN W. RIDLEY
--------------------------------
Name:
Title:
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<PAGE> 50
STATE OF NEW YORK )
)SS:
COUNTY OF NEW YORK )
On this, the 27th day of March, 1997, before me, the
undersigned officer, personally appeared Jeffrey L. Kinney, who acknowledged
himself to be an Assistant Vice President of The First National Bank of
Chicago, and that he as such, being authorized to do so, executed the foregoing
for the purpose of creating PNC Student Loan Trust 1997-I with The First
National Bank of Chicago, as Eligible Lender Trustee, in accordance with the
terms of the foregoing instrument, by signing the name of the corporation by
himself as Assistant Vice President.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/S/ JAMES L. BURNS
------------------------
Notary Public
(SEAL)
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<PAGE> 51
EXHIBIT A
TO THE TRUST AGREEMENT
FORM OF TRUST CERTIFICATE
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS. THE HOLDER HEREOF,
BY PURCHASING THIS TRUST CERTIFICATE, AGREES THAT THIS TRUST CERTIFICATE MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN ACCORDANCE WITH ANY APPLICABLE
STATE SECURITIES LAWS AND (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS
AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(A)(1)-(3)
UNDER THE ACT THAT PURCHASES FOR ITS OWN ACCOUNT, OR (2) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT.
THIS TRUST CERTIFICATE MAY NOT BE TRANSFERRED DIRECTLY OR INDIRECTLY
TO (1) EMPLOYEE BENEFIT PLANS, RETIREMENT ARRANGEMENTS, INDIVIDUAL RETIREMENT
ACCOUNTS OR KEOGH PLANS SUBJECT TO EITHER TITLE I OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED, OR SECTION 4975 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, OR (2) ENTITIES (INCLUDING INSURANCE COMPANY
GENERAL ACCOUNTS) WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF ANY
SUCH PLAN'S ARRANGEMENTS OR ACCOUNT'S INVESTMENT IN SUCH ENTITIES. FURTHER,
THIS TRUST CERTIFICATE MAY BE TRANSFERRED ONLY TO A UNITED STATES PERSON WITHIN
THE MEANING OF SECTION 7701(A)(30) OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED.
THIS TRUST CERTIFICATE DOES NOT REPRESENT DEPOSITS OR OBLIGATIONS OF OR
AN INTEREST IN PNC BANK, NATIONAL ASSOCIATION, THE FIRST NATIONAL BANK OF
CHICAGO OR FIRST CHICAGO DELAWARE INC.
THIS TRUST CERTIFICATE IS NOT GUARANTEED OR INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY GOVERNMENTAL AGENCY.
AS LONG AS THE SERIES 1997-I NOTES ARE OUTSTANDING, THIS TRUST
CERTIFICATE MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT THE PRIOR
WRITTEN CONSENT OF SMITH BARNEY MORTGAGE CAPITAL GROUP, INC., WHICH SHALL NOT
BE UNREASONABLY WITHHELD.
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<PAGE> 52
Original Denomination:
Principal Balance:
PNC STUDENT LOAN TRUST I
ASSET BACKED CERTIFICATES
evidencing a fractional undivided interest in the Trust, as defined
below, the property of which includes a pool of student loans sold to
the Trust by PNC Bank, National Association (the "Seller").
THIS CERTIFIES THAT is the registered owner of
a dollars non-assessable, fully-paid, fractional undivided
interest in the PNC Student Loan Trust I (the "Trust"), a business trust formed
under the laws of Delaware by PNC Bank, National Association (the "Depositor").
The Trust was created pursuant to a Trust Agreement dated as of March 27, 1997
(the "Trust Agreement") between the Depositor and The First National Bank of
Chicago, as eligible lender trustee (the "Eligible Lender Trustee"), a summary
of certain of the pertinent provisions of which is set forth below. To the
extent not otherwise defined herein, the capitalized terms used herein have the
meanings assigned to them in Appendix A to the Trust Agreement; such Appendix A
also contains rules as to usage that shall be applicable herein.
This Certificate is one of the duly authorized Certificates
designated as "PNC Student Loan Trust I Asset Backed Certificates" (herein
called the "Trust Certificates"). Issued under the Master Indenture dated as of
March 27, 1997, between the Trust and Bankers Trust Company, as Indenture
Trustee, will be one or more series of notes, each series to be issued under a
separate terms agreement (such notes referred to herein as, collectively, the
"Notes"). This Trust Certificate is issued under and is subject to the terms,
provisions and conditions of the Trust Agreement, to which Trust Agreement the
holder of this Trust Certificate by virtue of the acceptance hereof assents and
by which such holder is bound. The property of the Trust includes a pool of
student loans (the "Financed
A-2
<PAGE> 53
Student Loans"), all moneys paid thereunder on or after the Cut-off Date
certain bank accounts and the proceeds thereof and certain other rights under
the Trust Agreement and the Transfer and Servicing Agreement and all proceeds
of the foregoing. The rights of the holders of the Trust Certificates to the
assets of the Trust are subordinated to the rights of the holders of the Notes,
as set forth in the Transfer and Servicing Agreement.
Under the Trust Agreement, distributions will be made on the
Trust Certificates on each Distribution Date, commencing in May 1997 in the
manner set forth in the Trust Agreement and the Transfer and Servicing
Agreement.
Each holder of this Trust Certificate acknowledges and agrees
that its rights to receive distributions in respect of this Trust Certificate
from Available Funds and amounts on deposit in the Reserve Account are
subordinated to the rights of the Noteholders as described in the Transfer and
Servicing Agreement and the Indenture.
Each Certificateholder, by its acceptance of a Trust
Certificate, covenants and agrees that such Certificateholder will not at any
time institute against the Depositor or the Trust, or join in any institution
against the Depositor or the Trust, any bankruptcy, reorganization,
arrangement, insolvency, receivership or liquidation proceedings, or other
proceedings under any United States Federal or state bankruptcy or similar law
in connection with any obligations relating to the Trust Certificates, the
Notes, the Trust Agreement or any of the other Basic Documents.
Each Certificateholder, by its acceptance of a Trust
Certificate, (i) agrees, for federal, state and local income and franchise tax
purposes, to treat the Trust as a partnership, with the assets of the
partnership being the Financed Student Loans and other assets held by the
Trust, the partners of the partnership being the Certificateholders and the
Notes being debt of the partnership, and (ii) acknowledges that the Trust will
file or cause to be filed annual or other necessary returns, reports and other
forms consistent with the characterization of the Trust as a partnership for
federal, state and local and franchise tax purposes and that the Administrator
will not make, or cause to be made, an election under the provisions of
Treasury Regulation Section 301.7701.3 to classify the Trust as an association.
A-3
<PAGE> 54
Distributions on this Trust Certificate will be made as
provided in the Trust Agreement by the Eligible Lender Trustee by wire transfer
or by check mailed to the Certificateholder of record in the Certificate
Register without the presentation or surrender of this Trust Certificate or the
making of any notation hereon.
Reference is hereby made to the further provisions of this
Trust Certificate set forth on the reverse hereof, which further provisions
shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have
been executed by an authorized representative of the Eligible Lender Trustee or
its authenticating agent, by manual signature, this Trust Certificate shall not
entitle the holder hereof to any benefit under the Trust Agreement or the
Transfer and Servicing Agreement or be valid for any purpose.
