<PAGE>
As filed with the Securities and Exchange Commission on October 30, 1996
Registration No. 33-94846
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
AMENDMENT NO. 3
to
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-----------------------
SIGNET BANK
(formerly known as Signet Bank/Maryland)
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Virginia 6022 54-1088621
(State or other jurisdic- (Primary Standard Industrial (I.R.S. employer
tion of incorporation Classification Code Number) identification number)
or organization)
</TABLE>
7 North Eighth Street
Richmond, Virginia 23219
(804) 747-2000
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive offices)
-----------------------
Sara R. Wilson
Executive Vice President, General
Counsel and Corporate Secretary
Signet Bank
7 North Eighth Street
P.O. Box 25970
Richmond, Virginia 23260
(804) 771-7416
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------
Copies to:
<TABLE>
<S> <C>
Joseph C. Carter, III, Esq. Daniel M. Rossner, Esq.
McGuire, Woods, Battle & Boothe, L.L.P. Brown & Wood L.L.P.
One James Center, 901 East Cary Street One World Trade Center
Richmond, Virginia 23219 New York, New York 10048
</TABLE>
Approximate date of commencement of proposed sale to the public: As
soon after the effective date of this Registration Statement as market
conditions warrant.
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, please 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, check the following box and
list the Securities Act registration statement number of earlier effective
registration statements for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of earlier effective registration statements
for the same offering.[_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Proposed Proposed
Title of Each Maximum Maximum
Class of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered per Unit (1) Offering Price (1) Registration Fee(2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Securities....... $580,420,500 100% $580,420,500 $200,145
===================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of determining the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933.
(2) 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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
EXPLANATORY NOTE
Signet Bank intends to make an offering of a portion of the securities
registered under this registration statement as permitted by Rule 430A. The form
of prospectus supplement contained herein is for such offering only and will,
when completed, be filed pursuant to Rule 424(b). Prospectus supplements used in
connection with offerings of other securities registered hereunder will include
only the basic prospectus and may be in a different form and contain other
information.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ 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 WITHOUT THE DELIVERY OF A FINAL PROSPECTUS +
+ SUPPLEMENT AND PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING +
+ 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 October 30, 1996
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED _______, 1996
$ ______________
Signet Student Loan Trust 1996-A
$_________ Floating Rate Class A-1 Asset Backed Notes
$_________ Floating Rate Class A-2 Asset Backed Notes
$_________ Floating Rate Asset Backed Certificates
____________________________________
Signet Bank
Seller
__________________________
The Signet Student Loan Trust 1996-A (the "Trust") will issue $________
aggregate principal amount of Floating Rate Class A-1 Asset Backed Notes (the
"Class A-1 Notes"), $_________ aggregate principal amount of Floating Rate Class
A-2 Asset Backed Notes (the "Class A-2 Notes" and, together with the Class A-1
Notes, the "Notes") and $_______ aggregate principal amount of Floating Rate
Asset Backed Certificates (the "Certificates"). The Assets of the Trust will
include a pool of guaranteed education loans to students and parents of students
purchased by The First National Bank of Chicago, as eligible lender trustee on
behalf of the Trust (the "Eligible Lender Trustee"), from Signet Bank (the
"Seller") (such loans, together with any Additional Student Loans acquired from
the Seller, the "Financed Student Loans"), collections and other payments with
respect to the Financed Student Loans, and monies on deposit in certain trust
accounts (including the Collection Account, the Reserve Account and the Pre-
Funding Account). (Continued on following page)
Prospective investors should consider the factors set forth under "Risk
Factors" herein at page S-_ and in the accompanying Prospectus at page _.
____________________________________
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN, AND THE NOTES REPRESENT
OBLIGATIONS OF, THE TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS
OF THE SELLER, THE ELIGIBLE LENDER TRUSTEE, THE MASTER SERVICER, THE INDENTURE
TRUSTEE, ANY SUBSERVICER, ANY GUARANTOR OR ANY AFFILIATE THEREOF. NEITHER THE
CERTIFICATES NOR THE NOTES ARE GUARANTEED OR INSURED BY 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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
____________________________________
Price to the Underwriting Proceeds to the
Public (1) Discount(2) Seller(1)(3)
------------ ------------- -------------
Per Class A-1 Note
Per Class A-2 Note
Per Certificate
Total
____________________________
(1) Plus accrued interest, if any, from _____ __, 1996.
(2) Underwriting discount only applies to $__________ aggregate principal
amount of Notes and $________ aggregate principal amount of Certificates
that are offered by _________________________________.
(3) Before deducting offering expenses payable by the Seller, estimated at
$______.
____________________________________
The Notes and the Certificates are offered by the several Underwriters subject
to prior sale, and subject to the Underwriters' right to reject orders in whole
or in part. It is expected that delivery of the Notes and the Certificates in
book-entry form will be made through the facilities of The Depository Trust
Company on the Same Day Funds Settlement System and in the case of the Notes,
Cedel Bank, societe anonyme, and the Euroclear System on or about _____ __,
1996.
[Underwriters]
The date of this Prospectus Supplement is ____ __, 1996.
<PAGE>
(Continued from preceding page)
The Notes will be collateralized by the assets of the Trust. The interests of
the Certificateholders in the assets of the Trust will be subordinated to
payments of interest and principal due on the Notes to the extent described
herein. After the Closing Date, certain Additional Fundings will be made from
time to time by or on behalf of the Trust, as described herein.
Subject to certain limitations described herein, the per annum rate of
interest for each Interest Period, other than the initial Interest Period, will
equal one-month LIBOR (determined as described herein) plus ______% with respect
to the Class A-1 Notes and one month LIBOR plus ______% with respect to the
Class A-2 Notes. Interest for the initial Interest Period will be calculated as
described herein. Interest on the Notes will be payable monthly on or about the
twenty-fifth day of each month (each, an "Interest Payment Date"), commencing
__________________, 1996. Principal on the Notes will be payable quarterly on or
about each __________, ___________, __________ and ________ of each year,
commencing on ___________, 1997 (each, a "Distribution Date") provided, however,
that no principal payments with respect to the Class A-2 Notes will be made
until the Class A-1 Notes are paid in full. Interest for each Interest Period,
other than the initial Interest Period, at a rate per annum equal, subject to
certain limitations described herein, to one-month LIBOR plus ____%, on the
Certificates will be distributed on each Interest Payment Date. Interest for the
initial Interest Period will be calculated as described herein. Principal on the
Certificates will be distributed on each Distribution Date; provided, however,
that no principal payments with respect to the Certificates will be made until
the Class A-2 Notes are paid in full.
The Final Distribution Date for the Class A-1 Notes will be the _____
____Distribution Date, the final Distribution Date for the Class A-2 Notes will
be the _________ Distribution Date and the final maturity date for the
Certificates will be the _________ Distribution Date. However, payment in full
of the Notes and the Certificates could occur other than on such dates as
described herein. In addition, the outstanding Class A-2 Notes will be redeemed
and the Certificates will be repaid on any Distribution Date on which the Seller
exercises its option to purchase the Financed Student Loans, exercisable when
the aggregate principal balance of the Financed Student Loans is reduced to 10%
or less of the Initial Pool Balance.
Signet Bank, a Virginia banking corporation ("Signet"), will serve as Master
Servicer and Administrator for the Financed Student Loans. The Financed Student
Loans will include loans guaranteed to the extent described herein by Texas
Guaranteed Student Loan Corporation ("TGSLC"), United Student Aid Funds ("USAF")
and Educational Credit Management Corporation ("ECMC") (each of TGSLC, USAF and
ECMC 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").
____________________________________
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES AND THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE NOTES OR THE
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. TO THE EXTENT ANY STATEMENTS IN THIS
PROSPECTUS SUPPLEMENT CONFLICT WITH STATEMENTS IN THE PROSPECTUS, THE STATEMENTS
IN THIS PROSPECTUS SUPPLEMENT SHALL CONTROL.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AND THE
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes or Definitive Certificates 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 and the Certificates. Such
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles. See "Certain Information Regarding the
Securities--Book-Entry Registration" and "--Reports to Securityholders" in
the Prospectus. The Trust will file with the Securities and Exchange Commission
(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.
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Principal Terms" or, to the
extent not defined herein, have the meanings assigned to such terms in the
Prospectus.
Issuer .............................. Signet Student Loan Trust 1996-A (the
"Trust")
Securities Offered .................. Floating Rate Class A-1 Asset Backed
Notes (the "Class A-1 Notes") in the
aggregate principal amount of
$________, Floating Rate Class A-2
Asset Backed Notes (the "Class A-2
Notes" and, together with the Class A-
1 Notes, the "Notes") in the aggregate
principal amount of $________ and
Floating Rate Asset Backed
Certificates (the "Certificates" and,
together with the Notes, the
"Securities") in the aggregate
principal amount of $________.
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 and persons acquiring
beneficial ownership interests in the
Certificates will hold their interests
in the Certificates through DTC. See
"Description of the Securities--
Book-Entry Registration" herein.
Seller ............................. Signet Bank, a Virginia banking
corporation ("Signet"), as seller
(the "Seller"). See "The Seller, the
Master Servicer and the Subservicers"
and "Assumption of Signet's
Obligations" in the Prospectus.
Master Servicer .................... Signet, as Master Servicer on behalf
of the Trust (the "Master Servicer")
pursuant to a Master Servicing
Agreement to be dated as of
______________, 1996 (as amended and
supplemented from time to time, the
"Master Servicing Agreement") among
the Trust, the Master Servicer and the
Eligible Lender Trustee. See "The
Seller, the Master Servicer and the
Subservicers" in the Prospectus.
Eligible Lender Trustee ............ The First National Bank of Chicago, a
national banking association, as
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" herein and
"Formation of the Trust--Eligible
Lender Trustee" in the Prospectus.
Indenture Trustee .................. The Bank of New York, a New York
banking corporation (the "Indenture
Trustee"), as trustee under the
Indenture.
S-3
<PAGE>
Administrator ...................... Signet, as administrator (the
"Administrator") on behalf of the
Trust pursuant to an Administration
Agreement to be dated as of _______
__, 1996 (as amended and supplemented
from time to time, the "Administration
Agreement"), among the Administrator,
the Trust and the Indenture Trustee.
The Trust .......................... The Trust will be established under
the laws of _________ by a Trust
Agreement to be dated as of ______ __,
1996 (as amended and supplemented from
time to time, the "Trust Agreement"),
among the Seller, a newly-organized
affiliate of the Seller which will be
formed prior to the Closing Date (the
"Company") and the Eligible Lender
Trustee. The activities of the Trust
and the Eligible Lender Trustee are
limited by the terms of the Trust
Agreement to acquiring, owning and
managing the Financed Student Loans
and the other assets of the Trust as
described herein, issuing the
Securities, 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 guaranteed education loans
to students and parents of students
("Student Loans") and will include
rights to receive payments made with
respect to such Financed Student Loans
and the proceeds thereof. On or prior
to ______ __, 1996 (the "Closing
Date"), the Seller will sell Student
Loans (the "Initial Financed Student
Loans") having an aggregate principal
balance of approximately
$______________ (the "Initial Pool
Balance") as of ______ __, 1996 (the
"Cutoff Date"), to the Eligible Lender
Trustee on behalf of the Trust
pursuant to a Loan Sale Agreement to
be dated as of ______ __, 1996 (as
amended and supplemented from time to
time, the "Loan Sale Agreement"),
among the Seller, the Trust and the
Eligible Lender Trustee. Following the
Cutoff Date, it is anticipated that,
subject to certain conditions
described herein, additional Student
Loans (the "Additional Student Loans,"
and together with the Initial Financed
Student Loans, the "Financed Student
Loans") will be acquired by the Trust,
as described below.
The Financed Student Loans are
guaranteed to the extent described
herein as to the payment of principal
and interest by Texas Guaranteed
Student Loan Corporation ("TGSLC"),
United Student Aid Funds ("USAF") and
Educational Credit Management
Corporation ("ECMC") (each of TGSLC,
USAF, and ECMC a "Guarantor", and,
collectively, the "Guarantors"), which
are in each case reinsured to the
extent described herein by the
Department. Financed Student Loans
made before October l, 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
l, 1993 are 98% guaranteed by the
applicable Guarantor,
S-4
<PAGE>
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 l, 1993 and such
98% guarantee and 98% maximum
reinsurance coverage, respectively,
with respect to Financed Student Loans
made on or after October l, 1993. As
of the Cutoff Date, __% of the Initial
Financed Student Loans were made
before October 1, 1993, and __% were
made after that date.
Certain incentive programs currently
or hereafter made available by the
Seller to borrowers may also be made
available by the Master Servicer to
borrowers with Financed Student Loans.
Any such incentive program that
effectively reduces borrower payments
on Financed Student Loans and is not
required by the Act will be applicable
to the Financed Student Loans only if
and to the extent that the Master
Servicer received payment from the
Seller in an amount sufficient to
offset such effective yield
reductions. See "Risk Factors--
Incentive Programs" herein.
As of the Cutoff Date, the weighted
average interest rate per annum with
respect to the Initial Financed
Student Loans was approximately ____%
(based on the applicable interest
rates as of the Cutoff Date), the
weighted average remaining term to
maturity (exclusive of any future
deferral or forbearance periods and
assuming expected graduation dates and
typical grace periods) of the Initial
Financed Student Loans was
approximately _____ months and the
weighted average original term to
maturity (exclusive of any future
deferral or forbearance periods) of
the Initial Financed Student Loans was
approximately _____ months. As of the
Cutoff Date, approximately _____% by
principal balance of the Initial
Financed Student Loans are guaranteed
by TGSLC, approximately _____% by USAF
and approximately _____% by ECMC, and
all of the Financed Student Loans are
reinsured by the Department. See "The
Financed Student Loan Pool" herein.
Following the Closing Date, the
Eligible Lender Trustee on behalf of
the Trust will be obligated from time
to time, subject to certain conditions
described herein, to purchase from the
Seller, subject to the availability
thereof, Federal Student Loans which
(i) are made to a borrower who is also
a borrower under at least one
outstanding Initial Financed Student
Loan, (ii) are made under the same
loan program as such Initial Financed
Student Loan and (iii) have the same
Guarantor as such Initial Financed
Student Loan, (each a "Serial Loan,"
and collectively the "Serial Loans").
Serial Loans will be made at the
discretion and in accordance with
usual business practices of the
Seller. Each such purchase of a Serial
Loan will be made by the Eligible
Lender Trustee on behalf of the
S-5
<PAGE>
Trust pursuant to a transfer agreement
(each a "Transfer Agreement") between
the Seller, the Trust and the Eligible
Lender Trustee. During the Funding
Period (described below), each
purchase of a Serial Loan will be
funded by means of a transfer from the
Pre-Funding Account, of an amount
equal to the sum of (i) the principal
balance owed by the applicable
borrower thereon plus accrued interest
thereon expected to be capitalized
upon repayment (the "Purchase
Collateral Balance") and (ii) an
additional amount of __% of the
principal balance owed by the
applicable borrower thereon (the
"Purchase Premium Amount") and
together with the Purchase Collateral
Balance, the "Loan Purchase Amount").
Following the end of the Funding
Period, such purchases will be funded
by amounts representing distributions
of principal on the outstanding
Financed Student Loans which would
otherwise have been part of the
Available Funds of the Trust, as
described under "Description of the
Transfer and Servicing Agreements--
Distributions" herein.
The Eligible Lender Trustee will not
be permitted to purchase from the
Seller any Federal Consolidation Loans
with respect to a Financed Student
Loan or otherwise after the Closing
Date. Any Federal Consolidation Loan
made with respect to a Financed
Student Loan after the Closing Date,
whether made by Signet or another
lender, will result in a prepayment to
the Trust of such Financed Student
Loan. See "Description of the Transfer
and Servicing Agreements--Additional
Fundings" herein.
As described under "The Federal Family
Education Loan Program" in the
Prospectus, during certain qualifying
periods, interest on certain of the
Financed Student Loans is not required
to be paid currently, but instead is
added to the outstanding principal
balance of the loan at the end of the
qualifying period. In order to
minimize the possibility that the
failure to receive current interest
payments on such loans during such
periods will result in a shortfall in
the amount required to be distributed
on the Securities, amounts on deposit
in the Pre-Funding Account will be
deposited into the Collection Account
during the Funding Period in lieu of
current interest payments on such
loans as described herein under
"Description of the Transfer and
Servicing Agreements--Additional
Fundings". Following the end of the
Funding Period, the Pre-Funding
Account will cease to be available as
a source to fund such interest
payments and thereafter such payments
will be funded through the application
of amounts which would otherwise have
been distributable in respect of the
Principal Distribution Amount for the
related Distribution Date, as
described herein under "Description of
the Transfer and Servicing Agree-
ments--Distributions".
The application, during the Funding
Period, of amounts in the Pre-Funding
Account (i) by the Eligible Lender
Trustee on behalf of the Trust to
purchase Serial Loans, and (ii) by the
Trust to make
S-6
<PAGE>
deposits into the Collection Account
in lieu of collections of interest on
Financed Student Loans to the extent
such interest is not paid currently
but will be capitalized and added to
the principal balance of the Financed
Student Loans, and the application,
after the end of the Funding Period,
of amounts representing distributions
of principal on the outstanding
Financed Student Loans (i) by the
Eligible Lender Trustee on behalf of
the Trust to purchase Serial Loans and
(ii) by the Trust to make deposits
into the Collection Account in lieu of
collections of interest on Financed
Student Loans to the extent such
interest is not paid currently but
will be capitalized and added to the
principal balance of the Financed
Student Loans, is referred to herein
as "Additional Fundings".
B. Pre-Funding Account ........ During the period (the "Funding
Period") from the Closing Date until
the first to occur of (i) the
Distribution Date on which the amount
on deposit in the Pre-Funding Account
is less than $100,000, (ii) an Event
of Default occurring under the
Indenture, a Servicer Default
occurring under the Master Servicing
Agreement or an Administrator Default
occurring under the Administration
Agreement, (iii) certain events of
insolvency occurring with respect to
the Seller or the Company, or (iv) the
last day of the Collection Period
preceding the __________ Distribution
Date, an account will be maintained in
the name of the Indenture Trustee (the
"Pre-Funding Account"). The amount on
deposit in the Pre-Funding Account
(the "Pre-Funded Amount") on the
Closing Date will equal $_____________
(which will be deposited out of the
net proceeds of the sale of the
Securities) and, during the Funding
Period, will be reduced from time to
time by the amount thereof used to
make Additional Fundings in accordance
with the Loan Sale Agreement. The
Seller expects that the amount of
Additional Fundings during the Funding
Period will approximate 100% of the
initial Pre-Funded Amount by the last
day of the Collection Period preceding
the __________ Distribution Date. Any
Pre-Funded Amount remaining at the end
of the Funding Period will be
distributed to Noteholders, in the
order of priority set forth herein, as
a payment of principal. See
"Description of the Transfer and
Servicing Agreements -- Additional
Fundings" herein.