A-4
<PAGE> 55
IN WITNESS WHEREOF, the Eligible Lender Trustee on behalf of
the Trust and not in its individual capacity has caused this Trust Certificate
to be duly executed as of the date set forth below.
PNC STUDENT LOAN TRUST I
By: The First National Bank of Chicago,
not in its individual capacity but
solely as Eligible Lender Trustee,
By:________________________
Authorized Signatory
Date:
A-5
<PAGE> 56
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Trust Certificates referred to in the
within-mentioned Trust Agreement.
THE FIRST NATIONAL BANK OF CHICAGO, not
in its individual capacity but
solely as Eligible Lender
Trustee,
By:___________________________
Authorized Representative
Date:
A-6
<PAGE> 57
[Reverse of Trust Certificate]
The Trust Certificates do not represent an obligation of, or
an interest in, the Depositor, the Master Servicer, the Administrator, the
Eligible Lender Trustee or any affiliates of any of them, and no recourse may
be had against such parties or their assets, except as may be expressly set
forth herein, in the Trust Agreement or in the other Basic Documents. In
addition, this Trust Certificate is not guaranteed by any governmental agency
or instrumentality and is limited in right of payment to certain collections
respecting the Financed Student Loans, all as more specifically set forth in
the Transfer and Servicing Agreement. A copy of each of the Transfer and
Servicing Agreement and the Trust Agreement may be examined during normal
business hours at the principal office of the Depositor, and at such other
places, if any, designated by the Depositor, by any Certificateholder upon
request.
The Trust Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights and
obligations of the Transferor and the rights of the Certificateholders under
the Trust Agreement at any time by the Depositor and the Eligible Lender
Trustee with the consent of the Majority Certificateholders. Any such consent
by the holder of this Trust Certificate shall be conclusive and binding on such
holder and on all future holders of this Trust Certificate and of any Trust
Certificate issued upon the transfer hereof or in exchange herefor or in lieu
hereof whether or not notation of such consent is made upon this Trust
Certificate. The Trust Agreement also permits the amendment thereof, in certain
limited circumstances, without the consent of the holders of any of the Trust
Certificates.
As provided in the Trust Agreement and subject to certain
limitations therein set forth, the transfer of this Trust Certificate is
registerable in the Certificate Register upon surrender of this Certificate for
registration of transfer at the offices or agencies maintained by The First
National Bank of Chicago in its capacity as Certificate Registrar, or by any
successor Certificate Registrar, accompanied by a written instrument of
transfer in form satisfactory to the Eligible Lender Trustee and the
Certificate Registrar duly executed by the holder hereof or such holder's
attorney duly authorized in writing, and thereupon one or more new Trust
Certificates of authorized denominations evidencing the same aggregate interest
in the Trust will be issued to the designated transferee.
A-7
<PAGE> 58
The Trust Certificates are issuable only as registered Trust
Certificates without coupons in minimum denominations of $1.00 and integral
multiples thereof. As provided in the Trust Agreement and subject to certain
limitations therein set forth, Trust Certificates are exchangeable for new
Trust Certificates of authorized denominations evidencing the same percentage
interest, as requested by the holder surrendering the same. No service charge
will be made for any such registration of transfer or exchange, but the
Eligible Lender Trustee or the Certificate Registrar may require payment of a
sum sufficient to cover any tax or governmental charge payable in connection
therewith.
The Eligible Lender Trustee, the Certificate Registrar and
any agent of the Eligible Lender Trustee and the Certificate Registrar may
treat the person in whose name this Trust Certificate is registered as the
owner hereof for all purposes, and none of the Eligible Lender Trustee or the
Certificate Registrar or any such agent shall be affected by any notice to the
contrary.
AS LONG AS THE SERIES 1997-I NOTES ARE OUTSTANDING, THIS TRUST CERTIFICATE MAY
NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT
OF SMITH BARNEY MORTGAGE CAPITAL GROUP, INC., WHICH SHALL NOT BE UNREASONABLY
WITHHELD.
This Trust Certificate may not be transferred directly or
indirectly to (1) employee benefit plans, retirement arrangements, individual
retirement accounts or Keogh plans subject to either Title I of the Employee
Retirement Income Security Act of 1974, as amended, or Section 4975 of the
Internal Revenue Code of 1986, as amended, or (2) entities (including insurance
company general accounts) whose underlying assets include plan assets by reason
of any such plan's arrangements or account's investment in such entities. By
accepting and holding this Trust Certificate, the Holder hereof shall be deemed
to have represented and warranted that it is not any of the foregoing entities.
This Trust Certificate may not be transferred to any person
who is not a U.S. Person, as such term is defined in Section 7701(a)(30) of the
Internal Revenue Code, as amended.
A-8
<PAGE> 59
Each purchaser of the Trust Certificates shall be required,
prior to purchasing a Trust Certificate, to execute the Purchaser's
Representation and Warranty Letter in the form attached to the Trust Agreement
as Exhibit B.
The obligations and responsibilities created by the Trust
Agreement and the Trust created thereby shall terminate upon the payment to
Certificateholders of all amounts required to be paid to them pursuant to the
Trust Agreement and the Transfer and Servicing Agreement and the disposition of
all property held as part of the Trust. The Seller may at its option purchase
the corpus of the Trust at a price specified in the Transfer and Servicing
Agreement, and such purchase of the Financed Student Loans and other property
of the Trust will effect early retirement of the Trust Certificates; however,
such right of purchase is exercisable only as of any Distribution Date on or
after the date on which the Pool Balance is less than or equal to 5% of the
Initial Pool Balance.
This Trust Certificate shall be construed in accordance with
the laws of the State of Delaware, 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.
A-9
<PAGE> 60
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
- ----------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
- ----------------------------------------------------------------
the within Trust Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
_______________________________________________________ Attorney to transfer
said Trust Certificate on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated: ________________________________*
Signature Guaranteed:
________________________________*
* NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Trust Certificate in every particular,
without alteration, enlargement or any change whatever. Such signature must be
guaranteed by an approved eligible guarantor institution, an institution which
is a participant in a Securities Transfer Association recognized signature
guarantee program.
A-10
<PAGE> 61
APPENDIX A
TO THE
TRUST 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.
<PAGE> 62
(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
2
<PAGE> 63
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.
"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, with a copy to the
Majority Noteholder, 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, with a copy to the Majority Noteholder, 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, with a copy to the Majority Noteholder, 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, with a copy to the Majority Noteholder, on the Closing Date
(as such list may be modified or supplemented from time to time thereafter).
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"AVAILABLE FUNDS" means, with respect to a Distribution Date,
the 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 collecting
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 Trust during
such Collection Period (including but not limited to Financed Student Loans
repurchased by the Transferor or its designee or purchased by a Third Party
Purchaser pursuant to the provisions of Article X of the Transfer and Servicing
Agreement); (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
repurchased 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 and (vii) Investments Earnings 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.
"BASIC DOCUMENTS" means the Trust Agreement, the Indenture,
each Terms Supplement, the Transfer and Servicing Agreement, the Administration
Agreement, the Guarantee Agreements, the Purchase 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
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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.
"BUSINESS DAY" means 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 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.
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"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 Certificate Distribution Date on and
after the Notes have been paid in full, the Certificateholders' Principal
Distribution Amount for such Distribution Date.
"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
Certificate 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; provided, however, that the Certificateholders'
Interest Distribution Amount will not include any Certificateholders' Interest
Carryover.