"Collection Period" means each period
of three calendar months from and
including the date next following the
end of the preceding Collection Period
(or, with respect to the first
Collection Period, the period
beginning on the Cutoff Date and
ending on ____________, 1997).
C. Collection Account ......... The Master Servicer will be required
to remit all collections received with
respect to the Financed Student Loans,
and the Eligible Lender Trustee will
be required to remit Interest Subsidy
Payments and Special Allowance
Payments it receives with respect to
the Financed Student Loans, in each
case within two business days of
receipt thereof to one or more
accounts in the name of the
S-7
<PAGE>
Indenture Trustee (the "Collection
Account"). If, however, certain
conditions described in the Prospectus
are satisfied, such collections
received by the Master Servicer and
the Eligible Lender Trustee will be
remitted to the Administrator, who
will not be required to deposit such
amounts into the Collection Account
generally until on or before the
business day preceding each
Distribution Date and who, while it is
holding such amounts, will not be
required to segregate such amounts
from its other funds. See "Description
of the Transfer and Servicing
Agreements--Payments on Student Loans"
in the Prospectus.
Pursuant to the Administration
Agreement, the Administrator will have
the power to instruct the Indenture
Trustee to withdraw funds on deposit
in the Collection Account and to apply
such funds (a) on each Interest
Payment Date that is not a
Distribution Date, to the following
(in the priority indicated): (i) the
Servicing Fee and all overdue
Servicing Fees to the Master Servicer;
(ii) the Administration Fee and all
overdue Administration Fees to the
Administrator; (iii) the Noteholders'
Interest Distribution Amount to the
Noteholders and (iv) the
Certificateholders' Interest
Distribution Amount to the
Certificateholders and (b) on each
Distribution Date to the following (in
the priority indicated): (i) the
Servicing Fee and all overdue
Servicing Fees to the Master Servicer;
(ii) the Administration Fee and all
overdue Administration Fees to the
Administrator; (iii) the Noteholders'
Interest Distribution Amount to the
Class A-1 Noteholders and the Class
A-2 Noteholders on a pro rata basis
(based on the ratio of the portion of
the Noteholders' Interest Distribution
Amount accrued with respect to each
such Class to the Noteholders'
Interest Distribution Amount); (iv)
the Certificateholders' Interest
Distribution Amount to the
Certificateholders; (v) the
Noteholders' Principal Distribution
Amount to the Class A-1 Noteholders
until the outstanding principal
balance of the Class A-1 Notes is zero
and then to the Class A-2 Noteholders;
(vi) on each Distribution Date on and
after which the Notes are paid in
full, the Certificateholders'
Principal Distribution Amount to the
Certificateholders; and (vii) to the
Reserve Account, any remaining amounts
after application of clauses (i)
through (vi) above. See "Description
of the Transfer and Servicing
Agreements--Distributions--
Distributions from Collection
Account."
D. Reserve Account ............ Pursuant to the Administration
Agreement, an account in the name of
the Indenture Trustee (the "Reserve
Account") will be established and
maintained by the Administrator with
Signet Trust Company, an affiliate of
the Seller, and will be an asset of
the Trust. The Seller will make an
initial deposit into the Reserve
Account on the Closing Date of cash or
Eligible Investments equal to $______
(the "Reserve Account Initial
Deposit"). The Reserve Account Initial
Deposit will be augmented on each
Distribution Date by the deposit
S-8
<PAGE>
into the Reserve Account of any
Available Funds for such Distribution
Date remaining after making all
distributions required to be made from
Available Funds on such date. See
"Description of the Transfer and
Servicing Agreements--Distributions"
herein.
If the amount on deposit in the Reserve
Account on any Distribution Date
(after giving effect to all deposits
thereto or withdrawals made therefrom
in respect of shortfalls in
distributions required to be made from
Available Funds on such Distribution
Date) is greater than the Specified
Reserve Account Balance for such
Distribution Date, subject to certain
limitations, the Administrator will
instruct the Indenture Trustee to
distribute the amount of such excess
(the "Reserve Account Excess") to the
following (in the priority indicated):
(i) to the payment of the unpaid
principal amount of the Notes, in the
order of priority set forth herein,
until the unpaid principal balance of
the Notes and the Certificates equals
the Pool Balance plus the Pre-Funded
Amount as of the close of business on
the last day of the related Collection
Period; provided, that, if such
Distribution Date is on or subsequent
to the ____________ Distribution Date
and the Pool Balance on such
Distribution Date is equal to 10% or
less of the Initial Pool Balance plus
the Pre-Funded Amount as of the
Closing Date, the portion of Reserve
Account Excess allocated to the unpaid
principal balance of the Notes and
Certificates shall be no less than
___% of the Reserve Account Excess for
such Distribution Date, (ii) to the
Noteholders, the aggregate unpaid
amount of any Noteholders' Interest
LIBOR Carryover, in the order of
priority set forth herein, (iii) to
the Certificateholders, the aggregate
unpaid amount of any
Certificateholders' Interest LIBOR
Carryover and (iv) to the Seller and
the Company, 99% and 1%, respectively,
of any such excess after the payment
of clauses (i) and (iii) above, and,
upon such payment to the Seller, the
Noteholders and the Certificateholders
will not have any rights in, or claims
to, such amounts. As of the Closing
Date, the aggregate principal balance
of the Notes and the Certificates will
equal approximately __% of the Initial
Pool Balance. All distributions of
principal on the Notes and the
Certificates as described in clause
(i) of this paragraph shall be
allocated to the Class A-1 Notes until
the principal balance of the Class A-1
Notes has been reduced to zero, then
to the Class A-2 Notes until the
principal balance of the Class A-2
Notes has been reduced to zero and
then to the Certificates until the
principal balance of the Certificates
has been reduced to zero. The
aggregate amount, if any, to be
distributed on the Notes and
Certificates on a Distribution Date
out of Reserve Account Excess as
described in clause (i) above shall
referred to herein as the "Excess
Distribution Amount".
The "Specified Reserve Account Balance"
with respect to any Distribution Date
generally will be equal to the greater
of (i) ___%
S-9
<PAGE>
of the sum of the Pool Balance (as
hereinafter defined) and the Pre-
Funded Amount as of the close of
business on the last day of the
related Collection Period and (ii)
$_________; provided, however, that
such balance will be subject to
adjustment in certain circumstances
described herein and in no event will
such balance exceed the sum of the
outstanding principal amount of the
Notes and the Certificate Balance. See
"Description of the Transfer and
Servicing Agreements--Credit
Enhancement--Reserve Account" herein
and "Description of the Transfer and
Servicing Agreements--Credit and
Cash Flow Enhancement--Reserve
Account" in the Prospectus.
Amounts on deposit in the Reserve
Account will be available (a) on each
Interest Payment Date that is not a
Distribution Date, to cover any
shortfalls (in the priority indicated)
in payments of (i) the Servicing Fee
and all overdue Servicing Fees, (ii)
the Administration Fee and all overdue
Administration Fees, (iii) the
Noteholders' Interest Distribution
Amount and (iv) the
Certificateholders' Interest
Distribution Amount and (b) on each
Distribution Date, to cover any
shortfalls (in the priority indicated)
in payments of (i) the Servicing Fee
and all overdue Servicing Fees, (ii)
the Administration Fee and all overdue
Administration Fees, (iii) the
Noteholders' Interest Distribution
Amount, (iv) the Certificateholders'
Interest Distribution Amount, (v) the
Noteholders' Principal Distribution
Amount and (vi) the
Certificateholders' Principal
Distribution Amount for such
Distribution Date in each case for
which Available Funds for such
Distribution Date (or Monthly
Available Funds for such Interest
Payment Date) are insufficient to make
such payments and distributions.
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 Noteholders' Interest LIBOR
Carryover or Certificateholders'
Interest LIBOR Carryover. See "Risk
Factors--Subordination" and
"Description of the Transfer and
Servicing Agreements--Credit
Enhancement - Reserve Account" herein.
The funding and maintenance of the
Reserve Account is intended to enhance
the likelihood of timely payment to
the Noteholders on each Interest
Payment Date that is not a
Distribution Date of the Noteholders'
Interest Distribution Amount and on
each Distribution Date of the
Noteholders' Distribution Amount and
to the Certificateholders on each
Interest Payment Date that is not a
Distribution Date of the
Certificateholders' Interest
Distribution Amount and on each
Distribution Date of the
Certificateholders' Distribution
Amount. In certain circumstances,
however, the Reserve Account could be
depleted and shortfalls in
distributions and resulting losses to
the Noteholders or the
Certificateholders could occur. See
"Risk Factors--Limited Assets of the
Trust" and "Description of the
Transfer and Servicing Agreements--
Credit Enhancement" herein.
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<PAGE>
E. The Transfer and Servicing
Agreements ................ Under the Loan Sale Agreement, the
Seller will sell the Financed Student
Loans to the Trust, with the Eligible
Lender Trustee holding legal title
thereto. Under the Master Servicing
Agreement, the Master Servicer will
agree with the Trust to be responsible
for servicing, managing, maintaining
custody of and making collections on
the Financed Student Loans. Subject to
the terms and conditions described
herein and in the Master Servicing
Agreement, the Master Servicer may
delegate certain of its obligations
under the Master Servicing Agreement
to one or more subservicers but no
such delegation shall relieve the
Master Servicer from its
responsibilities to service the
Financed Student Loans as if it alone
were servicing the Financed Student
Loans. See "The Seller, the Master
Servicer and the Subservicers" and
"Description of Transfer and Servicing
Agreements -- Servicing Procedures" in
the Prospectus and "The Financed
Student Loan Pool" herein. The
obligations of the Seller and the
Master Servicer under the Loan Sale
Agreement and the Master Servicing
Agreement include the following:
Under the Loan Sale Agreement, the
Seller will be obligated to repurchase
or, in the alternative, substitute an
eligible Student Loan for, and, under
the Master Servicing Agreement, 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 Seller or the
Master Servicer, as the case may be,
with respect to the Financed Student
Loan, if the breach has not been cured
within 120 days following the
discovery by or notice to the Seller
or the Master Servicer, as the case
may be, of the breach (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). In addition,
the Seller and Master Servicer,
respectively, will be obligated to
reimburse the Trust with respect to a
Financed Student Loan 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 Seller's or the Master Servicer's
respective representations and
warranties with respect to such
Financed Student Loan.
The Master Servicer will receive a
monthly fee (the "Servicing Fee") with
respect to each Financed Student Loan
equal to one-twelfth of the product of
(i) ___% per annum and (ii) the Pool
Balance as of the close of business on
the last day of the calendar month
immediately preceding such Interest
Payment Date. The Servicing Fee will
be payable from (i) in the case of
each Interest
S-11
<PAGE>
Payment Date that is not a
Distribution Date, Monthly Available
Funds and (ii) in the case of each
Distribution Date, Available Funds, in
each case on deposit in the Collection
Account and from amounts on deposit in
the Reserve Account on each Interest
Payment Date, commencing
_____________, 1997.
Pursuant to the Administration Agree-
ment, the Administrator will agree
with the Trust to be responsible for,
among other things, preparing and
filing with the Department 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 in respect of the
Financed Student Loans entitled
thereto and preparing and providing
monthly, quarterly and annual
statements to the Eligible Lender
Trustee and the Indenture Trustee with
respect to distributions to
Noteholders and Certificateholders.
As compensation for the performance of
the Administrator's obligations the
under the Administration Agreement and
as reimbursement for its expenses
related thereto, the Administrator
will be entitled to receive a monthly
administration fee (the
"Administration Fee") payable as
provided herein on each Interest
Payment Date in an amount equal to
one-twelfth of the product of (i) ___%
per annum and (ii) the Pool Balance as
of the close of business on the last
day of the calendar month immediately
preceding such Interest Payment Date.
The Administration Fee will be payable
from (i) in the case of each Interest
Payment Date that is not a
Distribution Date, Monthly Available
Funds and (ii) in the case of each
Distribution Date, Available Funds, in
each case on deposit in the Collection
Account and from amounts on deposit in
the Reserve Account on each Interest
Payment Date, commencing
______________, 1997.
The Notes ......................... The Trust will issue the Notes pursuant
to an indenture to be dated as of
_________, 1996 (as amended and
supplemented from time to time, the
"Indenture"), between the Trust and
the Indenture Trustee. The Notes will
be secured by the assets of the Trust.
A. Interest ..................... Except as described in the following
paragraph, each of the Class A-1 Notes
and the Class A-2 Notes will bear
interest at the respective rates per
annum (the "Class A-1 Rate" or the
"Class A-2 Rate" and, collectively,
the "Note Interest Rates"), equal to
one-month LIBOR for such Interest
Period (determined as described
herein) plus ___% in the case of Class
A-1 Notes (the "Class A-1 LIBOR
Rate"), and ___%, in the case of Class
A-2 Notes (the "Class A-2 LIBOR
Rate"); provided, however, that with
respect to the initial Interest
Period, the Class A-1 LIBOR Rate and
the Class A-2 LIBOR Rate shall equal
(i) _____% and _____%, respectively,
for the period from the Closing Date
to but excluding ________, 1996 and
(ii) one-month LIBOR (determined as
described herein)
S-12
<PAGE>
plus _____% and _____%, respectively,
for the period from _____________,
1996 to but excluding the initial
Interest Payment Date. See
"Description of the Securities--
Determination of LIBOR" herein.
Interest on the outstanding principal
amount of the Notes will accrue from
the Closing Date or from the most
recent Interest Payment Date on which
interest has been paid to but
excluding the following Interest
Payment Date (each an "Interest
Period") and will be payable on the
twenty-fifth day of each month (or, if
any such date is not a business day,
on the next succeeding business day)
(each, an "Interest Payment Date"),
commencing in ______, 1996, to holders
of record of the Class A-1 Notes (the
"Class A-1 Noteholders") and holders
of record of the Class A-2 Notes (the
"Class A-2 Noteholders" and, together
with the Class A-1 Noteholders, the
"Noteholders") as of the related
Record Date. "Record Date" means, with
respect to any Interest Payment Date
or Distribution Date, the twenty-
fourth day of the month in which such
Interest Payment Date or Distribution
Date, as the case may be, occurs.
Interest will be calculated on the
basis of the actual number of days
elapsed in each Interest Period
divided by 360. See "Description of
the Securities."
Notwithstanding the foregoing, if
either Note Interest Rate for any such
Interest Period calculated on the
basis of LIBOR is greater than the
Student Loan Rate, then such Note
Interest Rate for such Interest
Payment Date will be the Student Loan
Rate. The "Student Loan Rate" for any
Interest Period will equal the product
of (a) the quotient obtained by
dividing (i) 360 by (ii) the actual
number of days elapsed in such
Interest Period and (b) the percentage
equivalent of a fraction, (i) the
numerator of which is equal to
Expected Interest Collections for such
Interest Period less the Servicing Fee
and the Administration Fee with
respect to such Interest Period, and
(ii) the denominator of which is the
outstanding principal balance of the
Securities as of the first day of such
Interest Period. "Expected Interest
Collections" means, with respect to
any Interest Period, the sum of (i)
the amount of interest accrued, net of
any Monthly Rebate Fees (as described
under "Risk Factors--Fees Payable on
Certain Financed Student Loans"
herein) and other amounts required by
the Act to be paid to the Department
or to be repaid to borrowers, with
respect to the Financed Student Loans
for the calendar month preceding the
related Interest Payment Date (the
"Student Loan Rate Accrual Period")
whether or not such interest is
actually paid, (ii) all Interest
Subsidy Payments and Special Allowance
Payments estimated to have accrued for
such Student Loan Rate Accrual Period,
whether or not actually received and
(iii) Investment Earnings (as defined
in "Description of the Transfer and
Servicing Agreements--Accounts" in
the Prospectus) for such Student Loan
Rate Accrual Period.
If the Class A-1 Rate or the Class A-2
Rate for any Interest Payment Date is
based on the Student Loan Rate, the
excess of (a) the
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<PAGE>
amount of interest on the Class A-1
Notes or the Class A-2 Notes, as the
case may be, that would have accrued
in respect of the related Interest
Period had interest been calculated
based on LIBOR over (b) the amount of
interest on the Class A-1 Notes or the
Class A-2 Notes, as the case may be,
actually accrued in respect of such
Interest Period based on the Student
Loan Rate will be paid on the
Distribution Date immediately
following such Interest Payment Date
(or, if such Interest Payment Date is
a Distribution Date, on such
Distribution Date) or on any
subsequent Distribution Date out of
the Reserve Account Excess, if any,
for such Distribution Date after
making all required prior
distributions and deposits on such
date as described herein under
"Description of the Transfer and
Servicing Agreements--Credit
Enhancement--Reserve Account". Such
excess, together with the unpaid
portion of any such excess from prior
Interest Payment Dates, and interest
accrued thereon calculated based on
the Class A-1 LIBOR Rate or the Class
A-2 LIBOR Rate, as applicable, is
collectively referred to as the
"Noteholders' Interest LIBOR
Carryover." See "Description of the
Transfer and Servicing Agreements--
Distributions." The rating of the
Notes does not address the likelihood
of the payment of any Noteholders'
Interest LIBOR Carryover. See "--
Rating of the Securities".
On each Interest Payment Date, the
Eligible Lender Trustee will
distribute pro rata to the holders of
record of Notes as of the preceding
Record Date interest at the applicable
Note Interest Rates on the outstanding
principal balance of the Notes on the
immediately preceding Distribution
Date, after giving effect to all
distributions of principal to
Noteholders on such preceding
Distribution Date (or, in the case of
the first Distribution Date, on the
Closing Date). See "Description of the
Transfer and Servicing Agreements --
Statements to Indenture Trustee and
Trust" in the Prospectus.
B. Principal .................... Principal of the Notes will be payable
on each Distribution Date in an amount
equal to the Noteholders' Principal
Distribution Amount for such
Distribution Date. The Noteholders'
Principal Distribution Amount
generally will be equal to the amount
of principal paid or, in certain
cases, due to be paid with respect to
the Financed Student Loans (including
any realized losses thereon) during
the related Collection Period less, if
such Collection Period is after the
end of the Funding Period, the sum of
(i) any such amount applied by the
Eligible Lender Trustee on behalf of
the Trust during such Collection
Period to purchase Serial Loans, as
described herein, and (ii) accrued and
unpaid interest on the Financed
Student Loans for such Collection
Period to the extent such interest
will be capitalized and added to the
principal balance of such Financed
Student Loans, upon the commencement
of repayment of such Financed Student
Loans, as described herein. See
"Description of the Transfer and
Servicing Agreements--Distributions"
herein. In addition, on each
Distribution Date the Excess
Distribution
S-14
<PAGE>
Amount, if any, for such Distribution
Date will be applied, as described
herein, to the unpaid principal
balance of the Notes. See "Description
of the Transfer and Servicing
Agreements--Credit Enhancement -
Reserve Account" herein.
The aggregate amount distributable as
principle on the Notes will be applied
on each Distribution Date, first, to
the principal balance of the Class A-1
Notes until such principal balance is
reduced to zero and then to the
principal balance of the Class A-2
Notes until such principal balance is
reduced to zero.