"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 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.
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"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 Collection Period in the immediately 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 Distribution
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.
"CLASS" means any class of Notes.
"CLASS INITIAL RATE" means, with respect to any Class, the
rate identified as such in the related Terms Supplement.
"CLASS INITIAL RATE ADJUSTMENT DATE" means, with respect to
any Class of Notes, May 15, 1997.
"CLASS INTEREST RATE" means, with respect to any Class, the
interest rate determined as set forth in the related Terms Supplement.
"CLOSING DATE" means March 27, 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.
"COLLECTION PERIOD" means, with respect to the first
Distribution Date, the period beginning March 26, 1997 and ending on April 30,
1997, inclusive, and with respect to each subsequent Distribution Date
thereafter, the Collection Period means the calendar month immediately
following the end of the previous Collection Period.
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"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.
"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 the Majority
Noteholder 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).
"CUT-OFF DATE" means, the close of business on March 25,
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.
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"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 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,
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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 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
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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 (i) the Business Day immediately
following the end of an Interest Period, commencing May 15, 1997 and (ii) any
day on which a deposit is made into the Collection Account pursuant to Article
X of the Transfer and Servicing Agreement.
"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
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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
- 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
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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
(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;
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(9) investment agreements approved in writing by the Majority
Noteholder; and
(10) other forms of investments (including repurchase agreements)
approved in writing by the Majority Noteholder.
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 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, the Indenture Trustee and the Majority
Noteholder.
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"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.
"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 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
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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 related Terms Supplement or Trust Agreement,
respectively.
"FINANCED STUDENT LOAN" means the Federal Loans set forth in
Schedule A to the Transfer and Servicing Agreement, as amended from time to
time by the 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.
"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.
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"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.
"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.
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"INDENTURE" means the Master Indenture and any Terms
Supplement, each as amended or supplemented from time to time, with respect to
which the Notes issued thereunder are still Outstanding.
"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 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.
"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
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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 related Transfer and Servicing Agreement or Supplemental
Transfer and Servicing Agreement.
"INITIAL CERTIFICATE BALANCE" means $1,000, representing the
Certificate Balance as of the Closing Date
"INITIAL PERIOD" means, as to the Series 1997-1 Notes and the
Certificates, the period commencing on the Closing Date and continuing through
and including May 14, 1997.
"INITIAL POOL BALANCE" means $536,975,870.94 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 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.
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<PAGE> 80
"INSTITUTION OF HIGHER EDUCATION" means an institution of
higher education as defined under the Higher Education Act (20 U.S.C.A. Section
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 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 any Class of 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 or Trust Agreement, as the case
may be.
"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.
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<PAGE> 81
"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.
"MAJORITY NOTEHOLDER" means Smith Barney Mortgage Capital
Group, Inc. regardless of the amount of Notes held by it.
"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.
"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.
"MOODY'S" means Moody's Investor's Service, Inc.
"NOTES" means the notes issued by the Issuer pursuant to the
Master Indenture and a Terms Supplement.
"NOTE DISTRIBUTION 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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<PAGE> 82
"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 relating to such Notes, the sum of
the related Noteholders' Interest Distribution Amount and the Noteholders'
Principal Distribution Amount for such Note 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 Note 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.
"NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, with
respect to any Class of Notes, 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.
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<PAGE> 83
"NOTEHOLDERS' PRINCIPAL DISTRIBUTION AMOUNT" means, (A) on
the Distribution Dates occurring in May, June, July and August 1997, $0, and
(B) on the Final Maturity Date the Noteholders' Principal Distribution Amount
will include the amount required to reduce the Outstanding Amount of such Notes
to zero.
"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 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
23
<PAGE> 84
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 the Majority Noteholder, and which
opinion or opinions shall be addressed to the Indenture Trustee as Indenture
Trustee and the Majority Noteholder, shall comply with any applicable
requirements of Section 11.1 of the Master Indenture, and shall be in form and
substance satisfactory to the Indenture Trustee and the Majority Noteholder 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 acceptable to the Indenture Trustee, the Eligible Lender Trustee and the
Majority Noteholder.
"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;
24
<PAGE> 85
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.
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<PAGE> 86
"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
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 and (ii) the principal portion of all
Purchase Amounts received by the Trust for such Collection Period.
"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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<PAGE> 87
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.
"PREMIUM" means [Reserved]
"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 DISTRIBUTION AMOUNT" means, with respect to any
Collection Period, 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 (including but not limited to Financed Student Loans
repurchased by the Transferor or its designee or purchased by a Third Party
Purchaser pursuant to the provisions of Article X of the Transfer and Servicing
Agreement); (iii) all Realized Losses incurred during the related Collection
Period; and (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; 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.
"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
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<PAGE> 88
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.
"PUT OPTION" has the meaning set forth in Section 10.1(a) of
the Transfer and Servicing Agreement.
"PUT OPTION NOTICE" shall have the meaning set forth in
Section 10.1(a) of the Transfer and Servicing Agreement.
"PUT OPTION EXERCISE DATE" shall have the meaning set forth
in Section 10.1(a) of the Transfer and Servicing Agreement
"PUT OPTION PRICE" means, as to the Financed Student Loans on
any date of determination, 103.775% times the aggregate amount required to
prepay in full the outstanding principal balance of such Financed Student Loans
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 date the Put Option Price is deposited into the Collection Account
pursuant to Section 10.1(b) of the Transfer and Servicing Agreement.
"PUT OPTION PURCHASE DATE" has the meaning set forth in
Section 10.1(a) of the 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 and the Majority Noteholder;
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<PAGE> 89
(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 or reasonably required by the Majority
Noteholder.
"QUALIFIED INSTITUTIONAL BUYER" has the meaning ascribed to
such term in Rule 144A under the Securities Act.
"RATE ADJUSTMENT DATE" means, with respect to each Class of
Notes, the 15th day of each month, commencing May 15, 1997, which is the date
on which the applicable Class Interest Rate is effective and means, with
respect to each such Class of Notes, the date of commencement of each related
Interest Period.
"RATE DETERMINATION DATE" means the date which is both two
Business Days and two London Business Days preceding the related Rate
Adjustment Date.
"RATING AGENCY" means Moody's and Standard & Poor's. 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, the
Servicer and the Majority Noteholder.
"REALIZED LOSS" means, for each Financed Student Loan
submitted to a Guarantor for a Guarantee Payment, the excess, if
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<PAGE> 90
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.
"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 related 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, $0.
"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
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<PAGE> 91
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.
"SALE CLOSING DATE" has the meaning set forth in section
10.2(b) of the Transfer and Servicing Agreement.
"SALE PRICE" has the meaning set forth in Section 10.2(a) of
the Transfer and Servicing Agreement.
"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. The Schedule relating to the Indenture shall be a master
list of all Financed Student Loans then subject to the Lien of the Indenture.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"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 related Terms
Supplement, be divided into two or more Classes.
"SERIES 1997-1 NOTES" means the Notes designated as the
Issuer's Asset-Backed Notes, Series 1997-1, issued pursuant to the terms of the
Master Indenture and a Terms Supplement dated March 27, 1997 and having an
original principal amount equal to $544,931,645.
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"SERVICER" means AFSA, USA Group, Great Lakes, PHEAA or
another entity appointed, with the prior written consent of the Majority
Noteholder, 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.