The outstanding principal amount, if
any, of the Class A-1 Notes will be
payable in full on the ______________
Distribution Date (the "Class A-1
Final Maturity Date") and the
outstanding principal amount of the
Class A-2 Notes will be payable in
full on the ________ Distribution
Date (the "Class A-2 Final Maturity
Date"). However, the actual maturity
of the Notes could occur other than on
such dates as a result of a variety of
factors including prepayments of the
Financed Student Loans. See "Risk
Factors--Maturity and Prepayment
Considerations" herein.
C. Mandatory Redemption ...... If any amount remains on deposit in the
Pre-Funding Account on the last day of
the Funding Period after giving effect
to all Additional Fundings to be made
on or prior to such date, such amount
will be used on the Distribution Date
on or immediately following such date
to redeem the Class A-1 Notes up to an
amount not to exceed their outstanding
principal balance, and then to redeem
the Class A-2 Notes. The aggregate
principal amount of Notes to be
redeemed will be an amount equal to
the amount then on deposit in the Pre-
Funding Account.
The Certificates ................... Concurrently with the issuance of the
Notes, the Trust will issue the
Certificates pursuant to the Trust
Agreement. The Certificates represent
undivided participation interests in
the Trust. A portion of the
Certificates will be held by the
Company and the remaining Certificates
will be sold to third party investors
that are expected to be unaffiliated
with the Seller, the Master Servicer,
the Trust, the Guarantors or the
Department. The initial principal
balance of the Certificates will equal
$___________. See "Formation of the
Trust--The Trust" herein.
A. Interest ..................... Except as described in the following
paragraph, interest on the Certif-
icates will accrue for each Interest
Period at a rate per annum (the
"Certificate Rate") equal to one-month
LIBOR for such Interest Period
(determined as described herein) plus
_____% (the "Certificate LIBOR Rate");
provided, however, that with respect
to the initial Interest Period, the
Certificate LIBOR Rate shall equal
____% for the period from the Closing
Date to but excluding _________, 1996
and one-month LIBOR (determined as
described herein) plus _____% for the
period from _________, 1996 to but
excluding the initial Interest Payment
Date. See
S-15
<PAGE>
"Description of the Securities--
Determination of LIBOR." Interest 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
Certificate Rate for such Interest
Period calculated on the basis of the
Certificate LIBOR Rate is greater than
the Student Loan Rate, then the
Certificate Rate for such Interest
Payment Date will be the Student Loan
Rate. If the Certificate Rate for any
Interest Payment Date is based on the
Student Loan Rate, the excess of (a)
the amount of interest on the
Certificates that would have accrued
in respect of the related Interest
Period had interest been calculated
based on LIBOR over (b) the amount of
interest on the Certificates actually
accrued in respect of such Interest
Period based on the Student Loan Rate
will be paid on the Distribution Date
immediately following such Interest
Payment Date (or, if such Interest
Payment Date is a Distribution Date,
on such Distribution Date) or on any
subsequent Distribution Date out of
the Reserve Account Excess, if any,
for such Distribution Date after
making all required prior
distributions and deposits on such
date as described herein under
"Description of the Transfer and
Servicing Agreements--Credit
Enhancement--Reserve Account". Such
excess, together with the unpaid
portion of any such excess from prior
Interest Payment Dates (and interest
accrued thereon calculated based on
the Certificate LIBOR Rate), is
collectively referred to as the
"Certificateholders' Interest LIBOR
Carryover." See "Description of the
Transfer and Servicing Agreements--
Distributions." The rating of the
Certificates does not address the
likelihood of the payment of any
Certificateholders' Interest LIBOR
Carryover. See "--Rating of the
Securities" herein.
On each Interest Payment Date, the
Eligible Lender Trustee will
distribute pro rata to the holders of
record of Certificates (the
"Certificateholders" and, together
with the Noteholders, the
"Securityholders") as of the preceding
Record Date interest at the
Certificate Rate on the Certificate
Balance on the immediately preceding
Distribution Date, after giving effect
to all distributions of principal to
Certificateholders on such preceding
Distribution Date (or, in the case of
the first Distribution Date, on the
Closing Date).
B. Principal .................... Principal of the Certificates will be
payable on each Distribution Date on
and after which the Notes have been
paid in full in an amount generally
equal to the amount of principal paid
with respect to the Financed Student
Loans (including any realized losses
thereon) during the related Collection
Period less, if such Collection Period
is after the end of the Funding
Period, the sum of (i) any such amount
applied by the Eligible Lender Trustee
on behalf of the Trust during such
Collection Period to purchase Serial
Loans, as described herein, and (ii)
accrued and unpaid interest on the
Financed Student Loans for such
Collection Period to the extent
S-16
<PAGE>
such interest will be capitalized and
added to the principal balance of such
Financed Student Loans upon the
commencement of repayment of such
Financed Student Loans, as described
herein. See "Description of the
Transfer and Servicing Agreements--
Distributions" herein. In addition, on
each Distribution Date on and after
which the Notes have been paid in
full, the Excess Distribution Amount,
if, any for such Distribution Date
will be applied to the unpaid
principal balance of the Certificates.
See "Description of the Transfer and
Servicing Agreements--Credit
Enhancement-Reserve Account" herein.
The outstanding principal amount of
the Certificates will be payable in
full on the __________ Distribution
Date (the "Final Maturity Date").
However, the actual maturity of the
Certificates could occur other than on
such date as a result of a variety of
factors. See "The Financed Student
Loan Pool--Maturity and Prepayment
Considerations" herein.
C. Subordination of the
Certificates ................ The interests of Certificateholders
in the assets of the Trust will be
subordinated to payments of interest
and principal due on the Notes to the
extent described herein. See "Risk
Factors--Subordination" and
"Description of the Transfer and
Servicing Agreements--Credit
Enhancement--Subordination of the
Certificates" herein.
Auction of Trust Assets .......... Any Financed Student Loans remaining
in the Trust as of the end of the
Collection Period immediately
preceding the __________ Distribution
Date will be offered for sale by the
Indenture Trustee. The Seller, 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 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 each class of
Notes then outstanding on such
Distribution Date to zero, (ii) pay to
the Noteholders the Noteholders'
Interest Distribution Amount payable
on such Distribution Date, if any,
(iii) reduce the Certificate Balance
of the Certificates on such
Distribution Date to zero and (iv) pay
to the Certificateholders the
Certificateholders' 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
and to retire any outstanding
Certificates on such Distribution
Date. If the sale is not consummated
in accordance with the foregoing, the
Indenture Trustee may, but shall not
be
S-17
<PAGE>
under any obligation to, solicit
bids for sale of the Financed Student
Loans on future Distribution Dates
upon terms similar to those described
above. In the event the Financed
Student Loans are not sold in
accordance with the foregoing, on each
Distribution Date on and after the
_____________ Distribution Date, if
the Pool Balance is equal to 10% or
less of the Initial Pool Balance
plus the Pre-Funded Amount as of
the Closing Date, a portion
of the Reserve Account Excess,
if any, with respect to such
Distribution Date will be distributed
to the Noteholders and the
Certificateholders in the priority
described herein as payments of
principal. 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
__________ Distribution Date or any
subsequent Distribution Date. See
"Description of the Transfer and
Servicing Agreements--Termination"
herein.
Optional Purchase .................. The Seller may repurchase all remaining
Financed Student Loans, and thus
effect the early retirement of the
Class A-2 Notes and the Certificates,
on any Distribution Date on or after
which the Pool Balance is equal to 10%
or less of the Initial Pool Balance,
at a price equal to the aggregate
Purchase Amounts for such Financed
Student Loans as of the end of the
preceding Collection Period. See
"Description of the Transfer and
Servicing Agreements--Termination"
herein, and "Description of the
Transfer and Servicing Agreements--
Termination--Optional Redemption" in
the Prospectus.
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 through the end of such
Collection Period to the extent such
interest will be capitalized upon
commencement of repayment), after
giving effect to the following,
without duplication: (i) all payments
received by the Trust during such
Collection Period from or on behalf of
borrowers, Guarantors and, with
respect to certain payments on certain
Financed Student Loans, the Department
(collectively, "Obligors"), (ii) all
Purchase Amounts received by the Trust
for such Collection Period from the
Seller or the Master Servicer, (iii)
all Additional Fundings made with
respect to such Collection Period and
(iv) all losses realized on Financed
Student Loans liquidated during such
Collection Period.
"Purchase Amount" with respect to a
Financed Student Loan means the unpaid
balance owed by the applicable
borrower thereon plus accrued interest
thereon to the date of purchase.
Tax Considerations ................. Although there is no specific authority
with respect to the characterization
for federal or Maryland income tax
purposes of securities having the same
terms as the Notes, in the opinion of
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McGuire, Woods, Battle & Boothe,
L.L.P., special federal and state tax
counsel for the Trust, the Notes will
be characterized as debt for federal
income tax purposes and the Notes will
be characterized as debt for Maryland
state 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. The
Certificateholders, the Seller and the
Company, as owner of all amounts not
otherwise required to be distributed
to Noteholders or Certificateholders
or to pay expenses of the Trust, will
agree to treat the Trust as a
partnership in which they are
partners. Alternative
characterizations are possible, but
would not result in materially adverse
federal income tax consequences to
Certificateholders. In the opinion of
special state tax counsel for the
Trust, the same characterizations
would apply for Maryland state income
tax purposes as for federal income tax
purposes. However, there are no cases
or rulings on similar transactions
involving a trust that issues debt and
equity interests with terms similar to
those of the Notes and the
Certificates.
Due to the method of allocation of Trust
income to the Certificateholders,
cash basis holders may, in effect, be
required to report income from the
Certificates on an accrual basis. In
addition, because tax allocations and
tax reporting will be done on a
uniform basis, but Certificateholders
may be purchasing Certificates at
different times and at different
prices, Certificateholders may be
required to report on their tax
returns taxable income that is greater
or less than the amount reported to
them by the Trust. Finally,
Noteholders and Certificateholders may
be required to accrue any Noteholders'
Interest LIBOR Carryover and
Certificateholders' Interest LIBOR
Carryover, respectively, in income in
advance of the receipt of cash with
respect to such amounts regardless of
whether such Noteholders or
Certificateholders are on the cash or
accrual methods of accounting.
See "Certain Federal Income Tax and
State Tax Consequences" herein and
"Certain Federal Income Tax
Consequences" and "Certain State Tax
Consequences" in the Prospectus for
additional information concerning the
application of federal and Maryland
state tax laws with respect to the
Notes and the Certificates.
ERISA Considerations ............... Subject to the considerations discussed
under "ERISA Considerations--The
Notes" herein and in the Prospectus,
the Notes are eligible for purchase by
employee benefit plans.
The Certificates may not be acquired
by any employee benefit plan subject
to the Employee Retirement Income
Security Act of 1974, as amended
("ERISA"), or by any individual
retirement account. See "ERISA
Considerations--The Certificates"
herein and in the Prospectus.
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Rating of the Securities ........... It is a condition to the issuance and
sale of the Notes and the Certif-
icates that the Notes be rated in the
highest investment rating category by
at least two nationally recognized
rating agencies and that the
Certificates be rated in the "A"
rating category by at least two such
rating agencies. A rating is not a
recommendation to buy, sell or hold
securities and may be subject to
revision or withdrawal at any time by
the assigning rating agency. The
rating agencies do not evaluate, and
the ratings of the Securities do not
address, the likelihood of payment of
the Noteholders' Interest LIBOR
Carryover or the Certificateholders'
Interest LIBOR Carryover. There can be
no assurance as to whether any
additional rating agency will rate the
Notes or the Certificates, or if one
does, what rating would be assigned by
such other rating agency.
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RISK FACTORS
Prospective purchasers of the Securities should consider, among other
things, the following factors (as well as the factors set forth under "Risk
Factors" in the Prospectus) in connection with an investment therein:
Limited Liquidity. The Securities will not be listed on any national
securities exchange. There is currently no secondary market for the Securities.
At the present time the Bank is not permitted by law to make a market in the
Securities. The Underwriters intend to, and the Bank may, to the extent
permitted by law, make a market in the Securities but neither has any obligation
to do so. There can be no assurance that a secondary market will develop or, if
a secondary market does develop, that it will provide the Securityholders with
liquidity of investment or that it will continue for the life of the Securities.
Subordination. The rights of Certificateholders to receive payments of
interest are subordinated to the rights of the Noteholders to receive payments
of interest and the rights of the Certificateholders to receive payments of
principal are subordinated to the rights of the Noteholders to receive payments
of interest and principal. Consequently, Monthly Available Funds or Available
Funds, as the case may be, on deposit in the Collection Account and the Reserve
Account on (i) any Interest Payment Date will be applied to the payment of
interest on the Notes before payment of interest on the Certificates and (ii)
any Interest Payment Date that is also a Distribution Date, will be applied to
the payment of interest on the Notes before payment of interest and principal on
the Certificates and will be applied to the payment on the Notes of the
Noteholders' Principal Distribution Amount before payment of principal on the
Certificates. If amounts otherwise allocable to the Certificates are used to
fund payments of principal and interest on the Notes, distributions with respect
to the Certificates may be delayed or reduced and Certificateholders may suffer
a loss. Notwithstanding the foregoing, distributions to Certificateholders of
amounts representing the Certificateholders' Distribution Amount will not be
subordinated to the payment of any Noteholders' Interest LIBOR Carryover that
may exist from time to time or to the payment, in the order specified herein, of
principal on the Notes or in respect of the Certificates out of the Reserve
Account Excess to the extent that the aggregate unpaid principal balance of the
Notes and the Certificates exceeds the Pool Balance and the Pre-Funded Amount as
of the last day of the related Collection Period or to the extent otherwise
required on or after the ____________ Distribution Date. See "Description of the
Transfer and Servicing Agreements -- Credit Enhancement -- Reserve Account". The
Certificateholders bear directly the credit and other risks associated with an
undivided interest in the Trust. See "Description of the Transfer and Servicing
Agreements -- Distributions" and "-- Credit Enhancement -- Subordination of the
Certificates" herein.
Limited Assets of the Trust. Moreover, the Trust does not have, nor is it
permitted or expected to have, any significant assets or sources of funds other
than the Financed Student Loans (and the related Guarantee Agreements), the
Collection Account, the Pre-Funding Account and the Reserve Account. The Notes
represent obligations solely of the Trust, and the Certificates represent
interests solely in the Trust and its assets, and neither the Notes nor the
Certificates will be insured or guaranteed by the Seller, the Master Servicer,
any subservicer, the Guarantors, the Eligible Lender Trustee, the Indenture
Trustee, the Department or any affiliate thereof. Consequently, holders of the
Notes and the Certificates must rely for repayment upon payments with respect to
the Financed Student Loans and, to the extent available under the circumstances
described herein, amounts on deposit in the Pre-Funding Account and the Reserve
Account. The Pre-Funding Account will only be available during the Funding
Period to cover obligations of the Trust relating to Additional Fundings and is
not intended to cover losses on the Financed Student Loans. Similarly, 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. In
addition, as a general matter, funds in the Reserve Account will first be made
available to cover shortfalls in distributions of interest on the Notes before
covering shortfalls in distributions of interest or principal on the
Certificates and to cover shortfalls in distributions of principal on the Notes
before covering shortfalls of principal on the Certificates. 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 and distributions on
the Certificates and Noteholders and Certificateholders could suffer a loss.
Noteholders and
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Certificateholders will have no claim to any amounts properly distributed to the
Seller or the Master Servicer from time to time as described herein and in the
Prospectus and the Seller and the Master Servicer shall in no event be required
to refund such distributed amounts. See "Description of the Transfer and
Servicing Agreements -- Distributions" and "-- Credit Enhancement" herein.
Excess of Principal Balance of Notes and Certificates over Initial Pool
Balance. As of the Closing Date, the aggregate principal balance of the Notes
and Certificates will be equal to approximately __% of the Initial Pool Balance.
As a result, Noteholders and Certificateholders will generally be reliant on the
availability of Reserve Account Excess to bring the aggregate principal balance
of the Notes and the Certificates into parity with the Pool Balance and the Pre-
Funded Amount. The availability of Reserve Account Excess will in turn generally
be dependent on (a) Available Funds for any Distribution Date being in excess of
the amount necessary to pay (i) the Servicing Fee and all prior unpaid Servicing
Fees, (ii) the Administration Fee and all prior unpaid Administration Fees,
(iii) the Noteholders' Interest Distribution Amount (iv) the Certificateholders'
Interest Distribution Amount (v) the Noteholders' Principal Distribution Amount
and (vi) on each Distribution Date on and after which the Notes have been paid
in full, the Certificateholders' Principal Distribution Amount for such
Distribution Date; and/or (b) on declines in the Specified Reserve Account
Balance that exceed any amounts required to be withdrawn for any Distribution
Date from the Reserve Account to make up shortfalls required to be paid
therefrom. At such time as the aggregate principal balance of the Notes and the
Certificates has been reduced so that it equals the Pool Balance plus the Pre-
Funded Amount, any Reserve Account Excess will not be available to pay principal
of the Notes or the Certificates until such time, if any, as the Pool Balance
plus the Pre-Funded Amount for any Distribution Date is again less than the
aggregate principal amount of the Notes and the Certificates, or under certain
circumstances, on or after the _____________ Distribution Date. See "Description
of the Transfer and Servicing Agreements -- Credit Enhancement --Reserve
Account" herein. To the extent that Noteholders and the Certificateholders are
reliant on excess interest collections on the Financed Student Loans to repay a
portion of the principal balance of the Notes and the Certificates, Noteholders
and Certificateholders could be adversely affected by an increase in the rate of
prepayments on the Financed Student Loans or an increase in LIBOR, since either
such increase would diminish the amount of such excess interest that would
subsequently be available to pay such principal. In addition, payments on the
Notes and the Certificates may be more sensitive to rates of default on the
Financed Student Loans than would be the case were the principal balance of the
Notes and the Certificates not issued in an amount in excess of the Initial Pool
Balance, particularly with respect to those Financed Student Loans first
disbursed after October 1, 1993 which are 98% insured by a Guarantor (rather
than 100% so insured as is the case for such loans first disbursed prior to such
date). Additionally, Serial Loans acquired by the Trust after the Pre-Funding
Period will delay the availability of funds that would otherwise be available to
pay principal of the Notes, and will thereby delay reduction of the amount
represented by the excess of the aggregate principal balance of the Notes and
the Certificates over the Pool Balance plus the Pre-Funded Amount.
The Financed Student Loans and the Pre-Funding Account. On the Closing
Date, the Eligible Lender Trustee on behalf of the Trust will own the
$______________ outstanding principal amount of Financed Student Loans and the
$_____________ Pre-Funded Amount on deposit in the Pre-Funding Account. If the
sum of (i) the principal amount of Serial Loans available to be acquired from
the Seller during the Funding Period plus the premium paid thereon and (ii) the
amount of interest on the Financed Student Loans capitalized and not paid
currently by or on behalf of the borrowers during the Funding Period is less
than the Pre-Funded Amount, the Trust will have insufficient opportunities to
make Additional Fundings during the Funding Period, thereby resulting in a
prepayment of principal to Noteholders as described in the following paragraph.
To the extent that amounts on deposit in the Pre-Funding Account have not
been fully applied to Additional Fundings by the Trust by the end of the Funding
Period, the Noteholders will receive as a prepayment of principal an amount
equal to the Pre-Funded Amount remaining in the Pre-Funding Account following
any Additional Fundings on the last Distribution Date in the Funding Period. It
is anticipated that the amount of Additional Fundings made by the Trust will not
be exactly equal to the amount on deposit in the Pre-Funding Account and that
therefore
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there will be at least a nominal amount of principal prepaid to the Noteholders.
Such prepayments may have the effect of reducing the yield on the Notes.
Additional Fundings; Characteristics of the Financed Student Loan Pool.
Except for the criteria described under the "The Financed Student Loan Pool",
there will be no other required characteristics of the Additional Student Loans.
Therefore, upon the transfer of the Additional 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 distribution by loan type,
the distribution by interest rate, the distribution by principal balance and the
distribution by remaining term to scheduled maturity may vary from those of the
Initial Financed Student Loans as of the Cutoff Date. See "The Financed Student
Loan Pool" herein.
Maturity and Prepayment Considerations. The rate of payment of principal of
the Notes and the Certificates and the yield on the Notes and the Certificates
will be affected by prepayments of the Financed Student Loans that may occur as
described below. All the Financed Student Loans are prepayable in whole or in
part by the borrowers at any time (including by means of Federal Consolidation
Loans as discussed below) or 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 as 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 all 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 Federal Consolidation Loans, whether from the Seller or another
lender, such Financed Student Loans will be prepaid. See "Federal Family
Education Loan Program--Federal Consolidation Loan Program" in the Prospectus.
In administering the Federal Direct Consolidation Loan Program (See
"Federal Family Education Loan Program--Legislative and Administrative Matters"
in the Prospectus), the Department has indicated that it will permit borrowers
with Federal Student Loans to consolidate their outstanding student loans at
interest rates below those which would apply if they consolidated their
outstanding student loans by means of a Federal Consolidation Loan under the
Federal Consolidation Loan Program. The availability of such lower-rate
consolidation loans may increase the likelihood that a Financed Student Loan
will be prepaid. See "Risk Factors--Maturity and Prepayment Considerations" in
the Prospectus regarding the Federal Direct Consolidation Loan Program.
Furthermore, the Seller is obligated to repurchase or substitute for any
Financed Student Loan pursuant to the Loan Sale 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 Master 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 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 Student Loans; Representations
and Warranties" and "--Servicer Covenants" in the Prospectus. See also
"Description of the Transfer and Servicing Agreements--Termination", in the
Prospectus, regarding the Seller's option to purchase the Financed Student Loans
when the aggregate Pool Balance is less than or equal to 10% of the Initial Pool
Balance and "Description of the Transfer and Servicing Agreements--Insolvency
Event", in the Prospectus regarding the sale of Financed Student Loans if a
Seller or Company Insolvency Event occurs.
On the other hand, scheduled payments with respect to, and maturities of,
the Financed Student Loans may be extended, including pursuant to Grace Periods,
Deferral Periods and Forbearance Periods or as a result of the conveyance of
Serial Loans to the Eligible Lender Trustee on behalf of the Trust during or
after the Funding Period as described herein. In that event, the fact that such
Serial Loans will have varying maturities and, after the
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termination of the Funding Period, will be purchased with principal
distributions on the Financed Student Loans which may otherwise have been
applied to amortize the Notes or the Certificates may lengthen the remaining
term of the Financed Student Loans and the average life of the Notes and the
Certificates. In addition, such Serial Loans may have, and certain of the
Initial Financed Student Loans have, stated maturities which occur after the
Final Maturity Date. The application, after the end of the Funding Period, of
amounts which would otherwise have been distributable in respect of the
Principal Distribution Amount for a related Distribution Date to make interest
distributions to Noteholders and Certificateholders in lieu of collections of
interest on certain Financed Student Loans on which interest is not currently
required to be paid will also have the effect of lengthening the average life of
the Notes and Certificates over what it would have been had such amounts been
applied to amortize the Notes and the Certificates.
Any Financed Student Loans remaining in the Trust as of the end of the
Collection Period immediately preceding the __________ 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 and to retire any outstanding Certificates 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, and applied on
such date to redeem any outstanding Notes and retire any outstanding
Certificates. 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 __________ Distribution Date or any subsequent Distribution Date.
See "Description of the Transfer and Servicing Agreements--Termination"
herein.
The rate of payment of principal of the Notes and the Certificates and the
yield on the Notes and the Certificates may also be affected by the rate of
defaults resulting in losses on Liquidated Student Loans, by the severity of
those losses and by the timing of those losses, which may affect the ability of
the Guarantors to make Guarantee Payments with respect thereto. The rate of
prepayment on the Financed Student Loans cannot be predicted, and any
reinvestment risks resulting from a faster or slower incidence of prepayment of
Financed Student Loans will be borne entirely by the Securityholders. Such
reinvestment risks may include the risk that interest rates and the relevant
spreads above particular interest rate bases are lower at the time
Securityholders 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. The yield on the Notes and
Certificates may also be reduced by the discharge of any Noteholders' Interest
LIBOR Carryover and Certificateholders' Interest LIBOR Carryover remaining after
distribution of all Available Funds on the respective final maturity date of the
Notes and Certificates.
Certain Differences Between the Class A-1 Notes, the Class A-2 Notes and
the Certificates. Because the Class A-2 Noteholders will receive no payments of
principal until the Class A-1 Notes have been paid in full and the
Certificateholders will receive no payments of principal until the Class A-2
Notes have been paid in full, the Class A-1 Notes and, to a lesser extent, the
Class A-2 Notes bear relatively greater risk than do the Certificates of an
increased rate of principal repayments with respect to the Financed Student
Loans (whether as a result of voluntary prepayments or liquidations due to
default or breach). In addition, the Class A-1 Noteholders generally bear the
risk of principal prepayments as a result of any remaining Pre-Funded Amount at
the end of the Funding Period. On the other hand, Certificateholders, and to a
lesser extent Class A-2 Noteholders, bear a greater risk of loss of principal
than do Class A-1 Noteholders in the event of a shortfall in Available Funds and
amounts on deposit in the Reserve Account because the Certificates do not
receive principal distributions until the Class A-2 Notes are paid in full and
the Class A-2 Notes do not receive principal payments until the Class A-1 Notes
are paid in full.
Basis Risk. Each Note Interest Rate and the Certificate Rate are generally
based on one-month LIBOR and are calculated based on the actual number of days
elapsed in each Interest Period divided by 360. 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 91-day
Treasury bills auctioned for each quarter (or, in certain circumstances, 52-week
Treasury bills) plus margins specified for such Financed Student Loans under
"Federal Family
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Education Loan Program" in the Prospectus calculated on the basis of the actual
number of days since the last day through which interest on such Financed
Student Loan was paid in full and the actual number of days in the year. As a
result, if in respect of any Interest Payment Date there does not exist a
positive spread between (a) the Student Loan Rate and (b) the applicable Note
Interest Rate or the Certificate Rate based on the Class A-1 LIBOR Rate, the
Class A-2 LIBOR Rate or the Certificate Rate, as the case may be, the applicable
Note Interest Rate or the Certificate Rate, as applicable, for such Interest
Payment Date will be the Student Loan Rate. See "Description of the Securities--
The Notes--Distributions of Interest" and "--The Certificates--Distributions of
Interest" herein. Any Noteholders' Interest LIBOR Carryover or
Certificateholders' Interest LIBOR Carryover arising as a result of the
applicable Note Interest Rate or the Certificate Rate being determined on the
basis of the Student Loan Rate will be paid on the Distribution Date immediately
following such Interest Payment Date (or, if such Interest Payment Date is a
Distribution Date, on such Distribution Date) or on any succeeding Distribution
Date out of the Reserve Account Excess, if any, for such Distribution Date after
making any required distributions out of such excess in respect of principal
payments on the Notes or Certificates. Payment of such amounts, however, will
not be covered, in the case of the Notes, by subordination of distributions of
the Certificateholders' Distribution Amount in respect of the Certificates
(although distributions of any Certificateholders' Interest LIBOR Carryover will
be subordinated to payment of any Noteholders' Interest LIBOR Carryover). See
"Description of the Transfer and Servicing Agreements--Distributions" herein .
Default Risk of Certain Financed Student Loans. Under the Omnibus Budget
Reconciliation Act of 1993, Financed Student Loans first disbursed on or after
October l, 1993 are 98% insured by the applicable Guarantor. As a result, to the
extent a borrower of such a Financed Student Loan defaults, the Trust will
experience a loss of 2% of outstanding principal and accrued interest on each
such Financed Student Loan. A defaulted loan will be fully assigned to the
applicable Guarantor in exchange for a guarantee payment on the 98% guaranteed
portion and the Trust may have no right thereafter to pursue the borrower for
the 2% unguaranteed portion. Financed Student Loans continue to be 100%
guaranteed in the event of death, disability or bankruptcy of the borrower
regardless of disbursement date. As of the Cutoff Date, __% by principal balance
of the Initial Financed Student Loans were made before October 1, 1993, and __%
by principal balance were made after that date.
Fees Payable on Certain Financed Student Loans. Under the Federal
Consolidation Program, the Trust will be obligated to pay to the Department a
monthly rebate fee (the "Monthly Rebate Fee") at an annualized rate of 1.05% of
the outstanding principal balance on the last day of each month plus accrued
interest thereon of each Federal Consolidation Loan which is a part of the
Trust, which rebate will be payable prior to distributions to the Noteholders or
the Certificateholders and which rebate will reduce the amount of funds which
would otherwise be available to make distributions on the Securities and will
reduce the Student Loan Rate.
Ratings of the Securities. It is a condition to the issuance and sale of
each class of the Notes and of the Certificates that the Notes be rated in the
highest investment rating category by at least two rating agencies and that the
Certificates be rated in the "A" rating category by at least two rating
agencies. A rating is not a recommendation to purchase, hold or sell Securities,
inasmuch as such rating does not comment as to market price or suitability for a
particular investor. The ratings of the Securities address the likelihood of the
ultimate payment of principal of and timely payment of interest on the
Securities pursuant to their terms. However, the rating agencies do not
evaluate, and the ratings of the Securities do not address, the likelihood of
payment of the Noteholders' Interest LIBOR Carryover or the Certificateholders'
Interest LIBOR 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. There can be no assurance as to whether any additional rating agency
will rate the Notes or the Certificates, or if one does, what rating would be
assigned by such other rating agency.
Incentive Programs. The Seller currently makes available and may hereafter
make available certain incentive programs to borrowers. Under these programs,
the Seller 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
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to the termination or change which have been or will be 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
Initial Financed Student Loans or on Student Loans which may be added to the
Trust through Additional Fundings. If any such incentive program does reduce the
yield on the affected Financed Student Loan and is not required by the Act, such
program will be applicable to Financed Student Loans in the Trust only if and to
the extent that the Trust receives payment from the Seller in an amount
sufficient to offset such yield reduction.
FORMATION OF THE TRUST
The Trust
Signet Student Loan Trust 1996-A will be a trust formed under the
laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described herein and in the Prospectus. The Trust will not engage
in any activity other than (i) acquiring, holding and managing the Financed
Student Loans and the other assets of the Trust and proceeds therefrom, (ii)
issuing the Certificates and the Notes, (iii) making payments thereon, (iv)
purchasing Serial Loans and (v) engaging in other activities that are necessary,
suitable or convenient to accomplish the foregoing or are incidental thereto or
connected therewith.
The Trust will be initially capitalized with equity of $_________
(excluding amounts deposited in the Reserve Account by the Seller on the Closing
Date) representing the initial principal balance of the Certificates.
Certificates with an initial principal balance of approximately $_________ will
be held by the Company. The remaining Certificates will be sold to third-party
investors by the Certificate Underwriters and the Bank that are expected to be
unaffiliated with the Seller, the Company, the Master Servicer, the Guarantors,
the Trust or the Department. The equity of the Trust, together with the proceeds
from the sale of the Notes, will be used by the Eligible Lender Trustee to
purchase on behalf of the Trust the Initial Financed Student Loans from the
Seller pursuant to the Loan Sale Agreement and to fund the deposit of the Pre-
Funded Amount. The Seller will use a portion of the net proceeds it receives
from the sale of the Financed Student Loans to make the Reserve Account Initial
Deposit. Upon the consummation of such transactions, the property of the Trust
will consist of (a) a pool of 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 on or after the Cutoff Date and (c) all moneys and investments
on deposit in the Collection Account, the Pre-Funding Account and the Reserve
Account. The Notes will be collateralized by the property of the Trust. As of
the Closing Date, the aggregate principal balance of the Notes and the
Certificates will equal approximately ___% of the Initial Pool Balance. The
Collection Account, the Reserve Account and the Pre-Funding Account will be
maintained in the name of the Indenture Trustee for the benefit of the
Noteholders and the Certificateholders. To facilitate servicing and to minimize
administrative burden and expense, the Master Servicer will be appointed
custodian of the promissory notes representing the Financed Student Loans by the
Eligible Lender Trustee.
The Trust will use funds on deposit in the Pre-Funding Account during the
Funding Period to make Additional Fundings, including to acquire Serial Loans
which will constitute property of the Trust. See "Description of the Transfer
and Servicing Agreements--Additional Fundings" herein. In addition, after the
Funding Period, Serial Loans will be added to the Trust to the extent that the
Eligible Lender Trustee on behalf of the Trust purchases such loans from the
Seller. Any such conveyance during or after the Funding Period of such Serial
Loans is conditioned on compliance with the procedures described in the Loan
Sale Agreement. The Seller expects that the amount of Additional Fundings during
the Funding Period will approximate 100% of the initial Pre-Funded Amount by the
last day of the Collection Period preceding the __________ Distribution Date;
however, there can be no assurance that a sufficient amount of Additional
Fundings will be made by such date. If the Pre-Funded Amount has not been
reduced to zero by the end of the Funding Period, the Noteholders will receive
any amounts remaining in the Pre-Funding Account and any amount as a payment of
principal. There can be no assurance as to the amount of
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Additional Fundings that will occur after the Funding Period. See "Description
of the Transfer and Servicing Agreements -- Additional Fundings" herein.
The Trust's principal offices are in _______, ________, in care of The
First National Bank of Chicago, as Eligible Lender Trustee, at the address
listed below.
Capitalization of the Trust
The following table illustrates the capitalization of the Trust as of the
Cutoff Date, as if the issuance and sale of the Securities offered hereby had
taken place on such date:
Floating Rate Class A-1 Asset Backed Notes $
Floating Rate Class A-2 Asset Backed Notes
Floating Rate Asset Backed Certificates ______
Total $
======
Eligible Lender Trustee
The First National Bank of Chicago is the Eligible Lender Trustee for
the Trust under the Trust Agreement. The First National Bank of Chicago is a
national banking association whose principal offices are located at One First
National Plaza, Suite 0126, Chicago, Illinois 60670 and whose New York offices
are located at First Chicago Trust Company of New York, 14 Wall Street, New
York, New York 10005. The Eligible Lender Trustee will acquire on behalf of the
Trust legal title to all the Financed Student Loans acquired from time to time
pursuant to the Loan Sale 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 Act and the Guarantee Agreements. Failure of the Financed Student
Loans to be owned by an eligible lender would result in the loss of any
Guarantee Payments from any Guarantor and any Federal Assistance with respect to
such Financed Student Loans. See "The Student Loan Pools" in the Prospectus. The
Eligible Lender Trustee's liability in connection with the issuance and sale of
the Notes and the Certificates is limited solely to the express obligations of
the Eligible Lender Trustee set forth in the Trust Agreement, the Loan Sale
Agreement and the Master Servicing Agreement. See "Description of the
Securities" and "Description of the Transfer and Servicing Agreements" herein
and in the Prospectus. The Seller and its affiliates may maintain normal
commercial banking relations with the Eligible Lender Trustee.
THE FINANCED STUDENT LOAN POOL
The pool of Financed Student Loans will include the Initial Financed
Student Loans purchased by the Eligible Lender Trustee on behalf of the Trust as
of the Cutoff Date and any Additional Student Loans made or acquired by the
Eligible Lender Trustee on behalf of the Trust after the Closing Date.
The Initial Financed Student Loans were selected from Signet's
portfolio of Student Loans by employing several criteria, including, but limited
to, as of the Cutoff Date, the following: each Initial Financed Student Loan (i)
is guaranteed as to principal and interest by a Guarantor pursuant to a
Guarantee Agreement and the Guarantor is, in turn, reinsured by the Department
in accordance with the FFELP, (ii) contains terms in accordance with those
required by the FFELP, the Guarantor and other applicable requirements, (iii) is
not more than 120 days past due as of the Cutoff Date, (iv) did not have a
borrower who was noted in the records
S-27
<PAGE>
of the Master Servicer as being currently involved in a bankruptcy proceeding
and (v) is not subject to any obligation by Signet to sell such loan to a third
party.
Following the Closing Date, the Eligible Lender Trustee on behalf of
the Trust will be obligated from time to time to purchase from the Seller,
subject to the availability thereof, Serial Loans owned by the Seller. During
the Funding Period, such purchase, including a Purchase Premium Amount for each
Serial Loan so purchased of ___% of the principal balance owed by the applicable
borrower on such loan, will be funded by means of a transfer of amounts on
deposit in the Pre-Funding Account as described herein. Following the end of the
Funding Period, such purchases will be funded by amounts representing
distributions of principal on the outstanding Financed Student Loans which would
otherwise have been part of the Available Funds of the Trust, provided such
Serial Loans meet certain criteria described herein. See "Description of the
Transfer and Servicing Agreements -- Additional Fundings" herein.
No selection procedures believed by the Seller to be adverse to the
Securityholders were used or will be used in selecting the Financed Student
Loans. However, except for the criteria described in the preceding paragraphs
and under "Description of the Transfer and Servicing Agreements -- Additional
Fundings" herein, there will be no required characteristics of the Serial Loans.
Therefore, following the transfer of Serial 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,
the distribution by loan type, the distribution by interest rate, the
distribution by principal balance and the distribution by remaining term to
scheduled maturity described in the following tables, may vary from those of the
Initial Financed Student Loans as of the Cutoff Date. In addition, the
distribution by weighted average interest rate applicable to the Financed
Student Loans on any date following the Cutoff Date may vary from that set forth
in the following tables as a result of variations in the effective rates of
interest applicable to the Financed Student Loans. Moreover, the information
described below with respect to the original term to maturity and remaining term
of maturity of the Initial Financed Student Loans as of the Cutoff Date may vary
from the actual term to maturity of any of the Financed Student Loans as a
result of the granting of deferral and forbearance periods with respect thereto.