"SERVICING FEE" means, 115% of the aggregated amount paid
each month by the Master Servicer to each Servicer pursuant to the terms of the
Subservicing Agreement.
"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, $0.
"STAFFORD LOAN" means a Financed Student Loan designated as
such that is made under Section 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.
"SUBSERVICING AGREEMENT" has the meaning specified in Section
4.13 of the Transfer and Servicing Agreement.
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<PAGE> 93
"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.
"SUCCESSOR MASTER SERVICER" has the meaning specified in
Section 3.7(e) of the Indenture.
"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 initially, the Terms Supplement to
the Indenture dated as of March 27, 1997 between the Issuer and The Indenture
Trustee and thereafter, each indenture supplement to the Indenture which
authorizes a particular Series.
"THIRD PARTY PURCHASERS" has the meaning set forth in Section
10.2 of the Transfer and Servicing Agreement.
"TRANSACTION FEES" means, collectively, the Servicing Fee,
the Administration Fee, Indenture Trustee Fee and the Eligible Lender Trustee
Fee.
"TRANSFER AND SERVICING AGREEMENT" means the Transfer and
Servicing Agreement dated as of March 27, 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.
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"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.
"TRUST INDENTURE ACT" or "TIA" means the Trust Indenture Act
of 1939 as in force on the date hereof, unless otherwise specifically provided.
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"UCC" means, unless the context otherwise requires, the
Uniform Commercial Code, as in effect in the relevant jurisdiction, as amended
from time to time.
"UNAMORTIZED PREMIUM" [Reserved].
"UNSUBSIDIZED STAFFORD LOAN" means a Financed Student Loan
designated as such that is made under Section 428H of the Higher Education Act.
"USA GROUP" means USA Group Loan Services, Inc.
35
<PAGE> 1
Exhibit 25.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT
OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2) ___________
------------------------------
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification no.)
FOUR ALBANY STREET
NEW YORK, NEW YORK 10006
(Address of principal (Zip Code)
executive offices)
---------------------------------
PNC STUDENT LOAN TRUST I
(Exact name of obligor as specified in its charter)
DELAWARE 36-4142114
(State or other jurisdiction of (I.R.S. employer
Incorporation or organization) Identification no.)
<PAGE> 2
ONE PNC PLAZA
249 FIFTH AVENUE
PITTSBURGH, PENNSYLVANIA 15222-2707
(Address of principal executive offices) (Zip Code)
PNC STUDENT LOAN TRUST I STUDENT LOAN ASSET BACKED NOTES
(Title of the indenture securities)
<PAGE> 3
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising authority to
which it is subject.
NAME ADDRESS
---- -------
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the Trustee, describe each
such affiliation.
None.
ITEM 3.-15. NOT APPLICABLE
ITEM 16. LIST OF EXHIBITS.
EXHIBIT 1 - Restated Organization Certificate of Bankers Trust
Company dated August 7, 1990, Certificate of Amendment
of the Organization Certificate of Bankers Trust Company
dated June 21, 1995 - Incorporated herein by reference
to 1995 - Incorporated herein by reference to Exhibit 1
filed with Form T-1 Statement, Registration No.
33-65171, and Certificate of Amendment of the
Organization Certificate of Bankers Trust Company dated
March 20, 1996, copy attached.
<PAGE> 4
EXHIBIT 2 - Certificate of Authority to commence business -
Incorporated herein by reference to Exhibit 2 filed with
Form T-1 Statement, Registration No. 33-21047.
EXHIBIT 3 - Authorization of the Trustee to exercise corporate trust
powers - Incorporated herein by reference to Exhibit 2
filed with Form T-1 Statement, Registration No.
33-21047.
EXHIBIT 4 - Existing By-Laws of Bankers Trust Company, as amended on
February 18, 1997, Incorporated herein by reference to
Exhibit 4 filed with Form T-1 Statement, Registration
No. 333-24509-01.
-2-
<PAGE> 5
EXHIBIT 5 - Not applicable.
EXHIBIT 6 - Consent of Bankers Trust Company required by Section 321(b)
of the Act. - Incorporated herein by reference to Exhibit 4
filed with Form T-1 Statement, Registration No. 22-18864.
EXHIBIT 7 - A copy of the latest report of condition of Bankers Trust
Company dated as of March 31, 1997, copy attached.
EXHIBIT 8 - Not Applicable.
EXHIBIT 9 - Not Applicable.
-3-
<PAGE> 6
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in The City of New York, and State of New York,
on the 30th day of May, 1997.
BANKERS TRUST COMPANY
By: /s/ Lillian K. Peros
-------------------------------
Lillian K. Peros
Assistant Vice President
-5-
<PAGE> 7
<TABLE>
<S> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 3/31/97 ST-BK:36-4840
FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623
Page RC-1
</TABLE>
City, State ZIP: New York, NY 10006
11
FDIC Certificate No.: 0 0 6 2 3
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS MARCH 31, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
- ---------------
C400
----------
<TABLE>
<CAPTION>
Dollar Amounts in Thousands RCFD Bil Mil
--------------------------------------------
Thou
- ----
<S> <C>
ASSETS / / / / / / / / / / / / / / / / / /
/ /
1. Cash and balances due from depository institutions (from Schedule RC-A): / / / / / / /
/ / / / / / / / / / /
a. Noninterest-bearing balances and currency and coin(1) ................ 0081
1,589,0001.a.
b. Interest-bearing balances(2) ......................................... 0071
2,734,0001.b.
2. Securities: / / / / / / / / / / / / / / / / / /
/ /
a. Held-to-maturity securities (from Schedule RC-B, column A)........... 1754
0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D).......... 1773
4,433,0002.b.
3. Federal funds sold and securities purchased under agreements to resell 1350
26,490,0003
4. Loans and lease financing receivables: / / / / / / / / / / / / / / / / / /
/ / /
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 15,941,000 / / / / / / / / / / / / / / / / / /
/ / / 4.a.
b. LESS: Allowance for loan and lease losses..................... RCFD 3123 708,000 / / / / / / / / / / / / / / / / / /
/ / / 4.b.
c. LESS: Allocated transfer risk reserve ........................ RCFD 3128 0 / / / / / / / / / / / / / / / / / /
/ / / 4.c.
d. Loans and leases, net of unearned income, / / / / / / / / / / / / / / / / / /
/ / /
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
allowance, and reserve (item 4.a minus 4.c).......................... 2125
15,233,0004.d.
5. Assets held in trading accounts ........................................ 3545
38,115,0005.
6. Premises and fixed assets (including capitalized leases)................ 2145
924,0006.
7. Other real estate owned (from Schedule RC-M)............................ 2150
188,0007.
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M) 2130
175,0008.
9. Customers' liability to this bank on acceptances outstanding ........... 2155
618,0009.
10. Intangible assets (from Schedule RC-M) ................................. 2143
17,00010.
11. Other assets (from Schedule RC-F) ...................................... 2160
4,424,00011.
12. Total assets (sum of items 1 through 11) ............................... 2170
94,940,00012. ------------
</TABLE>
- --------------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held in trading accounts.
<PAGE> 9
<TABLE>
<S> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 3/31/97 ST-BK: 36-4840
FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623
Page RC-2
City, State Zip: New York, NY 10006
12
FDIC Certificate No.: 0 0 6 2 3
SCHEDULE RC--CONTINUED
___________________________________
Dollar Amounts in Thousands / / / / / / / / Bil Mil
Thou________ --------------------------- -----------------------------
LIABILITIES / / / / / / / / / / / / / / / / / / / / / / / /
13. Deposits: / / / / / / / / / / / / / / / / / / / / / / / /
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) RCON 2200
14,450,000 13.a.
(1) Noninterest-bearing(1) .....RCON 6631 2,917,000..... / / / / / / / / / / / / / / / / / / / / / / / /
13.a.(1)
(2) Interest-bearing ............RCON 6636 11,533,000..... / / / / / / / / / / / / / / / / / / / / / / / /
13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and / / / / / / / / / / / / / / / / / / / / / / / /
IBFs (from Schedule RC-E
part II) RCFN 2200
23,456,000 13.b.
(1) Noninterest-bearing ..........RCFN 6631 1,062,000 / / / / / / / / / / / / / / / / /
/ / / / / / / 13.b.(1)
(2) Interest-bearing .............RCFN 6636 22,394,000 / / / / / / / / / / / / / / / / / / / / / / /
13.b.(2)
14. Federal funds purchased and securities sold under agreements
to repurchase RCFD 2800
15,195,000 14
15. a. Demand notes issued to the U.S. Treasury .................... RCON 2840
0 15.a.
b. Trading liabilities (from Schedule RC-D)..................... RCFD 3548
18,911,000 15.b.
16. Other borrowed money: (includes mortgage indebtedness and
obligations under / / / / / / / / / / / / / / / / / / / / /
/
capitalized leases): / / / / / / / / / / / / / / / / / / / / / /
a. With original maturity of one year or less .................. RCFD 2332
7,701,000 16.a.
b. With original maturity of more than one year ................ RCFD 2333
4,438,000 16.b.
17. Not applicable ................................
17.
18. Bank's liability on acceptances executed and outstanding........ RCFD 2920
618,000 18.
19. Subordinated notes and debentures .............................. RCFD 3200
1,226,000 19.
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C>
20. Other liabilities (from Schedule RC-G) ......................... RCFD 2930
3,971,000 20.
21. Total liabilities (sum of items 13 through 20) ................. RCFD 2948
89,966,000 21.
/ / / / / / / / / / / / / / / / / / / / / /
22. Not applicable
(22.
EQUITY CAPITAL / / / / / / / / / / / / / / / / / / / / / /
23. Perpetual preferred stock and related surplus .................. RCFD 3838
600,000 23.
24. Common stock .........................,,,,,,,,,................. RCFD 3230
1,002,000 24.
25. Surplus (exclude all surplus related to preferred stock)........ RCFD 3839
540,000 25.
26. a. Undivided profits and capital reserves ...................... RCFD 3632
3,241,000 26.a.
b. Net unrealized holding gains (losses) on available-for-sale
securities................................................... RCFD 8434
( 31,000) 26.b.
27. Cumulative foreign currency translation adjustments ............ RCFD 3284
( 378,000) 27.
28. Total equity capital (sum of items 23 through 27) .............. RCFD 3210
4,974,000 28.
29. Total liabilities, limited-life preferred stock, and equity / / / / / / / / / / / / / / / / / / / / / / /
capital (sum of items 21, 22,
/ / / / / / /
and 28) ........................................................ RCFD 3300 _
94,940,000 29. ---------
- ----------
</TABLE>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that
best describes the most comprehensive level of auditing work performed for
the bank by independent external
Number __
------
auditors as of any date during 1996 .................... RCFD 6724
---------
1 M.1
- ----------
1 = Independent audit of the bank conducted 4 = Directors' examination of
in accordance with generally accepted the bank performed by other
auditing standards by a certified external auditors (may be
public accounting firm which submits required by state
a report on the bank chartering authority)
2 = Independent audit of the bank's parent 5 = Review of the bank's
holding company conducted in accordance financial statements
with generally accepted auditing by external auditors
standards by a certified public
accounting firm which submits a report 6 = Compilation of the bank's
on the consolidated holding company financial statements by
external auditors
<PAGE> 11
(but not on the bank separately) 7 = Other audit
procedures
(excluding tax
preparation
work)
3 = Directors' examination of the bank conducted in 8 = No external
accordance with generally accepted auditing audit work
standards by a certified public accounting firm
(may be required by state chartering authority)
- ----------------------
(1) Including total demand deposits and noninterest-bearing time and savings
deposits.
<PAGE> 12
State of New York,
Banking Department
I, PETER M. PHILBIN, Deputy Superintendent of Bank of the State of New
York, DO HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF
AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY UNDER SECTION
8005 OF THE BANKING LAW," dated March 20, 1996, providing for an increase in
authorized capital stock from $1,351,666,670 consisting of 85,166,667 shares
with a par value of $10 each designated as Common Stock and 500 shares with a
par value of $1,000,000 each designated as Series Preferred Stock to
$1,501,666,670 consisting of 100,166,667 shares with a par value of $10 each
designated as Common Stock and 500 shares with a par value of $1,000,000 each
designated as Series Preferred Stock.
WITNESS, my hand and official seal of the Banking Department at the City of New
York,
this 21ST day of MARCH in the Year of our Lord one thousand nine hundred and
NINETY-SIX.
<PAGE> 13
Peter M. Philbin
----------------
Deputy Superintendent of Banks
<PAGE> 14
CERTIFICATE OF AMENDMENT
OF THE
ORGANIZATION CERTIFICATE
OF BANKERS TRUST
Under Section 8005 of the Banking Law
-----------------------------
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a
Managing Director and an Assistant Secretary of Bankers Trust Company, do
hereby certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of said corporation was filed by the
Superintendent of Banks on the 5th of March, 1903.
3. The organization certificate as heretofore amended is hereby amended
to increase the aggregate number of shares which the corporation shall have
authority to issue and to increase the amount of its authorized capital stock in
conformity therewith.
4. Article III of the organization certificate with reference to the
authorized capital stock, the number of shares into which the capital stock
shall be divided, the par value of the shares and the capital stock outstanding,
which reads as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is One Billion, Three Hundred Fifty One Million, Six Hundred
Sixty-Six Thousand, Six Hundred Seventy Dollars ($1,351,666,670),
divided into Eighty-Five Million, One Hundred Sixty-Six Thousand, Six
Hundred Sixty-Seven (85,166,667) shares with a par value of $10 each
designated as Common Stock and 500 shares with a par value of One
Million Dollars ($1,000,000) each designated as Series Preferred
Stock."
is hereby amended to read as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is One Billion, Five Hundred One Million, Six Hundred Sixty-Six
Thousand, Six Hundred Seventy Dollars ($1,501,666,670), divided into
One Hundred Million, One Hundred
<PAGE> 15
Sixty Six Thousand, Six Hundred Sixty-Seven (100,166,667) shares with a
par value of $10 each designated as Common Stock and 500 shares with a
par value of One Million Dollars ($1,000,000) each designated as Series
Preferred Stock."
<PAGE> 16
6. The foregoing amendment of the organization certificate was
authorized by unanimous written consent signed by the holder of all outstanding
shares entitled to vote thereon.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
20th day of March, 1996.
James T. Byrne, Jr.
-------------------
James T. Byrne, Jr.