Set forth below in the following tables is a description of certain
additional characteristics of the Initial Financed Student Loans as of the
Cutoff Date:
Composition of the Initial Financed Student Loans
as of the Cutoff Date
<TABLE>
<CAPTION>
<S> <C>
Aggregate Outstanding Principal Balance(1).......... $______________
Number of Borrowers................................. ____________
Average Outstanding Principal Balance Per Borrower.. ____________
Number of Loans..................................... ____________
Average Outstanding Principal Balance Per Loan...... ____________
Weighted Average Remaining Term to Maturity(2)...... ________ months
Weighted Average Annual Borrower Interest Rate(3) __________%
___________________
</TABLE>
(1) Includes net principal balance due from Obligors, plus accrued interest
thereon of $_______________ as of the Cutoff Date to be capitalized upon
commencement of repayment.
(2) Determined from the Cutoff Date to the stated maturity date of the
applicable Initial Financed Student Loan, assuming repayment commences
promptly upon expiration
S-28
<PAGE>
of the typical Grace period following the expected graduation date and
without giving effect to any Deferral or Forbearance periods that may be
granted in the future. See "The Federal Family Education Loan Program" in
the Prospectus.
(3) Determined using the interest rates applicable to the Initial Financed
Student Loans as of the Cutoff Date, excluding Special Allowance Payments.
The weighted average spread, including Special Allowance Payments, to the
91-day or 52-week T-Bill rate, as applicable, rate was ____% as of the
Cutoff Date and would have been ____% if all of the Initial Financed
Student Loans were in repayment as of the Cutoff Date. However, because
all the Initial Financed Student Loans effectively bear interest at a
variable rate per annum, there can be no assurance that the foregoing
percentage will remain applicable to the Initial Financed Student Loans at
any time after the Cutoff Date. See "The Federal Family Education Loan
Program" in the Prospectus.
Distribution of the Initial Financed Student Loans
by Loan Type as of the Cutoff Date
<TABLE>
<CAPTION>
Aggregate Percent of Pool
Number of Outstanding by Outstanding
Loan Type Loans Principal Balance(1) Principal Balance
--------- ----- -------------------- -----------------
<S> <C> <C> <C>
Subsidized Consolidation
Loans..................... $ %
Unsubsidized Consolidation
Loans.....................
Subsidized Stafford Loans..
Unsubsidized Stafford Loan.
SLS Loans..................
PLUS Loans.................
----- ------------------- ----
Total $ 100.00%
===== ================= ======
</TABLE>
- -------------------
(1) Includes net principal balance due from Obligors, plus accrued interest
thereon of $_______________ as of the Cutoff Date to be capitalized upon
commencement of repayment.
S-29
<PAGE>
Distribution of the Initial Financed Student Loans
by Interest Rates as of the Cutoff Date
<TABLE>
<CAPTION>
Aggregate Percent of Pool
Range of Interest Number Outstanding by Outstanding
Rates(1) of Loans Principal Balance(2) Principal Balance
----------------- -------- -------------------- -----------------
<S> <C> <C> <C>
Less than 7.50%......... $ %
7.50% to 7.99%..........
8.00% to 8.49%..........
8.50% to 8.99%..........
9.00% to 9.49%..........
Greater than 9.49%......
------- -------------- ----------
Total $ 100.00%
======= ============== ==========
</TABLE>
- -------------------
(1) Determined using the interest rates applicable to the Initial Financed
Student Loans as of the Cutoff Date. However, because all the Initial
Financed Student Loans effectively bear interest as a variable rate per
annum, there can be no assurance that the foregoing information will remain
applicable to the Initial Financed Student Loans at any time after the
Cutoff Date. See "The Federal Family Education Loan Program" in the
Prospectus.
(2) Includes net principal balance due from Obligors, plus accrued interest
thereon of $_______________ as of the Cutoff Date to be capitalized upon
commencement of repayment.
Distribution of the Initial Financed Student Loans
by Outstanding Principal Balance as of the Cutoff Date
<TABLE>
<CAPTION>
Aggregate Percent of Pool
Range of Outstanding Number Outstanding by Outstanding
Principal Balances of Loans Principal Balance(1) Principal Balance
-------------------- -------- -------------------- -----------------
<S> <C> <C> <C>
Less than $ 1,000.......... $ %
$ 1,000 to $ 1,999..........
$ 2,000 to $ 2,999..........
$ 3,000 to $ 3,999..........
$ 4,000 to $ 4,999..........
$ 5,000 to $ 5,999..........
$ 6,000 to $ 6,999..........
$ 7,000 to $ 7,999..........
$ 8,000 to $ 8,999..........
$ 9,000 to $ 9,999..........
$10,000 to $10,999..........
$11,000 to $11,999..........
$12,000 to $12,999..........
$13,000 to $13,999..........
$14,000 to $14,999..........
$15,000 and above...........
------ ---------- ---
Total 100.00%
======= ========== ======
</TABLE>
S-30
<PAGE>
- -------------------
(1) Includes net principal balance due from Obligors, plus accrued interest
thereon of $_______________ as of the Cutoff Date to be capitalized upon
commencement of repayment.
Distribution of the Initial Financed
Student Loans By School Type
<TABLE>
<CAPTION>
Aggregate
Outstanding Percent of Pool
Number Principal by Outstanding
School Type of Loans Balance(1) Principal Balance
<S> <C> <C> <C>
4-year institutions.... $ %
2-year institutions....
Consolidation..........
Graduate...............
Proprietary/Vocational
Not identified.........
--------- ------------- ---------------
Total............... $ %
========= ============= ===============
</TABLE>
- -------------------------
(1) Includes net principal balance due from Obligors, plus accrued interest
thereon of $_______________ as of the Cutoff Date to be capitalized upon
commencement of repayment.
Distribution of the Initial Financed Student Loans by Remaining Term
to Scheduled Maturity as of the Cutoff Date
<TABLE>
<CAPTION>
Aggregate Percent of Pool
Number of Months Remaining Number of Outstanding by Outstanding
to Scheduled Maturity(1) Loans Principal Balance(2) Principal Balance
- -------------------------- --------- -------------------- -----------------
<S> <C> <C> <C>
Less than 13.............. $ %
13 to 24..................
25 to 36..................
37 to 48..................
49 to 60..................
61 to 72..................
73 to 84..................
85 to 96..................
97 to 108.................
109 to 120................
121 to 132................
133 to 144................
145 and greater...........
192 and above.............
------- -------- ---
Total 100.00%
======= ======== ======
</TABLE>
- -----------------
S-31
<PAGE>
(1) Determined from the Cutoff Date to the stated maturity date of the
applicable Initial Financed Student Loan, assuming repayment commences
promptly upon expiration of the typical Grace period following the expected
graduation date and without giving effect to any Deferral or Forbearance
periods that may be granted in the future. See "The Federal Family
Education Loan Program" in the Prospectus.
(2) Includes net principal balance due from Obligors, plus accrued interest
thereon of $_______________ as of the Cutoff Date to be capitalized upon
commencement of repayment.
Distribution of the Initial Financed Student Loans
by Loan Payment Status as of the Cutoff Date
<TABLE>
<CAPTION>
Aggregate Percent of Pool
Number of Outstanding by Outstanding
Loan Payment Status(1) Loans Principal Balance(2) Principal Balance
- -------------------------- --------- -------------------- -----------------
<S> <C> <C> <C>
In-School.................. $ %
Grace......................
Deferral...................
Forbearance................
Repayment (3)..............
First year in repayment
Second year in repayment
Third year in repayment
More than 3 years in
repayment
Repayment-Subtotal
-------- ------------- ------
Total $ 100.00%
======== ============= ======
</TABLE>
- -------------------
(1) Refers to the status of the borrower of each Initial Financed Student Loan
as of the Cutoff Date; such borrower may still be attending school ("In-
School"), may be in a grace period prior to repayment commencing ("Grace"),
may be repaying such loan ("Repayment") or may have temporarily ceased
repaying such loan through a deferral ("Deferral") or a forbearance
("Forbearance") period. See "The Federal Family Education Loan Program" in
the Prospectus.
(2) Includes net principal balance due from Obligors, plus accrued interest
thereon of $_______________ as of the Cutoff Date to be capitalized upon
commencement of repayment.
(3) The weighted average number of months in repayment for all Initial Financed
Student Loans currently in repayment is ____, calculated as the term to
maturity at the commencement of repayment less the number of months
remaining to scheduled maturity as of the Cutoff Date.
Scheduled Weighted Average Months in Status of the Initial Financed Student
Loans by Current Loan Payment Status as of the Cutoff Date(1)
<TABLE>
<CAPTION>
Scheduled Months in Status
Current Borrower --------------------------------------------------------
Payment Status
In-School Grace Deferral Forbearance Repayment
<S> <C> <C> <C> <C> <C>
In-School........
</TABLE>
S-32
<PAGE>
Grace...................
Deferral................
Forbearance.............
Repayment...............
- -------------------------
(1) Determined without giving effect to any deferral or forbearance periods that
may be granted in the future.
Geographic Distribution of the
Initial Financed Student Loans as of the Cutoff Date
<TABLE>
<CAPTION>
Aggregate Percent of Pool
Number of Outstanding by Outstanding
State(1) Loans Principal Balance(2) Principal Balance
-------- --------- -------------------- -----------------
<S> <C> <C> <C>
Alabama...............
Alaska................
Arizona...............
Arkansas..............
California............
Colorado..............
Connecticut...........
Delaware..............
District of Columbia..
Florida...............
Georgia...............
Guam..................
Hawaii................
Idaho.................
Illinois..............
Indiana...............
Iowa..................
Kansas................
Kentucky..............
Louisiana.............
Maine.................
Maryland..............
Massachusetts.........
Michigan..............
Minnesota.............
Mississippi...........
Missouri..............
Montana...............
Nebraska..............
Nevada................
New Hampshire.........
New Jersey............
</TABLE>
S-33
<PAGE>
<TABLE>
<CAPTION>
Aggregate Percent of Pool
Number of Outstanding by Outstanding
State(1) Loans Principal Balance(2) Principal Balance
-------- --------- -------------------- -----------------
<S> <C> <C> <C>
New Mexico............
New York..............
North Carolina........
North Dakota..........
Ohio..................
Oklahoma..............
Oregon................
Pennsylvania..........
Puerto Rico...........
Rhode Island..........
South Carolina........
South Dakota..........
Tennessee.............
Texas.................
Utah..................
Vermont...............
Virgin Islands........
Virginia..............
Washington............
West Virginia.........
Wisconsin.............
Wyoming...............
Other.................
-------- ------------- ---------
Total........... 100%
======== ============= =========
</TABLE>
- --------------
(1) Based on the permanent billing addresses of the borrowers of the Initial
Financed Student Loans shown on the Master Servicer's records as of the
Cutoff Date.
(2) Includes net principal balance due from Obligors, plus accrued interest
thereon of $_____________ as of the Cutoff Date to be capitalized upon
commencement of repayment.
Distribution of Initial Financed Student
Loans by Date of Disbursement
<TABLE>
<CAPTION>
Aggregate Percent of Pool by
Number Outstanding Outstanding
Disbursement Date(1) of Loans Principal Balance(2) Principal Balance
<S> <C> <C> <C>
Pre-October 1, 1993......
October 1, 1993 and
Unkown thereafter.......
------- ------------------ ----------------
Total...............
======= ================== ================
</TABLE>
- -------------------
(1) Student Loans disbursed prior to October 1, 1993 are 100% guaranteed by the
applicable Guarantor, and reinsured against default by the Department up to
a maximum of 100% of the Guarantee Payments. Student Loans disbursed on or
after October 1, 1993 are 98% guaranteed by
S-34
<PAGE>
the applicable Guarantor, and reinsured against default by the Department
up to a maximum of 98% of the Guarantee Payments.
(2) Includes net principal balance due from Obligors, plus accrued interest
thereon estimated to be $______ as of the Cutoff Date to be capitalized
upon commencement of repayment.
Each of the Financed Student Loans provides or will provide for the
amortization of the outstanding principal balance of such Financed Student Loan
over a series of regular payments. Except as set forth below, 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 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, and except as set forth below, 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.
The Seller makes available to certain of its borrowers with Student Loan
certain payment terms which may result in the lengthening of the remaining terms
of the Student Loans. For example, not all of the loans owned by the Seller
provide for level payments throughout the repayment term of the loans. Certain
of the loans provide for a "graduated phase in" of the amortization of principal
with a greater portion of principal amortization being required in the latter
stages than would be the case if amortization were on a level payment basis.
The Seller also offers an income-sensitive repayment plan, pursuant to which
repayments are based on the borrower's income. Under that plan, ultimate
repayment may be delayed up to five years. Borrowers under the Financed Student
Loans will continue to be eligible for such graduated payment and income-
sensitive repayment plans.
Guarantee of Financed Student Loans
By the Closing Date, the Eligible Lender Trustee will have entered into a
Guarantee Agreement with each of the Guarantors pursuant to which each of the
Guarantors has agreed to serve as Guarantor for certain of the Financed Student
Loans. The following table provides information with respect to the portion of
the Initial Financed Student Loans guaranteed by each Guarantor:
Distribution of Initial Financed Student
Loans by Guarantee Agency
as of the Cutoff Date
Aggregate Percent of
Outstanding Pool by
Principal Outstanding
Number of Balance of Principal
Loans Loans Balance
Name of Guarantee Agency Guaranteed Guaranteed(1) Guaranteed
---------- ------------- ----------
S-35
<PAGE>
Educational Credit
Management Corporation.......
Texas Guaranteed Student
Loan Corporation.............
United Student Aid Funds......
Total....................
- --------------------
(1) Includes net principal balance due from Obligors, plus accrued interest
thereon estimated to be $______ as of the Cutoff Date to be capitalized
upon commencement of repayment.
Pursuant to its Guarantee Agreement, each of the Guarantors guarantees payment
of 100% of the principal (including any interest capitalized from time to time)
and accrued interest for each Financed Federal Student 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 Financed Student Loan when due, provided such failure
continues for a statutorily determined period of time of at least 180
days (except that such guarantee against such failures will be 98% of
principal and at least 98% of accrued interest for loans first disbursed
on or after October 1, 1993);
(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 Act requires the Guarantor generally
to pay the claim within 90 days of its submission by the lender. The
obligations of each Guarantor pursuant to its Guarantee Agreement are
obligations solely of such Guarantor, and are not supported by the full faith
and credit of the federal or any state government. However, the Act provides
that if the Secretary of Education ("Secretary") determines that a Federal
Guarantor is unable to meet its insurance obligations, the Secretary shall
assume responsibility for all functions of the Guarantor under the loan
insurance program of such Guarantor. The Secretary is authorized, among other
things, to take those actions necessary to ensure the continued availability of
Federal Student Loans to residents of the state or states in which the Guarantor
did business, the full honoring of all guarantees issued by a Guarantor prior to
the assumption by the Secretary of the functions of such Guarantor, and the
proper servicing of Federal Student Loans guaranteed by the Guarantor prior to
the Secretary's assumption of the functions of such Guarantor. For a further
discussion of the Secretary's authority in the event a Guarantor is unable to
meet its insurance obligations, see "Federal Family Education Loan Program --
Federal Guarantors" and "-- Federal Insurance and Reinsurance of Federal
Guarantors" in the Prospectus.
Each Guarantor's guarantee obligations with respect to any Financed Student
Loan guaranteed by it are conditioned upon the satisfaction of all the
conditions set forth in the Guarantee Agreement. These conditions typically
include, but are not limited to, the following: (i) the origination and
servicing of such Financed Student Loan being performed in accordance with the
Act and other applicable requirements, (ii) the timely payment to the Guarantor
of the guarantee fee payable with respect to such Financed Student Loan, (iii)
the timely submission to the Guarantor of all required pre-claim 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 Guarantor upon and in connection with making a
claim to receive Guarantee Payments thereon. Failure to comply with any of
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<PAGE>
the applicable conditions, including the foregoing, may result in the refusal of
the 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
Master Servicing Agreement and the Loan Sale Agreement, such failure to comply
would constitute a breach of the Master Servicer's covenants or the Seller's
representations and warranties, as the case may be, and would create an
obligation of the Master Servicer or the Seller, as the case may be, to purchase
or repurchase such Financed Student Loan and to reimburse the Trust for such
non-guaranteed interest amounts or such lost Interest Subsidy Payments and
Special Allowance Payments with respect thereto or, in the case of a breach by
the Seller, to substitute other loans for such loan. See "Description of the
Transfer and Servicing Agreements -- Sale of Financed Student Loans;
Representations and Warranties" and "-- Servicer Covenants" in the Prospectus .
Set forth below is certain current and historical information with respect to
each Guarantor in its capacity as a Guarantor of all education loans guaranteed
by it:
Guarantee Volume. The following table sets forth the approximate aggregate
principal amount of federally reinsured education loans (including loans under
the Parent Loans to Undergraduate Students (PLUS) program but excluding Federal
Consolidation Loans) that have first become guaranteed by each of the Guarantors
and by all guarantors in each of the last five federal fiscal years for which
information is available:*
<TABLE>
<CAPTION>
Stafford, SLS and PLUS Loans Guaranteed
Federal Fiscal Year
<S> <C> <C> <C> <C> <C>
Guarantee
Agency 1991 1992 1993 1994 1995
- --------- ---- ---- ---- ---- ----
TGSLC
USAF
ECMC
All
Guarantors
</TABLE>
______________
* The information set forth in the table above has been obtained from
the Department of Education's Guaranteed Student Loan Programs Data
Books (each, a "DOE Data Book") for Fiscal Years 1991, 1992 and 1993
(with respect to fiscal years 1991 through 1993) and from each
Guarantor (with respect to fiscal years 1994 and 1995), has not been
audited, and is not guaranteed as to accuracy or completeness, and
is not to be construed as a representation, by the Seller or the
Underwriters.
** 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
S-37
<PAGE>
such Guarantor to other guarantors plus (ii) the original principal amount of
loans guaranteed to such Guarantor from other guarantors. The following table
sets forth each Guarantor's reserve ratios and the national average reserve
ratio for all guarantors for the last five federal fiscal years for which
information is available:*
<TABLE>
<CAPTION>
Reserve Ratio
Federal Fiscal Year
<S> <C> <C> <C> <C> <C>
Guarantee
Agency 1991 1992 1993 1994 1995
--------- ---- ---- ---- ---- ----
TGSLC
USAF
ECMC
All
Guarantors
</TABLE>
______________
* The information set forth in the table above has been obtained from
the Department of Education's Guaranteed Student Loan Programs Data
Books (each, a "DOE Data Book") for Fiscal Years 1991, 1992 and 1993
(with respect to fiscal years 1991 through 1993) and from each
Guarantor (with respect to fiscal years 1994 and 1995), has not been
audited, and is not guaranteed as to accuracy or completeness, and
is not to be construed as a representation, by the Seller or the
Underwriters.