Managing Director
Lea Lahtinen
------------
Lea Lahtinen
Assistant Secretary
State of New York )
) ss:
County of New York )
Lea Lahtinen, being fully sworn, deposes and says that she is an
Assistant Secretary of Bankers Trust Company, the corporation described in the
foregoing certificate; that she has read the foregoing certificate and knows
the contents thereof, and that the statements herein contained are true.
Lea Lahtinen
------------
Lea Lahtinen
Sworn to before me this 20th day
of March, 1996.
Sandra L. West
--------------
Notary Public
<PAGE> 17
SANDRA L. WEST Counterpart filed in the
Notary Public State of New York Office of the Superintendent of
No. 31-4942101 Banks, State of New York,
Qualified in New York County This 21st day of March, 1996
Commission Expires September 19, 1996
<PAGE> 1
Exhibit 99.1
ADMINISTRATION AGREEMENT dated as of March 27, 1997, among PNC STUDENT LOAN
TRUST I, a Delaware business trust (the "Issuer"), PNC BANK, NATIONAL
ASSOCIATION, a national banking association, as administrator (the
"Administrator"), and BANKERS TRUST COMPANY, a New York banking corporation, not
in its individual capacity but solely as Trustee (the "Indenture Trustee").
W I T N E S S E T H
WHEREAS the Issuer was created pursuant to a Trust Agreement
dated as of March 27, 1997 (the "Trust Agreement") among the Administrator, as
depositor, The First National Bank of Chicago, as Eligible Lender Trustee and
First Chicago Delaware Inc., as Delaware Trustee;
WHEREAS the Issuer may issue from time to time, in one or
more Classes, Asset Backed Certificates (the "Certificates") pursuant to the
Trust Agreement and, if applicable, a related Trust Supplement;
WHEREAS the Issuer may issue from time to time, in one or
more Series and one or more Classes, Asset Backed Notes (the "Notes") pursuant
to the Indenture dated as of March 27, 1997 (the "Indenture"), between the
Issuer and the Indenture Trustee and a related Terms Supplement (capitalized
terms used herein and not defined herein shall have the meanings assigned to
such terms in Appendix A to the Indenture, which also contains rules of usage
and construction that shall be applicable herein);
WHEREAS the Issuer has entered into or will enter into
certain agreements in connection with the issuance of the Notes and the
Certificates, including the Transfer and Servicing Agreement, the Guarantee
Agreements, the Purchase Agreement and related Terms Agreement and the
Indenture and related Terms Supplements (all such agreements being collectively
referred to herein as the "Related Agreements");
- 1 -
<PAGE> 2
WHEREAS, pursuant to the Basic Documents Issuer and the
Eligible Lender Trustee are required to perform certain duties in connection
with (a) the Notes and the Trust Estate therefor pledged to the Indenture
Trustee pursuant to the Indenture and related Terms Supplements and (b) the
Certificates (the registered holders of the Certificates being referred to
herein as the "Owners");
WHEREAS the Issuer and the Eligible Lender Trustee desire to
have the Administrator perform certain of the duties of the Issuer and the
Eligible Lender Trustee referred to in the preceding clause, and to provide
such additional services consistent with the terms of this Agreement and the
Related Agreements as the Issuer and the Eligible Lender Trustee may from time
to time request;
WHEREAS the Administrator has the capacity to provide or
cause to be provided the services required hereby and is willing to perform or
cause to be performed such services for the Issuer and the Eligible Lender
Trustee on the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties, intending to be legally
bound hereby, agree as follows:
1. DUTIES OF THE ADMINISTRATOR. (a) DUTIES WITH RESPECT TO
THE INDENTURE AND TRUST AGREEMENT. The Administrator shall perform all its
duties as Administrator under the Trust Agreement and the Transfer and
Servicing Agreement. In addition, the Administrator shall consult with the
Eligible Lender Trustee as the Administrator deems appropriate regarding the
duties of the Issuer under the Indenture, each related Terms Supplement and the
Trust Agreement. The Administrator shall monitor the performance of the Issuer
and shall advise the Eligible Lender Trustee when action by the Issuer or the
Eligible Lender Trustee is necessary to comply with the Issuer's or the
Eligible Lender Trustee's duties under the Indenture, each related Terms
Supplement, the Trust Agreement and any of the other Basic Documents. The
Administrator shall prepare for
- 2 -
<PAGE> 3
execution, if required, by the Issuer or shall cause the preparation by other
appropriate Persons of all such documents, reports, filings, instruments,
certificates and opinions as it shall be the duty of the Issuer to prepare,
file or deliver pursuant to the Indenture, each related Terms Supplement, the
Trust Agreement or any of the other Basic Documents. In furtherance of the
foregoing, the Administrator shall take all appropriate action that is the duty
of the Administrator and of the Issuer to take pursuant to the Trust Agreement,
the Indenture and each related Terms Supplement, including such of the
foregoing as are required of the Issuer with respect to the following matters
(references are to sections of the Indenture):
(A) the duty to cause the Note Registrar to keep the Note
Register and to give the Indenture Trustee notice of any appointment
of a new Note Registrar and the location, or change in location, of
the Note Registrar (Section 2.6);
(B) the fixing or causing to be fixed of any specified record
date and the notification of the Indenture Trustee and Noteholders
with respect to special payment dates, if any (Section 2.9(d));
(C) the preparation of or obtaining of the documents and
instruments required for authentication of the Notes and delivery of
the same to the Indenture Trustee (Section 2.11);
(D) the preparation, obtaining or filing of the instruments,
opinions and certificates and other documents required for the release
of collateral (Section 2.12);
(E) the duty to cause the Note Registrar to maintain on
behalf of the Issuer an office in the Borough of Manhattan, City of
New York, for registration of transfer or exchange of Notes (Section
3.2);
(F) the duty to cause newly appointed Paying Agents, if any,
to deliver to the Indenture Trustee the instrument specified in the
Indenture regarding funds held in trust (Section 3.3);
(G) the direction to the Paying Agents to deposit moneys with
the Indenture Trustee (Section 3.3);
- 3 -
<PAGE> 4
(H) the obtaining and preservation of the Issuer's
qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of the Indenture, the Notes and each other instrument
and agreement included in the Indenture Trust Estate (Section 3.4);
(I) the preparation of all supplements, amendments, financing
statements, continuation statements, instruments of further assurance
and other instruments, in accordance with Section 3.5 of the
Indenture, necessary to protect the Indenture Trust Estate (Section
3.5);
(J) the identification to the Indenture Trustee in an
Officer's Certificate of the Issuer of a Person with whom the Issuer
has contracted to perform its duties under the Indenture (Section
3.7(b));
(K) the notification of the Indenture Trustee and the Rating
Agencies (if any Notes or Certificates are then rated by the Rating
Agencies) of a Master Servicer Default known to the Administrator
pursuant to the Transfer and Servicing Agreement and, if such Master
Servicer Default arises from the failure of the Master Servicer to
perform any of its duties under the Transfer and Servicing Agreement,
the taking of all reasonable steps available to enforce the Issuer's
rights under the Basic Documents in respect of such failure (Section
3.7(d));
(L) the preparation and obtaining of documents and
instruments required for the release of the Issuer from its
obligations under the Indenture (Section 3.10);
(M) the delivery of notice to the Indenture Trustee and the
Rating Agencies (if any Notes or Certificates are then rated by the
Rating Agencies) of each Event of Default, any Default under Section
5.1(iii) of the Indenture and each default by the Master Servicer, the
Administrator or the Seller under the Transfer and Servicing Agreement
or any Supplemental Transfer and Servicing Agreement known to the
Administrator (Section 3.18);
- 4 -
<PAGE> 5
(N) the monitoring of the Issuer's obligations as to the
satisfaction and discharge of the Indenture and the preparation of an
Officers' Certificate of the Issuer and the obtaining of the Opinion
of Counsel and the Independent Certificate relating thereto (Section
4.1);
(O) the compliance with any written directive of the
Indenture Trustee to compel performance by the Master Servicer under
the Transfer and Servicing Agreement (Section 5.16);
(P) the reimbursement to the Indenture Trustee of all
reasonable out-of-pocket expenses incurred or made by it in accordance
with any provision of the Indenture as well as the indemnification, to
the extent provided in the Indenture, of the Indenture Trustee in
connection with the administration of the Trust and the performance of
the Indenture Trustee's duties under the Indenture and the other Basic
Documents (Section 6.7);
(Q) the removal of the Indenture Trustee and appointment of a
successor Indenture Trustee (Section 6.8);
(R) the preparation of any written instruments required to
confirm more fully the authority of any co-trustee or separate trustee
and any written instruments necessary in connection with the
resignation or removal of any co-trustee or separate trustee (Section
6.10);
(S) the furnishing of the Indenture Trustee with the names
and addresses of Noteholders during any period when the Indenture
Trustee is not the Note Registrar (Section 7.1);
(T) the preparation and, after execution by the Issuer, the
filing with the Commission, any applicable State agencies and the
Indenture Trustee of documents required to be filed on a periodic
basis with, and summaries thereof as may be required by rules and
regulations prescribed by, the Commission and any applicable State
agencies and the transmission of such summaries, as necessary, to the
Noteholders (Section 7.3);
- 5 -
<PAGE> 6
(U) the opening of one or more accounts in the Issuer's, the
Indenture Trustee's or the Eligible Lender Trustee's name, the
preparation of Issuer Orders, Officers' Certificates of the Issuer and
Opinions of Counsel and all other actions reasonably necessary with
respect to investment and reinvestment of funds in the Trust Accounts
(Sections 8.2 and 8.3);
(V) the preparation of Issuer Orders and the obtaining of
Opinions of Counsel with respect to the execution of supplemental
indentures and the mailing to the Noteholders of notices with respect
to such supplemental indentures (Sections 9.1, 9.2 and 9.3);
(W) the preparation of or obtaining of the documents and
instruments required for the execution and authentication of new Notes
conforming to any supplemental indenture and the delivery of the same
to the Eligible Lender Trustee and the Indenture Trustee, respectively
(Section 9.6);
(X) the preparation of all Officers' Certificates of the
Issuer, or obtaining Opinions of Counsel and Independent Certificates
with respect to any requests by the Issuer to the Indenture Trustee to
take any action under the Indenture (Section 11.1(a));
(Y) the preparation and delivery of Officers' Certificates of
the Issuer and the obtaining of Independent Certificates, if
necessary, for the release of property from the lien of the Indenture
(Section 11.1(b));
(AA) the preparation and delivery to Noteholders and the
Indenture Trustee of any agreements with respect to alternate payment
and notice provisions (Section 11.6); and
(BB) the recording of the Indenture, if applicable (Section
11.15).
(b) DUTIES WITH RESPECT TO THE ISSUER. (i) In addition to the
duties of the Administrator set forth above and
- 6 -
<PAGE> 7
those provided in the other Related Agreements and the Trust Agreement which
the Administrator agrees herein to perform, the Administrator shall perform
such calculations and shall prepare for execution by the Issuer or the Eligible
Lender Trustee or shall cause the preparation by other appropriate Persons of
all such documents, reports, filings, instruments, certificates and opinions as
it shall be the duty of the Issuer or the Eligible Lender Trustee to prepare,
file or deliver pursuant to the Related Agreements, the Trust Agreement or any
of the other Basic Documents, and at the request of the Eligible Lender Trustee
shall take all appropriate action that it is the duty of the Issuer to take
pursuant to the Related Agreements, the Trust Agreement or any of the other
Basic Documents. Subject to Section 5 of this Agreement, and in accordance with
the directions of the Eligible Lender Trustee, the Administrator shall
administer, perform or supervise the performance of such other activities in
connection with the Trust Estate (including the Related Agreements and other
Basic Documents) as are not covered by any of the foregoing provisions and as
are expressly requested by the Eligible Lender Trustee and are reasonably
within the capability of the Administrator.
(ii) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Administrator may enter into transactions
with or otherwise deal with any of its Affiliates; provided, however, that the
terms of any such transactions or dealings shall be in accordance with any
directions received from the Issuer and shall be, in the Administrator's
opinion, no less favorable to the Issuer than would be available from
unaffiliated parties.
(c) NON-MINISTERIAL MATTERS. With respect to matters that in
the reasonable judgment of the Administrator are non-ministerial, the
Administrator shall not take any action unless within a reasonable time before
the taking of such action, the Administrator shall have notified the Eligible
Lender Trustee of the proposed action and the Eligible Lender Trustee shall not
have withheld consent or provided an alternative direction. For the purpose of
the preceding sentence, "non-ministerial matters" shall include:
(A) the amendment of or any supplement to the Indenture or
any Terms Supplement;
- 7 -
<PAGE> 8
(B) the initiation of any claim or lawsuit by the Issuer and
the compromise of any action, claim or lawsuit brought by or against
the Issuer (other than in connection with the collection of the
Financed Student Loans);
(C) the amendment, change or modification of the Related
Agreements or the Trust Agreement;
(D) the appointment of successor Note Registrars, successor
Certificate Paying Agents and successor Indenture Trustees pursuant to
the Indenture or to the appointment of successor Administrators or
successor Master Servicers, or the consent to the assignment by the
Note Registrar, Certificate Paying Agent or Indenture Trustee of its
obligations under the Indenture;
(E) the removal of the Indenture Trustee; and
(F) the buying or selling of assets in the Trust Estate,
including student loans.
(d) EXCEPTIONS. Notwithstanding anything to the contrary in
this Agreement, except as expressly provided herein or in the other Basic
Documents, the Administrator shall not be obligated to, and shall not, (1) make
any payments to the Noteholders under the Related Agreements, (2) make any
payments to Certificateholders under the Trust Agreement or the Transfer and
Servicing Agreement, (3) sell the Trust Estate pursuant to Section 5.4 of the
Indenture, (4) take any other action that the Issuer directs the Administrator
not to take on its behalf, (5) in connection with its duties hereunder assume
any indemnification obligation of any other Person or (6) service the Financed
Student Loans.
2. RECORDS. The Administrator shall maintain appropriate
books of account and records relating to services performed hereunder, which
books of account and records shall be reasonably accessible for inspection by
the Issuer at any time during normal business hours.
3. COMPENSATION. As compensation for the performance of the
Administrator's obligations under this Agreement and as
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<PAGE> 9
reimbursement for its expenses related thereto, the Administrator shall be
entitled to a fee to be determined equal to a rate per annum of the outstanding
principal amount of the Notes, calculated monthly and payable on the first
Distribution Date occurring in each month (the "Administration Fee").
4. ADDITIONAL INFORMATION TO BE FURNISHED TO THE ISSUER. The
Administrator shall furnish the Issuer from time to time such additional
information regarding the Trust Estate as the Issuer shall reasonably request.