** 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 for the last five federal fiscal years shown:*
<TABLE>
<CAPTION>
Recovery Ratio
Federal Fiscal Year
<S> <C> <C> <C> <C> <C>
Guarantee
Agency 1991 1992 1993 1994 1995
- --------- ---- ---- ---- ---- ----
TGSLC
USAF
ECMC
All
Guarantors
</TABLE>
______________
* The information set forth in the table above has been obtained from
the DOE Data Book for Fiscal Years 1991, 1992 and 1993 (with respect
to fiscal years 1991 through 1993) and from each Guarantor (with
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<PAGE>
respect to fiscal years 1994 and 1995), has not been audited, and is
not guaranteed as to accuracy or completeness, and is not to be
construed as a representation, by the Seller or the
Underwriters.
** Not Available.
Loan Loss Reserve. USAF annually establishes a reserve for future losses with
respect to its student loan guarantee obligations. None of the other Guarantors
maintains such a loan loss reserve. Accordingly, with the exception of USAF, in
the event that a Guarantor receives less than full reimbursement of its
guarantee obligations from the Department (see "Federal Family Education Loan
Program -- Federal Insurance and Reinsurance of Guarantors" in the Prospectus),
the Guarantor would be forced to look to its existing assets to satisfy any such
guarantee obligations not so reimbursed.
Claims Rate. For the past five federal fiscal years, no Guarantor except USAF
has experienced a claims rate in excess of 5%. As a result, all claims of each
Guarantor except for USAF have been fully reimbursed by the Department. See
"Federal Family Education Loan Program -- Federal Insurance and Reinsurance of
Federal Guarantors" in the Prospectus. No assurance can be made that any of the
Guarantors will continue to 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 federal guarantors for each of the
last five federal fiscal years shown:*
<TABLE>
<CAPTION>
Claims Rate
Federal Fiscal Year
<S> <C> <C> <C> <C> <C>
Guarantee
Agency 1991 1992 1993 1994 1995
- --------- ---- ---- ---- ---- ----
TGSLC
USAF
ECMC
</TABLE>
______________
* The information set forth in the table above has been obtained from
the DOE Data Book for Fiscal Years 1991, 1992 and 1993 (with respect
to fiscal years 1991 through 1993) and from each Guarantor (with
respect to fiscal years 1994 and 1995), has not been audited, and is
not guaranteed as to accuracy or completeness, and is not to be
construed as a representation, by the Seller or the Underwriters.
** Not Available.
Unless otherwise indicated, all the above information relating to each
Guarantor has been obtained from such Guarantor, has not been audited, is not
guaranteed as to accuracy or completeness by the Seller or the Underwriters and
is not to be construed as a representation by the Seller or the Underwriters.
For further information concerning the Guarantors and all guarantors,
prospective investors should consult the DOE Data Books.
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Subservicing
The Master Servicer may from time to time employ subservicers with respect to
all or any portion of the Financed Student Loans; provided, however, that no
such subservicer shall be engaged unless the Master Servicer shall have received
prior written notice from each of the rating agencies that the engagement of
such subservicer shall not cause such rating agency to lower its then-current
rating on any of the Securities. Notwithstanding the use of any subservicer,
the Master Servicer shall remain responsible for the servicing of the Financed
Student Loans under the Master Servicing Agreement as if it alone were servicing
such loans. See "The Seller, the Master Servicer and the Subservicers" in the
Prospectus.
DESCRIPTION OF THE SECURITIES
General
The Notes will be issued pursuant to the terms of the Indenture and the
Certificates will be issued pursuant to the terms of the Trust Agreement, in
each case substantially in the form filed as an exhibit to the Registration
Statement. The following summary describes certain terms of the Notes, the
Certificates, the Indenture and the Trust Agreement. The summary does not
purport to be complete and is qualified in its entirety by reference to the
provisions of the Notes, the Certificates, the Indenture and the Trust
Agreement. The following summary supplements and, to the extent inconsistent
therewith, replaces the description of the general terms and provisions of the
Notes, the Certificates, the Indenture and the Trust Agreement set forth in the
Prospectus, to which description reference is hereby made.
The Notes
Distributions of Interest. Interest will accrue on the principal balance of
the Class A-1 Notes and the Class A-2 Notes at a rate per annum (calculated as
provided below) equal to the Class A-1 Rate and the Class A-2 Rate,
respectively. Interest will accrue from and including the Closing Date or from
the most recent Interest Payment Date on which interest has been paid to but
excluding the current Interest Payment Date (each an "Interest Period") and will
be payable to the Noteholders monthly on each Interest Payment Date. Interest
accrued as of any Interest Payment Date but not paid on such Interest Payment
Date will be due on the next Interest Payment Date together with an amount equal
to interest on such amount at the applicable rate per annum. Interest payments
on the Notes for any Interest Payment Date will generally be funded from (i) in
the case of each Interest Payment Date that is not a Distribution Date, Monthly
Available Funds and (ii) in the case of each Interest Payment Date that is a
Distribution Date, Available Funds, in each case on deposit in the Collection
Account and from amounts on deposit in the Reserve Account remaining after the
distribution of the Servicing Fee and the Administration Fee for such Interest
Payment Date. If such sources are insufficient to pay the Noteholders' Interest
Distribution Amount for such Interest Payment Date, such shortfall will be
allocated pro rata to the Class A-1 Notes and the Class A-2 Notes (based upon
the total amount of interest then due on each class of Notes). See "Description
of the Transfer and Servicing Agreements--Distributions" and "-- Credit
Enhancement" herein.
The "Class A-1 Rate" for each Interest Period will be equal to the lesser of
(a) the Class A-1 LIBOR Rate for such Interest Period and (b) the Student Loan
Rate for such Interest Period. The "Class A-2 Rate" for each Interest Period
will be equal to the lesser of (a) the Class A-2 LIBOR Rate for such Interest
Period and (b) the Student Loan Rate for such Interest Period.
The "Class A-1 LIBOR Rate" shall be equal to one-month LIBOR for such Interest
Period (determined as described herein) plus _____%; provided, however, that
with respect to the initial Interest Period the Class A-1 LIBOR Rate shall equal
____%.
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<PAGE>
The "Class A-2 LIBOR Rate" shall be equal to one-month LIBOR for such Interest
Period (determined as described herein) plus ____%; provided, however, that with
respect to the initial Interest Period the Class A-2 LIBOR Rate shall equal
____%.
The "Student Loan Rate" for any Interest Period will equal the product of (a)
the quotient obtained by dividing (i) 360 by (ii) the actual number of days
elapsed in such Interest Period and (b) the percentage equivalent of a fraction,
(i) the numerator of which is equal to Expected Interest Collections for such
Interest Period less the Servicing Fees and the Administration Fee with respect
to such Interest Period and (ii) the denominator of which is the outstanding
principal balance of the Securities as of the first day of such Interest Period.
"Expected Interest Collections" means, with respect to any Interest Period,
the sum of (i) the amount of interest accrued, net of Monthly Rebate Fees and
other amounts required by the Act to be paid to the Department or to be repaid
to borrowers, with respect to the Financed Student Loans for the related Student
Loan Rate Accrual Period (whether or not such interest is actually paid), (ii)
all Interest Subsidy Payments and Special Allowance Payments estimated to have
accrued for such Student Loan Rate Accrual Period, whether or not actually
received and (iii) Investment Earnings for such Student Loan Rate Accrual
Period.
On each Distribution Date, any Noteholders' Interest LIBOR Carryover incurred
and unpaid to and including such Distribution Date will be payable on such Date
but only out of any Reserve Account Excess after the payment of any portion of
such excess required to be distributed as principal on the Notes or the
Certificates. Any amount of Noteholders' Interest LIBOR Carryover remaining
unpaid on the respective final maturity date of the Class A-1 Notes and Class A-
2 Notes will never become due and payable and will be discharged as to the Class
A-1 or Class A-2 Notes, as applicable, on such date.
Distributions of Principal. Principal payments will be made to the
Noteholders on each Distribution Date, in an amount generally equal to the
Principal Distribution Amount for such Distribution Date, until the principal
balance of the Notes is reduced to zero. Payments on the Notes of the
Noteholders' Principal Distribution Amount will generally be derived from
Available Funds and amounts on deposit in the Reserve Account remaining after
the distribution of the Servicing Fee and all overdue Servicing Fees, the
Administration Fee and all overdue Administration Fees, the Noteholders'
Interest Distribution Amount and the Certificateholders' Interest Distribution
Amount. See "Description of the Transfer and Servicing Agreements--
Distributions" and "-- Credit Enhancement" herein. If such sources are
insufficient to pay the Noteholders' Principal Distribution Amount for such
Distribution Date, such shortfall will be added to the principal payable to the
Noteholders on subsequent Distribution Dates. Principal payments on the Notes
will be applied on each Distribution Date, first, to the principal balance of
the Class A-1 Notes until such principal balance is reduced to zero and then to
the principal balance of the Class A-2 Notes until such principal balance is
reduced to zero.
In addition, on each Distribution Date the Excess Distribution Amount, if any,
for such Distribution Date will be applied to pay the principal on the Class A-1
Notes until the principal balance of such Class A-1 Notes is reduced to zero and
then to pay the principal balance of the Class A-2 Notes until the principal
balance of such Class A-2 Notes is reduced to zero. The Excess Distribution
Amount, if any, available to be distributed as set forth in the preceding
sentence will not be part of the Principal Distribution Amount for a
Distribution Date and Noteholders will have no entitlement thereto except to the
extent of any such Excess Distribution Amount of which there can be no
assurance. See "Description of the Transfer and Servicing Agreements--Credit
Enhancement--Reserve Account" herein.
The aggregate outstanding principal amount of the Class A-1 Notes will be
payable in full on the _________ Distribution Date (the "Class A-1 Final
Maturity Date") and the aggregate outstanding principal amount of the Class A-2
Notes will be payable in full on the _________ Distribution Date (the "Class A-2
Final Maturity Date"). However, the actual maturity of the Class A-1 Notes or
the Class A-2 Notes could occur other than on such date as
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<PAGE>
a result of a variety of factors including prepayments of the Financed Student
Loans. See "Risk Factors -- Maturity and Prepayment Considerations" herein.
Mandatory Redemption. If any amounts remain on deposit in the Pre-Funding
Account on the last day of the Funding Period after giving effect to all
Additional Fundings on or prior to such date, such amounts will be used on the
Distribution Date on or immediately following such date to redeem the Class A-1
Notes in an amount not to exceed their outstanding principal balance, and then
to redeem the Class A-2 Notes. The aggregate principal amounts of Notes to be
redeemed will be an amount equal to the amount then on deposit in the Pre-
Funding Account on the last day of the Funding Period.
The Certificates
Distributions of Interest. Certificateholders will be entitled to
distributions in an amount equal to the amount of interest that would accrue on
the Certificate Balance at the Certificate Rate, commencing with the
____________, 1996 Interest Payment Date. Such amounts will be distributable
monthly on each Interest Payment Date. That interest entitlement will accrue
from and including the Closing Date or from the most recent Interest Payment
Date on which interest distributions have been made to but excluding the current
Interest Payment Date and will be calculated as provided below. Interest
distributions due for any Distribution Date but not distributed on such Interest
Payment Date will be due on the next Interest Payment Date increased by an
amount equal to interest on such amount at the Certificate Rate. Interest
distributions with respect to the Certificates for such Interest Payment Date
will generally be funded from the portion of (i) in the case of each Interest
Payment Date that is not a Distribution Date, Monthly Available Funds and (ii)
in the case of each Distribution Date, Available Funds, in each case on deposit
in the Collection Account and from amounts on deposit in the Reserve Account
remaining after the distribution of the Servicing Fee and all overdue Servicing
Fees, the Administration Fee and all overdue Administration Fees and the
Noteholders' Interest Distribution Amount for such Interest Payment Date. If
such sources are insufficient to pay the Certificateholders' Interest
Distribution Amount for such Interest Payment Date, no other source will be
available to cover such shortfall on such date. See "Description of the Transfer
and Servicing Agreements -- Distributions" and "--Credit Enhancement -- Reserve
Account" herein.
The "Certificate Rate" for each Interest Period will be equal to the lesser of
(a) the Certificate LIBOR Rate for such Interest Period and (b) the Student Loan
Rate for such Interest Period.
The "Certificate LIBOR Rate" shall be equal to one-month LIBOR for such
Interest Period (determined as described herein) plus ____%; provided, however,
that with respect to the initial Interest Period the Certificate LIBOR Rate
shall equal ____% for the period from the Closing Date to but excluding
__________, 1996.
On each Distribution Date, any Certificateholders' Interest LIBOR Carryover
incurred and unpaid to and including such Distribution Date will be payable on
such Distribution Date but only to the extent of any Reserve Account Excess
remaining after the payment of (i) any portion of such amount required to be
distributed as principal on the Notes and Certificates and (ii) any Noteholders'
Interest LIBOR Carryover. Any amount of Certificateholders' Interest LIBOR
Carryover remaining after distribution of all Available Funds on the Final
Maturity Date will never become due and will be discharged on such date.
Distributions of Principal. Certificateholders will be entitled to
distributions on each Distribution Date on and after which the Notes are paid in
full in an amount generally equal to the Principal Distribution Amounts for such
Distribution Date. Distributions with respect to Principal Distribution Amount
on the Certificates for such Distribution Date will generally be funded from the
portion of Available Funds and amounts on deposit in the Reserve Account
remaining after distribution of the Servicing Fee, the Administration Fee and
the Certificateholders' Interest Distribution Amount for such Distribution Date.
See "Description of the Transfer and Servicing Agreements -- Distributions" and
"--Credit Enhancement -- Reserve Account" herein. If such sources are
insufficient to pay the
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<PAGE>
Certificateholders' Principal Distribution Amount for such Distribution Date, no
other source will be available to cover such shortfall on such date.
In addition, on each Distribution Date on and after the Notes are paid in
full, the Excess Distribution Amount, if any, for such Distribution Date will be
applied to pay the principal on the Certificates. The Excess Distribution
Amount, if any, available to be distributed as set forth in the preceding
sentence will not be part of the Principal Distribution Amount for a
Distribution Date and Certificateholders will have no entitlement thereto except
to the extent of any such Excess Distribution Amount of which there can be no
assurance. See "Description of the Transfer and Servicing Agreements--Credit
Enhancement--Reserve Account" herein.
The outstanding principal amount of the Certificates will be payable in full
on the _________ Distribution Date (the "Final Maturity Date"). The actual date
on which the aggregate outstanding principal and accrued interest of the
Certificates will be paid in full may be other than such date, however, based on
a variety of factors, including those described under "The Financed Student Loan
Pool -- Maturity and Prepayment Considerations" herein.
Subordination of the Certificates. The rights of Certificateholders to
receive payments of interest are subordinated to the rights of the Noteholders
to receive payments of interest and the rights of the Certificateholders to
receive payments of principal are subordinated to the rights of the Noteholders
to receive payments of interest and principal. Consequently, Monthly Available
Funds or Available Funds, as the case may be, on deposit in the Collection
Account and amounts on deposit in the Reserve Account on (i) any Interest
Payment Date that is not a Distribution Date will be applied to the payment of
interest on the Notes before payment of interest on the Certificates and (ii)
any Interest Payment Date that is also a Distribution Date will be applied to
the payment of interest on the Notes before payment of interest and principal on
the Certificates and will be applied to the payment of the Noteholders'
Principal Distribution Amount before payment of principal on the Certificates.
No distributions in respect of principal of the Certificates will be made until
the Distribution Date on or after which the Notes have been paid in full.
Moreover, on any Distribution Date, the Reserve Account Excess, if any, with
respect to such Distribution Date will be applied to the payment of the
Noteholders' Interest LIBOR Carryover prior to any distribution thereof to
Certificateholders to cover the Certificateholders' Interest LIBOR Carryover,
provided that such amounts will first be applied to reduce to the aggregate
principal balance of Notes and the Certificates by the amount of any Excess
Distribution Amount for such Distribution Date. If amounts otherwise allocable
to the Certificates are used to fund payments of interest and principal on the
Notes, distributions with respect to the Certificates may be delayed or reduced
and Certificateholders may suffer a loss. See "Risk Factors -- Subordination"
herein.
Determination of LIBOR
Pursuant to the Administration Agreement (or in the case of the initial
Interest Period, with respect to the period from _________, 1996 to but
including the initial Interest Payment Date), the Administrator will determine
LIBOR for purposes of calculating the Certificate LIBOR Rate, the Class A-1
LIBOR Rate and the Class A-2 LIBOR Rate for each given Interest Period on the
second business day prior to the commencement of each Interest Period (or, in
the case of the initial Interest Period, with respect to the period from
_________, 1996 to but excluding _________, 1996, on the second business day
prior to _________, 1996) (each, a "LIBOR Determination Date"). For purposes of
calculating LIBOR, a business day is any day on which banks in London and New
York City are open for the transaction of international 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.
"LIBOR" means, with respect to any Interest Period, 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
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<PAGE>
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
Administrator 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 Administrator, 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.
"Telerate Page 3750" means the display page 3750 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 Banks" means four major banks in the London interbank market
selected by the Administrator.
Book-Entry Registration
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations ("Participants") and to
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entries, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include any
underwriters, agents or dealers with respect to the Securities offered hereby.
Indirect access to the DTC system also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Securityholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Securities may do so only through Participants and Indirect Participants. In
addition, Securityholders will receive all distributions of principal and
interest from the Indenture Trustee or the Eligible Lender Trustee, as
applicable (the "Applicable Trustee"), through Participants and Indirect
Participants. Under a book-entry format, Securityholders may experience some
delay in their receipt of payments, since such payments will be forwarded by the
Applicable Trustee to Cede, as nominee for DTC. DTC will forward such payments
to its Participants, which thereafter will forward them to Indirect Participants
or Securityholders. It is anticipated that the only "Securityholder,"
"Certificateholder" and "Noteholder" will be Cede, as nominee for DTC.
Securityholders will not be recognized by the Applicable Trustee as Noteholders
or Certificateholders, as such terms are used in the Indenture and the Trust
Agreement, respectively and Securityholders will be permitted to exercise the
rights of Securityholders only indirectly through DTC and its Participants (who
in turn will exercise their rights through DTC).
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Securities among Participants on whose behalf it acts with respect to the
Securities and to receive and transmit distributions of principal of, and
interest on, the Securities. Participants and Indirect Participants with which
Securityholders have accounts with respect to the Securities similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Securityholders. Accordingly, although
Securityholders will not possess Securities, the Rules provide a mechanism by
which Participants will receive payments and will be able to transfer their
interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the
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<PAGE>
DTC system, or to otherwise act with respect to such Securities, may be limited
due to the lack of a physical certificate for such Securities.
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. 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 any
underwriters, agents or dealers with respect to the Securities offered hereby.
Indirect access to Cedel is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("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. The Euroclear System includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. The Euroclear System is operated by the Brussels, Belgium
office of Morgan Guaranty Trust Company of New York (the "Euroclear Operator" or
"Euroclear"), under contract with Euroclear Clearance Systems, S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by the
Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for the Euroclear System on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries and may include any underwriters, agents or dealers
with respect to the Securities offered hereby. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the ''Terms and Conditions''). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawals of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in Euroclear. All securities in Euroclear 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. Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a beneficial holder of Notes under the Indenture 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.
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<PAGE>
Securityholders may hold their Securities through DTC (in the United
States) or Cedel or Euroclear (in Europe) if they are participants of such
systems, or indirectly through organizations which are participants in such
systems.
The Securities will initially be registered in the name of Cede & Co., the
nominee of DTC. Cedel and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in Cedel's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank, N.A. ("Citibank") will act as depositary
for Cedel and Morgan Guaranty Trust Company of New York ("Morgan") will act as
depositary for Euroclear (in such capacities, individually the "Depositary" and
collectively the "Depositaries").
Transfers between Participants will occur in accordance with DTC Rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Because of time-zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
Cedel Participants on such business day. Cash received in Cedel or Euroclear as
a result of sales of securities by or through a Cedel Participant or 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.
Cross-market transfers between persons holding Notes 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 to the Depositaries.
DTC has advised the Administrator that it will take any action permitted to
be taken by a Securityholder under the Indenture or the Trust Agreement, as the
case may be, only at the direction of one or more Participants to whose accounts
with DTC the Securities are credited. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of interests in the 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.
NEITHER THE TRUST, THE SELLER, THE MASTER SERVICER, ANY SUBSERVICER, THE
ADMINISTRATOR, THE ELIGIBLE LENDER TRUSTEE, THE INDENTURE TRUSTEE NOR THE
UNDERWRITERS WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY PARTICIPANTS,
CEDEL PARTICIPANTS OR EUROCLEAR PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS
NOMINEES WITH RESPECT TO (l) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC,
CEDEL
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OR EUROCLEAR OR ANY PARTICIPANT, (2) THE PAYMENT BY DTC, CEDEL OR
EUROCLEAR OR ANY PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN
RESPECT OF THE PRINCIPAL AMOUNT OR INTEREST ON THE SECURITIES, (3) THE DELIVERY
BY ANY PARTICIPANT, CEDEL PARTICIPANT OR EUROCLEAR PARTICIPANT OF ANY NOTICE TO
ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE
INDENTURE OR THE TRUST AGREEMENT TO BE GIVEN TO SECURITYHOLDERS OR (4) ANY OTHER
ACTION TAKEN BY DTC AS THE SECURITYHOLDER.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
General
The following is a summary of certain terms of the Loan Sale Agreement,
pursuant to which the Eligible Lender Trustee on behalf of the Trust will
purchase the Financed Student Loans; the Master Servicing Agreement pursuant to
which the Master Servicer will service the Financed Student Loans; the
Administration Agreement, pursuant to which the Administrator will undertake
certain other administrative duties and functions with respect to the Trust and
the Financed Student Loans and the Trust Agreement, pursuant to which the Trust
will be created and the Certificates will be issued (collectively, the "Transfer
and Servicing Agreements"). Forms of the Transfer and Servicing Agreements have
been filed as exhibits to the Registration Statement. A copy of the Transfer and
Servicing Agreements will be filed with the Commission following the issuance of
the Securities. This summary does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all the provisions of the
Transfer and Servicing Agreements. The following summary supplements, and to the
extent inconsistent therewith replaces, the description of the general terms and
provisions of the Transfer and Servicing Agreements set forth in the Prospectus,
to which description reference is hereby made.
Sale of Financed Student Loans; Representations and Warranties
Information with respect to the sale of the Initial Financed Student Loans
from the Seller to the Eligible Lender Trustee on behalf of the Trust on the
Closing Date pursuant to the Loan Sale Agreement and the representations and
warranties by the Seller in connection therewith and in connection with the
purchase of Student Loans by the Trust pursuant to Additional Fundings is set
forth under "Description of the Transfer and Servicing Agreements" in the
Prospectus. The net proceeds received from the sale of the Notes and the
Certificates will be applied to the purchase of the Initial Financed Student
Loans and to the deposit of the Pre-Funded Amount in the Pre-Funding Account.
Additional Fundings
Following the Closing Date, the Eligible Lender Trustee on behalf of the
Trust will be obligated from time to time, subject to the conditions described
below, to purchase from the Seller Federal Student Loans which (i) are made to a
borrower who is also a borrower under at least one outstanding Initial Financed
Student Loan, (ii) are made under the same loan program as such Initial Financed
Student Loan and (iii) have the same Guarantor as such Initial Financed Student
Loan (each a "Serial Loan" and collectively, the "Serial Loans"). Serial Loans
will be made by the Seller at the discretion and in accordance with usual
business practices of the Seller.
During the Funding Period, each purchase of a Serial Loan will be funded by
means of a transfer from the Pre-Funding Account of an amount equal to the sum
of (i) the principal balance owed by the applicable borrower thereon plus
accrued interest thereon expected to be capitalized upon repayment (the
"Purchase Collateral Balance") and (ii) an additional amount of __% of the
principal balance owed by the applicable borrower thereon (the "Purchase Premium
Amount" and together with the Purchase Collateral Balance, the "Loan Purchase
Amount"). Following the end of the Funding Period, such purchases will be funded
by amounts on deposit in the
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Collection Account representing distributions of principal on the outstanding
Financed Student Loans which otherwise would have been part of the Available
Funds of the Trust, as described under "Description of the Transfer and
Servicing Agreements -- Distributions" herein.
A purchase of Serial Loans will be prohibited at any time after (i) an
Event of Default occurs under the Indenture, a Servicer Default occurs under the
Master Servicing Agreement or an Administrator Default occurs under the
Administration Agreement or (ii) certain events of insolvency occur with respect
to the Seller.
On certain dates designated by the Seller (each, a "Transfer Date"), the
Seller will sell and assign, without recourse, to the Eligible Lender Trustee on
behalf of the Trust, its entire interest in the specified Serial Loans
(collectively, the "Additional Student Loans") made during the period preceding
such Transfer Date, in each case as of the date specified in the applicable
Transfer Agreement to be delivered on such Transfer Date (each, a "Subsequent
Cutoff Date"). Subject to the satisfaction of the foregoing conditions, the
Seller will convey the Additional Student Loans to the Eligible Lender Trustee
on behalf of the Trust on each such Transfer Date pursuant to the Loan Sale
Agreement and the applicable Transfer Agreement (a "Transfer Agreement")
executed by the Seller, the Master Servicer, the Eligible Lender Trustee and the
Administrator on such Transfer Date. Each such Transfer Agreement will include
as an exhibit a schedule identifying each Additional Student Loan transferred on
such Transfer Date. Upon such conveyance of Additional Student Loans to the
Eligible Lender Trustee on behalf of the Trust, the Pool Balance will increase
in an amount equal to the Purchase Collateral Balance of the Additional Student
Loans and an amount equal to the Loan Purchase Amount of such Additional Student
Loans will be withdrawn, during the Funding Period from the Pre-Funding Account
on such date and transferred to the Seller, and after the Funding Period, from
the Collection Account in the manner described above.
As described under "The Family Education Loan Program" in the Prospectus,
during certain qualifying periods, interest on certain Financed Student Loans is
not required to be currently paid, but instead is added to the outstanding
principal balance of the loan at the end of the qualifying period. In order to
minimize the possibility that the failure to receive current interest payments
on such loans during such periods will result in a shortfall of the amount
required to be distributed on the Notes and the Certificates, amounts on deposit
in the Pre-Funding Account will be applied during the Funding Period to make
deposits in the Collection Account in lieu of current collections of interest on
such loans. Following the end of the Funding Period, the Pre-Funding Account
will cease to be available as a source to fund such deposits in the Collection
Account, and thereafter such payments will be funded through the application of
amounts which would otherwise have been distributable in respect of the
Principal Distribution Amount for the related Distribution Date, as described
under "-- Distributions" below.
Accounts
In addition to the Collection Account referred to in the Prospectus under
"Description of the Transfer and Servicing Agreements -- Accounts", the
Administrator will establish and maintain the Pre-Funding Account and the
Reserve Account, in the name of the Indenture Trustee on behalf of the
Noteholders and the Certificateholders.
Servicing Compensation; Administration Fee
The Master Servicer will be entitled to receive monthly with respect to
each Financed Student Loan the Servicing Fee in an amount equal to the product
of (a) one-twelfth and (b) ____% per annum of the principal balance of each
Financed Student Loan as of the last day of the preceding calendar month. The
Servicing Fee (together with any portion of the Servicing Fee that remains
unpaid from prior Interest Payment Dates) will be payable on each Interest
Payment Date and will be paid solely out of Monthly Available Funds in the case
of an Interest Payment Date that is not a Distribution Date (and out of
Available Funds in the case of each Distribution Date) and amounts on deposit in
the Reserve Account on such date.
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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 receive monthly in arrears on
each Interest Payment Date the Administration Fee in an amount equal to one-
twelfth of the product of (i) ____% per annum and (ii) the sum of the Pool
Balance and the Pre-Funded Amount as of the close of business on the last day of
the calendar month immediately preceding such date.
Distributions
Deposits to Collection Account. On or about the third business day prior
to each Interest Payment Date (the "Determination Date"), the Administrator will
provide the Indenture Trustee with certain information with respect to the
preceding Collection Period or Monthly Collection Period, including the amount
of Available Funds or Monthly Available Funds received with respect to the
Financed Student Loans and the aggregate Purchase Amount relating to the
Financed Student Loans to be repurchased by the Seller or to be purchased by the
Master Servicer.
"Monthly Collection Period" means, with respect to any Interest Payment
Date that is not a Distribution Date, the calendar month immediately preceding
the month of such Interest Payment Date (or, with respect to the first Monthly
Collection Period, the period beginning on the Cutoff Date and ending on
___________, 1996).
For purposes hereof, the term "Monthly Available Funds" means, with respect
to each Interest Payment Date that is not a Distribution Date, the sum of the
following amounts with respect to the related Monthly Collection Period: (i) all
collections received by the Master Servicer on the Financed Student Loans
(including any Guarantee Payments received with respect to the Financed Student
Loans); (ii) any Interest Subsidy Payments and Special Allowance Payments
received by the Eligible Lender Trustee during such Monthly Collection Period
with respect to the Financed Student Loans; (iii) all proceeds of the
liquidation of defaulted Financed Student Loans ("Liquidated Student Loans"),
which became Liquidated Student Loans during such Monthly Collection Period in
accordance with the Master Servicer's customary servicing procedures, net of
expenses incurred by the Master Servicer in connection with such liquidation and
any amounts required by law to be remitted to the borrower on such Liquidated
Student Loans ("Liquidation Proceeds"), and all recoveries in respect of
Liquidated Student Loans which were written off in prior Monthly Collection
Periods; (iv) that portion of amounts released from the Pre-Funding Account with
respect to Additional Fundings relating to those interest amounts on the
Financed Student Loans which are or will be capitalized; (v) the aggregate
Purchase Amounts received for those Financed Student Loans repurchased by the
Seller or purchased by the Master Servicer under an obligation which arose
during the related Monthly Collection Period; (vi) Investment Earnings for such
Distribution Date and (vii) with respect to each Interest Payment Date other
than a Distribution Date and other than an Interest Payment Date immediately
succeeding a Distribution Date, Monthly Available Funds remaining from the
Monthly Collection Period relating to the preceding Interest Payment Date, after
giving effect to the application of such Monthly Available Funds on such
preceding Interest Payment Date; provided, however, that if with respect to any
such Interest Payment Date there would not be sufficient funds, after
application of Monthly Available Funds (as defined above) and amounts available
from the Reserve Account, to pay any of the items specified in clauses (i)
through (iv) respectively under the first paragraph of "-- Distributions --
Distributions from Collection Account," then Monthly Available Funds for such
Interest Payment Date will include, in addition to the Monthly Available Funds
(as defined above), amounts on deposit in the Collection Account on the
Determination Date relating to such Interest Payment Date which would have
constituted Monthly Available Funds for the Interest Payment Date succeeding
such Interest Payment Date up to the amount necessary to pay such items, and the
Monthly Available Funds for such succeeding Interest Payment Date will be
adjusted accordingly; and provided, further, that Monthly Available Funds will
exclude (A) all payments and proceeds (including Liquidation Proceeds) of any
Financed Student Loans the Purchase Amount of which has been included in Monthly
Available Funds for a prior Collection Period, (B) except as expressly included
in clause (iv) above, amounts released from the Pre-Funding Account, (C) any
Monthly Rebate Fees paid and other amounts required by the Act to be paid to the
Department or to be repaid to borrowers, with respect to the Financed Student
Loans during the related Monthly Collection Period as described under "Risk
Factors -- Fees Payable on Certain Financed Student Loans" and (D) any
collections in respect of principal on the Financed Student Loans applied by the
Eligible Lender Trustee on behalf of the Trust after
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the end of the Funding Period to purchase Serial Loans during the related
Monthly Collection Period as described under "-- Additional Fundings" above.
The term "Available Funds" means, with respect to a Distribution Date and
the related Collection Period, the sum of the amounts specified in clauses (i)-
(vi) of the definition of Monthly Available Funds for each of the three Monthly
Collection Periods included in such Collection Period; provided, however, that
if with respect to any Distribution Date there would not be sufficient funds,
after application of Available Funds (as defined above) and amounts available
from the Reserve Account, to pay any of the items specified in clauses (i)
through (vi) respectively under the second paragraph of " -- Distributions --
Distributions from Collection Account," then Available Funds for such
Distribution Date will include, in addition to the Available Funds (as defined
above), amounts on deposit in the Collection Account on the Determination Date
relating to such Distribution Date which would have constituted Available Funds
for the Distribution Date succeeding such Distribution Date up to the amount
necessary to pay such items, and the Available Funds for such succeeding
Distribution Date will be adjusted accordingly; and provided, further, that
Available Funds will exclude (A) all payments and proceeds (including
Liquidation Proceeds) of any Financed Student Loans the Purchase Amount of which
has been included in Available Funds for a prior Collection Period, (B) except
as expressly included in clause (iv) of the definition of Monthly Available
Funds, amounts released from the Pre-Funding Account, (C) any Monthly Rebate
Fees and other amounts required by the Act to be paid to the Department or to be
repaid to borrowers, with respect to the Financed Student Loans paid during the
related Collection Period on behalf of the Trust, (D) any collections in respect
of principal on the Financed Student Loans applied by the Eligible Lender
Trustee on behalf of the Trust after the end of the Funding Period to purchase
Serial Loans during the related Collection Period as described under "--
Additional Fundings" above, and (E) the Servicing Fee and all overdue Servicing
Fees, the Administration Fee and all overdue Administration Fees, the
Noteholders' Interest Distribution Amount and the Certificateholders' Interest
Distribution Amount paid on each Interest Payment Date that is not a
Distribution Date during the related Collection Period.
Distributions from Collection Account. On each Interest Payment Date that
is not a Distribution Date the Administrator will instruct the Indenture Trustee
to make the following distributions in the order of priority specified below, to
the extent of Monthly Available Funds for the related Monthly Collection Period:
(i) the Servicing Fee for such Interest Payment Date and all overdue Servicing
Fees to the Master Servicer, (ii) the Administration Fee for such Interest
Payment Date and all overdue Administration Fees to the Administrator, (iii) the
Noteholders' Interest Distribution Amount to the Class A-1 Noteholders and the
Class A-2 Noteholders, on a pro rata basis and (iv) the Certificateholders'
Interest Distribution Amount to the Certificateholders.
On each Distribution Date, the Administrator will instruct the Indenture
Trustee to make the following deposits and distributions, in the amounts and in
the order of priority specified below, to the extent of the Available Funds for
the related Collection Period:
(i) to the Master Servicer, the Servicing Fee for such Distribution Date
and all prior unpaid Servicing Fees;
(ii) to the Administrator, the Administration Fee for such Distribution
Date and all unpaid Administration Fees;
(iii) to the Class A-1 Noteholders and the Class A-2 Noteholders, on a
pro rata basis, the Noteholders' Interest Distribution Amount (based on the
ratio of the portion of the Noteholders' Interest Distribution Amount
accrued with respect to each such Class to the Noteholders' Interest
Distribution Amount);
(iv) to the Certificateholders, the Certificateholders' Interest
Distribution Amount;
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(v) to the Class A-1 Noteholders until the outstanding principal balance
of the Class A-1 Notes is zero and then to the Class A-2 Noteholders, the
Noteholders' Principal Distribution Amount;
(vi) on each Distribution Date on and after which the Notes have been
paid in full, to the Certificateholders, the Certificateholders' Principal
Distribution Amount; and
(vii) to the Reserve Account, any remaining amounts after application of
clauses (i) through (vi).
For purposes hereof, the following terms have the following meanings:
"Certificate Balance" equals $_________ as of the Closing Date and,
thereafter, equals the initial Certificate Balance, reduced by all amounts
allocable to principal previously distributed to Certificateholders.
"Certificateholders' Distribution Amount" means, with respect to any
Distribution Date, the Certificateholders' Interest Distribution Amount for such
Distribution Date plus, for each Distribution Date on and after which 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 Interest Payment Date, the excess of (i) the Certificateholders' Interest
Distribution Amount on the preceding Interest Payment Date over (ii) the amount
of interest actually distributed to the Certificateholders on such preceding
Interest Payment Date, plus interest on the amount of such excess, to the extent
permitted by law, at the Certificate Rate from such preceding Interest Payment
Date to the current Interest Payment Date.
"Certificateholders' Interest Distribution Amount" means, with respect
to any Interest Payment 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 three Interest Payment Dates, on
the Closing Date) and (ii) the Certificateholders' Interest Carryover Shortfall
for such Interest Payment Date; provided, however, that the Certificateholders'
Interest Distribution Amount will not include any Certificateholders' Interest
LIBOR 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.
"Certificateholders' Principal Distribution Amount" means, on each
Distribution Date on and after which the principal balance of the Notes has been
paid in full, the sum of (a) the Principal Distribution Amount for such
Distribution Date (or, in the case of the Distribution Date on which the
principal balance of the Notes is paid in full, any remaining Principal
Distribution Amount not otherwise distributed to Noteholders on 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
Certificate Balance. In addition, on the Final Maturity Date, or on the related
Distribution date following a sale of the Financed Student Loans in the manner
described under "-- Termination", the principal required to be distributed to
the Certificateholders will include the amount required to reduce the
outstanding Certificate Balance to zero.
"Noteholders' Distribution Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Interest Distribution Amount and
the Noteholders' Principal Distribution Amount for such Distribution Date.
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"Noteholders' Interest Carryover Shortfall" means, with respect to any
Interest Payment Date, the excess of (i) the Noteholders' Interest Distribution
Amount on the preceding Interest Payment Date over (ii) the amount of interest
actually distributed to the Noteholders on such preceding Interest Payment Date,
plus interest on the amount of such excess, to the extent permitted by law, at
the weighted average interest rate borne by the Class A-1 Notes and the Class A-
2 Notes from such preceding Interest Payment Date to the current Interest
Payment Date.
"Noteholders' Interest Distribution Amount" means, with respect to any
Interest Payment Date, the sum of (i) the amount of interest accrued at the
respective Note Interest Rate for the related Interest Period on the outstanding
principal balance of each class of Notes on the immediately preceding
Distribution Date after giving effect to all distributions of principal to
holders of Notes of such class on such Distribution Date (or in the case of the
first three Interest Payment Dates, on the Closing Date) and (ii) the
Noteholders' Interest Carryover Shortfall for such Interest Payment Date;
provided, however, that the Noteholders' Interest Distribution Amount will not
include any Noteholders' Interest LIBOR 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 distributed to the Noteholders on such Distribution
Date.
"Noteholders' Principal Distribution Amount" means, with respect to any
Distribution Date, the Principal Distribution Amount for such Distribution Date
plus the Noteholders' Principal Carryover Shortfall as of the close of the
preceding Distribution Date; provided, however, that the Noteholders' Principal
Distribution Amount will not exceed the outstanding principal balance of the
Notes. In addition, (i) on the Class A-1 Final Maturity Date, or on the related
Distribution Date following a sale of the Financed Student Loans in the manner
described in "-- Termination," the principal required to be distributed to Class
A-1 Noteholders will include the amount required to reduce the outstanding
principal balance of the Class A-1 Notes to zero and (ii) on the Class A-2 Final
Maturity Date, or on the related Distribution Date following a sale of the
Financed Student Loans in the manner described in "-- Termination," the
principal required to be distributed to the Class A-2 Noteholders will include
the amount required to reduce the outstanding principal balance of the Class A-2
Notes to zero.
"Principal Distribution Adjustment" means, with respect to any
Distribution Date, the amount of Available Funds on such Distribution Date to be
used to make additional principal distributions to Noteholders (and, after the
Notes have been paid in full, Certificateholders) to account for (i) the amount
of any insignificant balance remaining outstanding as of such Distribution Date
on a Financed Student Loan after receipt of a final payment from a borrower or
Guarantor, when such insignificant balances are waived in the ordinary course of
business by the Master Servicer at the direction of the Administrator in
accordance with the Master Servicing Agreement or (ii) the amount of principal
collections erroneously treated as interest collections including, without
limitation, by reason of the failure by a borrower to capitalize interest that
had been expected to be capitalized; provided, however, that the Principal
Distribution Adjustment for any Distribution Date shall not exceed the lesser of
(x) $100,000 and (y) the Reserve Account Excess, if any, remaining after giving
effect to all distributions to be made on such Distribution Date other than
distributions to the Seller out of such excess.
"Principal Distribution Amount" means, with respect to any Distribution
Date, the sum of the following amounts with respect to the related Collection
Period: (i) that portion of all collections received by the Master 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) less, if such Collection Period is after the end of the
Funding Period, the sum of (x) any such collections which are applied by the
Trust during such Collection Period to purchase Serial Loans and (y) accrued and
unpaid interest on the Financed Student Loans for such Collection Period to the
extent such interest is not currently being paid but will be capitalized upon
commencement of repayment of such Financed Student Loans; (ii) all Liquidation
Proceeds attributable to the principal amount of Financed Student Loans which
became Liquidated Student Loans during such Collection Period in accordance with
the Master Servicer's
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customary servicing procedures, together with all Realized Losses on such
Financed Student Loans; (iii) to the extent attributable to principal, the
Purchase Amount received with respect to each Financed Student Loan repurchased
by the Seller or purchased by the Master Servicer as a result of a breach of a
representation, warranty or covenant under an obligation which arose during the
related Collection Period; (iv) the aggregate amount deposited in the Collection
Account following a sale of the Financed Student Loans in the manner described
under "-- Termination" and (v) the Principal Distribution Adjustment, if any,
provided, however, that the Principal Distribution Amount will exclude all
payments and proceeds (including Liquidation Proceeds) of any Financed Student
Loans the Purchase Amount of which has been included in Available Funds for a
prior Collection Period.
"Realized Losses" means the excess of the principal balance of the
Liquidated Student Loans over Liquidation Proceeds to the extent allocable to
principal.
Credit Enhancement
Reserve Account. Pursuant to the Administration Agreement and the Loan
Sale Agreement, the Reserve Account will be created with an initial deposit by
the Seller on the Closing Date of cash or Eligible Investments in an amount
equal to the Reserve Account Initial Deposit. The Reserve Account will be
augmented on each Distribution Date by the deposit therein of the amount, if
any, of Available Funds remaining after payment of the Servicing Fee and all
overdue Servicing Fees, the Administration Fee and all overdue Administration
Fees, the Noteholders' Distribution Amount and the Certificateholders'
Distribution Amount, all for such Distribution Date. See "-- Distributions"
herein. As described below, subject to certain limitations, amounts on deposit
in the Reserve Account will be released to the Seller to the extent that the
amount on deposit in the Reserve Account exceeds the Specified Reserve Account
Balance for such date.
"Specified Reserve Account Balance" with respect to any Distribution
Date means the greater of:
(a) ___% of the sum of the Pool Balance and the Pre-Funded Amount as of
the close of business on the last day of the related Collection Period
and
(b) $_________; provided, however, that the Specified Reserve Account
Balance shall in no event exceed the sum of the outstanding principal
amount of the Notes and the outstanding principal balance of the
Certificates.
If the amount on deposit in the Reserve Account on any Distribution Date
(after giving effect to all deposits thereto or withdrawals made therefrom in
respect of shortfalls in distributions required to be made from Available Funds
on such Distribution Date) is greater than the Specified Reserve Account Balance
for such Distribution Date, subject to certain limitations, the Administrator
will instruct the Indenture Trustee to distribute the amount of such excess (the
"Reserve Account Excess") to the following (in the priority indicated): (i) to
the payment of the unpaid principal amount of the Notes, in the order of
priority set forth herein, until the unpaid principal balance of the Notes and
the Certificates equals the Pool Balance plus the Pre-Funded Amount as of the
close of business on the last day of the related Collection Period; provided,
that, if such Distribution Date is on or subsequent to the ____________
Distribution Date and the Pool Balance on such Distribution Date is equal to 10%
or less of the Initial Pool Balance plus the Pre-Funded Amount as of the
Closing Date, the portion of Reserve Account Excess allocated to the unpaid
principal balance of the Notes and Certificates shall be no less than ___% of
the Reserve Account Excess for such Distribution Date, (ii) to the Noteholders,
the aggregate unpaid amount of any Noteholders' Interest LIBOR Carryover, in the
order of priority set forth herein, (iii) to the Certificateholders, the
aggregate unpaid amount of any Certificateholders' Interest LIBOR Carryover and
(iv) to the Seller and the Company, 99% and 1%, respectively, of any such excess
after the payment of clauses (i) and (iii) above, and, upon such payment to the
Seller, the Noteholders and the Certificateholders will not have any rights in,
or claims to, such amounts. As of the Closing Date, the aggregate principal
balance of the Notes and the Certificates will equal approximately __% of the
Initial Pool Balance. All distributions of principal on the Notes and the
Certificates
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as described in clause (i) of this paragraph shall be allocated to the Class A-1
Notes until the principal balance of the Class A-1 Notes has been reduced to
zero, then to the Class A-2 Notes until the principal balance of the Class A-2
Notes has been reduced to zero and then to the Certificates until the principal
balance of the Certificates has been reduced to zero. The aggregate amount, if
any, to be distributed on the Notes and Certificates on a Distribution Date out
of Reserve Account Excess as described in clause (i) above shall referred to
herein as the "Excess Distribution Amount".
Subject to the limitation described in the preceding paragraph, amounts
held from time to time in the Reserve Account will continue to be held for the
benefit of the Trust. Funds will be withdrawn from cash in the Reserve Account
on (a) each Interest Payment Date that is not a Distribution Date to the extent
that the amount of Monthly Available Funds on such Interest Payment Date is
insufficient to pay (i) the Servicing Fee and all overdue Servicing Fees, (ii)
the Administration Fee and all overdue Administration Fees, (iii) the
Noteholders' Interest Distribution Amount and (iv) the Certificateholders'
Interest Distribution Amount and (b) on any Distribution Date to the extent
Available Funds on such Distribution Date is insufficient to pay any of the
items specified in clauses (i) through (vi) respectively, of the second
paragraph under " -- Distributions -- Distributions from Collection Account"
herein. Such funds will be paid from the Reserve Account to the persons and in
the order of priority specified for distributions out of the Collection Account
on such dates. As a result of the subordination of the Certificates to the Notes
described elsewhere herein, however, any amounts that the Certificateholders
would otherwise receive from the Reserve Account in respect of the
Certificateholders' Interest Distribution Amount on an Interest Payment Date
will be paid to Noteholders until the Noteholders' Interest Distribution Amount
for such Interest Payment Date has been paid in full.
The Reserve Account is intended to enhance the likelihood of timely
receipt by the Noteholders and the Certificateholders of the full amount of
principal and interest due them and to decrease the likelihood that the
Noteholders or the Certificateholders will experience losses. In certain
circumstances, however, the Reserve Account could be depleted. If the amount
required to be withdrawn from the Reserve Account to cover shortfalls in the
amount of Monthly Available Funds or Available Funds, as the case may be,
exceeds the amount of cash in the Reserve Account, Noteholders or
Certificateholders could incur losses or a temporary shortfall in the amount of
principal and interest distributed to the Noteholders or the Certificateholders
could result which could, in turn, increase the average life of the Notes or the
Certificates. Moreover, amounts on deposit in the Reserve Account other than
any Reserve Account Excess not required to pay principal on the Notes will not
be available to cover any aggregate unpaid Noteholders' Interest LIBOR Carryover
or Certificateholders' Interest LIBOR Carryover.
Subordination of the Certificates. The rights of Certificateholders to
receive payments of interest are subordinated to the rights of the Noteholders
to receive payments of interest and the rights of the Certificateholders to
receive payments of principal are subordinated to the rights of the Noteholders
to receive payments of interest and principal to the extent of the Noteholders'
Principal Distribution Amount. This subordination is intended to increase the
likelihood of timely receipt by the Noteholders of the maximum amount of
interest to which they are
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entitled to receive on any Distribution Date. The Certificateholders will not be
entitled to any payments of principal until the Notes are paid in full. See
"Descriptions of the Securities -- The Certificates-- Subordination of the
Certificates".
Insolvency Event
If an Insolvency Event occurs with respect to the Company, the Financed
Student Loans will be liquidated and the Trust will be terminated 90 days after
the date of such Insolvency Event, unless, before the end of such 90-day period,
the related Eligible Lender Trustee shall have received written instructions
from (i) the holders of each class of Notes representing more than 50% of the
aggregate unpaid principal amount of each such class of Notes and (ii) the
holders of the Certificates (other than the Seller or the Company) representing
more than 50% of the aggregate unpaid principal amount of each such class (not
including the principal amount of Certificates held by the Seller or the
Company), in each case to the effect that each such group disapproves of the
liquidation of the Financed Student Loans and termination of the Trust. Promptly
after the occurrence of an Insolvency Event with respect to the Company, notice
thereof is required to be given such 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, if any, as being available therefor are not sufficient to
pay the Notes and the Certificates in full, the amount of principal returned to
such Noteholders and Certificateholders will be reduced and some or all of such
Noteholders and such Certificateholders will incur a loss. "Insolvency Event"
means, with respect to any Person, any of the following events or actions:
certain events of insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings with respect to such Person and certain
actions by such Person indicating its insolvency, reorganization pursuant to
bankruptcy proceedings or inability to pay its obligations. Notwithstanding the
foregoing, if the Company provides the Indenture Trustee and the Eligible Lender
Trustee an opinion of special tax counsel in form and substance satisfactory to
the Indenture Trustee and the Eligible Lender Trustee that the foregoing
provisions are not necessary for the Trust to be treated as a partnership for
federal income and Maryland state tax purposes, then such provisions shall be of
no force or effect as of the date of the delivery of such opinion.
Company Liability
Under the Trust Agreement, the Company will agree to be liable directly to
an injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a Noteholder or a Certificateholder in
the capacity of an investor with respect to the Trust) arising out of or based
on the arrangement created by the Trust Agreement as though such arrangement
created a partnership under the Delaware Revised Uniform Limited Partnership Act
in which such Company was a general partner. Notwithstanding the foregoing, if
the Company provides the Indenture Trustee and the Eligible Lender Trustee an
opinion of special tax counsel in form and substance satisfactory to the
Indenture Trustee and the Eligible Lender Trustee that the foregoing provisions
are not necessary for the Trust to be treated as a partnership for federal
income and Maryland state tax purposes, then such provisions shall be of no
force or effect as of the date of the delivery of such opinion.
S-55
<PAGE>
Termination
Certain information regarding termination of the Trust is set forth in
"Description of the Transfer and Servicing Agreements -- Termination" in the
Prospectus.
Any Financed Student Loans remaining in the Trust as of the end of the
Collection Period immediately preceding the __________ Distribution Date will be
offered for sale by the Indenture Trustee. The Seller, 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 Purchase Amount 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 each
class of Notes then outstanding on such Distribution Date to zero, (ii) pay to
the Noteholders the Noteholders' Interest Distribution Amount payable on such
Distribution Date, if any, (iii) reduce the Certificate Balance of the
Certificates on such Distribution Date to zero and (iv) pay to the
Certificateholders the Certificateholders' 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 for the Financed Student Loans, the Indenture Trustee
will not consummate such sale. The proceeds of any such sale will be used to
redeem any outstanding Notes and to retire any outstanding Certificates 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 Trustee will be successful in soliciting acceptable bids to purchase
the Financed Student Loans on either the __________ Distribution Date or any
subsequent Distribution Date. In the event the Financed Student Loans are not
sold in accordance with the foregoing, on each Distribution Date on and after
the _____________ Distribution Date, if the Pool Balance is equal to 10% or less
of the Initial Pool Balance, a portion of the Reserve Account Excess, if any,
with respect to such Distribution Date will be distributed to the Noteholders
and the Certificateholders in the priority described herein as payments of
principal.
Optional Redemption
The Seller may at its option purchase 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 10% or less of the aggregate
initial principal balance of the Notes and the Certificates, all 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 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 Seller.
S-56
<PAGE>
CERTAIN FEDERAL
INCOME TAX AND STATE TAX CONSEQUENCES
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 Trust will treat the
Notes as issued with "original issue discount" within the meaning of Section
1273 of the Code ("OID"), because the Trust intends to treat the stated interest
as a "qualified floating rate" for OID purposes. However, it is unclear how the
Noteholders' Interest LIBOR Carryover will be included in income. Therefore,
the Noteholders may be required to accrue such amount in income in advance of
the receipt of cash with respect to such amount regardless of whether such
Noteholders are on the cash or accrual methods of accounting. Furthermore, the
regulations pertaining to OID could be read as requiring that the stated
interest be treated as "contingent interest" for purposes of computing 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, a
holder who purchases a Note at a premium will be subject to the premium
amortization rules of the Code.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust for each Interest Period equal to the sum of (i) the
interest that accrues on the Certificates in accordance with their terms for
such Interest Period, including interest at the Certificate Rate for such
Interest Period and interest on amounts previously due on the Certificates but
not yet distributed; (ii) any Trust income attributable to discount on Student
Loans that corresponds to any excess of the principal amount of the Certificates
over their initial issue price; and (iii) all other amounts of income payable to
the Certificateholders for such Interest Period. All remaining taxable income
of the Trust will be allocated to the Seller. Based on the economic arrangement
of the parties, this approach for allocating Trust income should be permissible
under applicable Treasury regulations, although no assurance can be given that
the IRS would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire amount of
interest accruing on the Certificates for an Interest Period, based on the
Certificate Rate plus the other items described above, even though the Trust
might not have sufficient cash to make current cash distributions of such
amount. Thus, cash basis holders will in effect be required to report income
from the Certificates on the accrual basis and Certificateholders may become
liable for taxes on Trust income even if they have not received cash from the
Trust to pay such taxes. Furthermore, Certificateholders may be required to
accrue the Certificateholder's Interest LIBOR Carryover in advance of the
receipt of cash with respect to such carryover, regardless of whether such
Certificateholders are on the cash or accrual method of accounting. In
addition, because tax allocations and tax reporting will be done on a uniform
basis for all Certificateholders but Certificateholders may be purchasing
Certificates at different times and at different prices, Certificateholders may
be required to report on their tax returns taxable income that is greater or
less than the amount reported to them by the Trust.
Prospective purchasers should see "Certain Federal Income Tax
Consequences" and "Certain State Tax Consequences" in the Prospectus for a
discussion of the application of certain additional federal income tax laws and
certain state tax laws to the Trust and the Securities.
ERISA CONSIDERATIONS
The Notes
The Notes may be purchased by an employee benefit plan or an individual
retirement account (a "Plan") subject to ERISA or Section 4975 of the Code. A
fiduciary of a Plan must determine that the purchase of a Note is consistent
with its fiduciary duties under ERISA and does not result in a nonexempt
prohibited transaction as defined
S-57
<PAGE>
in Section 406 of ERISA or Section 4975 of the Code. Employee benefit plans
which are governmental plans (as defined in Section 3(33) of ERISA) are not
subject to the fiduciary responsibility or prohibited transaction provisions of
ERISA or the Code.
The Certificates
The Certificates may not be purchased by a Plan or by any entity whose
underlying assets include plan assets by reason of a plan's investment in the
entity (each, a "Benefit Plan"). Such purchase of an equity interest in the
Trust will result in the assets of the Trust being deemed assets of a Benefit
Plan for the purposes of ERISA and the Code, and certain transactions involving
the Trust may then be deemed to constitute prohibited transactions under Section
406 of ERISA and Section 4975 of the Code. A violation of the "prohibited
transaction" rules may result in an excise tax or other penalties and
liabilities under ERISA and the Code for such persons. By its acceptance of a
Certificate, each Certificateholder will be deemed to have represented and
warranted that it is not a Benefit Plan.
UNDERWRITING
Subject to the terms and conditions set forth in the respective
Underwriting Agreements relating to the Notes and the Certificates (the
"Underwriting Agreements"), the Seller has agreed to cause the Trust to sell to
each of the Class A-1 Note Underwriters and the Class A-2 Note Underwriters
named below (collectively, the "Note Underwriters"), and each of the Note
Underwriters has severally agreed to purchase, the principal amount of Notes set
forth opposite its name below:
Class A-1 Notes
Class A-1 Note Underwriters Principal Amount
--------------------------- ----------------
...........................................
...........................................
...........................................
Total.................................
Class A-2 Notes
Class A-2 Note Underwriters Principal Amount
--------------------------- ----------------
...........................................
...........................................
...........................................
Total.................................
In addition, the Bank will directly offer $_____________ and
$___________ principal amount of the Class A-1 Notes and the Class A-2 Notes,
respectively.
The Note Underwriters and the Bank propose initially to offer the Notes
to the public initially at the public offering prices set forth on the cover
page of this Prospectus, and the Note Underwriters may offer the Notes to
certain dealers at such prices less a concession