5. INDEPENDENCE OF THE ADMINISTRATOR. For all purposes of
this Agreement, the Administrator shall be an independent contractor and shall
not be subject to the supervision of the Issuer or the Eligible Lender Trustee
with respect to the manner in which it accomplishes the performance of its
obligations hereunder. Unless expressly authorized by the Issuer or provided in
the Basic Documents, the Administrator shall have no authority to act for or
represent the Issuer or the Eligible Lender Trustee in any way and shall not
otherwise be deemed an agent of the Issuer or the Eligible Lender Trustee.
6. NO JOINT VENTURE; NOT TRUSTEE. Nothing contained in this
Agreement (i) shall constitute the Administrator and any of the Issuer, the
Indenture Trustee or the Eligible Lender Trustee as members of any partnership,
joint venture, association, syndicate, unincorporated business or other
separate entity, (ii) shall be construed to impose any liability as such on any
of them or (iii) shall be deemed to confer on any of them any express, implied
or apparent authority to incur any obligation or liability on behalf of the
others. Further, nothing contained in this Agreement shall constitute or be
deemed to constitute the Administrator as a trustee or co-trustee of the Trust.
7. OTHER ACTIVITIES OF ADMINISTRATOR. Nothing herein shall
prevent the Administrator or its Affiliates from engaging in other businesses
or, in its sole discretion, from acting in a similar capacity as an
administrator for any other person or entity even though such person or entity
may engage in business activities similar to those of the Issuer, the Eligible
Lender Trustee or the Indenture Trustee.
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<PAGE> 10
8. TERM OF AGREEMENT; RESIGNATION AND REMOVAL OF
ADMINISTRATOR. (a) This Agreement shall continue in force until the dissolution
of the Issuer, upon which event this Agreement shall automatically terminate.
(b) The provisions of Article VII and Article VIII of the
Transfer and Servicing Agreement relating to the resignation or removal of the
Administrator and the failure of the Administrator to perform its duties under
this Agreement are hereby incorporated by reference herein.
9. ACTION UPON TERMINATION, RESIGNATION OR REMOVAL. Promptly
upon the effective date of termination of this Agreement pursuant to pursuant
to Section 8(a) or the resignation or removal of the Administrator pursuant to
Section 8(b) and the Transfer and Servicing Agreement, the Administrator shall
be entitled to be paid all fees and reimbursable expenses accruing to it to the
date of such termination, resignation or removal. The Administrator shall
forthwith upon such termination pursuant to Section 8(a) deliver to the Issuer
all property and documents of or relating to the Collateral then in the custody
of the Administrator. In the event of the resignation or removal of the
Administrator, the Administrator shall cooperate with the Issuer and take all
reasonable steps requested to assist the Issuer in making an orderly transfer
of the duties of the Administrator.
10. NOTICES. Any notice, report or other communication given
hereunder shall be in writing and addressed as follows:
(a) if to the Issuer or the Eligible Lender Trustee, to
The First National Bank of Chicago
Corporate Trust Office
One First National Plaza
Suite 0126
Chicago, Illinois 60670
Attention: Corporate Trust Department
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<PAGE> 11
(b) if to the Administrator, to
PNC Bank, National Association
2600 Liberty Avenue
Suite 200
Pittsburgh, Pennsylvania 15222
Attention: John Peters
with a copy to
PNC Bank, National Association
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attention: Helen Pudlin, Esq.
(c) if to the Indenture Trustee, to
Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Corporate Trust and
Agency Group, Structured
Finance Team
or to such other address as any party shall have provided to the other parties
in writing. Any notice required to be in writing hereunder shall be deemed
given if such notice is mailed by certified mail, postage prepaid, or
hand-delivered to the address of such party as provided above.
11. AMENDMENTS. This Agreement may be amended from time to
time by a written amendment duly executed and delivered by the Issuer, the
Administrator and the Indenture Trustee, with the written consent of the
Eligible Lender Trustee and the Majority Noteholder 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 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 Financed Student Loans
or distributions that are required to be made for the benefit of the
Noteholders or Certificateholders or (ii) reduce the aforesaid percentage of
the Noteholders and the Certificateholders which are required to
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<PAGE> 12
consent to any such amendment, without the consent of all Outstanding
Noteholders and Certificateholders. Prior to the execution of any such
amendment, or (iii) amend Section 2.3 of the Trust Agreement, the Administrator
shall furnish written notification or the substance of such amendment to each
of the Rating Agencies (if any Notes or Certificates are then rated by the
Rating Agencies) and the Majority Noteholder.
12. SUCCESSORS AND ASSIGNS. Notwithstanding anything to the
contrary contained herein, except as provided in Sections 6.5 and 6.8 of the
Transfer and Servicing Agreement, this Agreement may not be assigned by the
Administrator. Subject to the foregoing, this Agreement shall bind any
successors or assigns of the parties hereto.
13. 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.
14. 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.
15. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which when so executed shall together constitute but one
and the same agreement.
16. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall 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.
17. NOT APPLICABLE TO PNC BANK, NATIONAL ASSOCIATION IN OTHER
CAPACITIES. Nothing in this Agreement shall affect any obligation PNC Bank,
National Association may have in any other capacity under the Basic Documents.
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<PAGE> 13
18. PROVISIONS OF TRANSFER AND SERVICING AGREEMENT CONTROL.
The provisions of the Transfer and Servicing Agreement and of each Supplemental
Transfer and Servicing Agreement relating to the Administrator and to this
Agreement shall in all events govern and are hereby incorporated herein and, to
the extent any provision herein shall be inconsistent with any such provision
of the Transfer and Servicing Agreement, the Transfer and Servicing Agreement
shall govern.
19. LIMITATION OF LIABILITY OF ELIGIBLE LENDER TRUSTEE AND
INDENTURE TRUSTEE. (a) Notwithstanding anything contained herein to the
contrary, this instrument has been countersigned 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 Dauphin Deposit Bank and
Trust Company in its individual capacity or any Owner of the Issuer have any
liability for the representations, warranties, covenants, agreements or other
obligations of the Issuer hereunder, as to all of which recourse shall be had
solely to the assets of the Issuer. For all purposes of this Agreement, in the
performance of any duties or obligations of the Issuer thereunder, the Eligible
Lender Trustee shall be subject to, and entitled to the benefits of, the terms
and provisions of Articles VI, VII and VIII of the Trust Agreement.
(b) Notwithstanding anything contained herein to the
contrary, this Agreement has been countersigned 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.
20. THIRD-PARTY BENEFICIARY. The Eligible Lender Trustee is a
third-party beneficiary to this Agreement and is entitled to the rights and
benefits hereunder and may enforce the provisions hereof as if it were a party
hereto.
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<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this
Administration Agreement to be duly executed and delivered as of the day and
year first above written.
PNC BANK STUDENT LOAN TRUST I
by THE FIRST NATIONAL BANK
OF CHICAGO, not in its
individual capacity but
solely as Eligible Lender
Trustee,
By: /S/ JEFFREY L. KINNEY
------------------------------
Name:
Title:
BANKERS TRUST COMPANY, not in
its individual capacity but
solely as Indenture Trustee,
By /S/ LINDA RAKOLTA
------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION, as
Administrator,
By /S/ BRYAN W. RIDLEY
------------------------------
Name:
Title:
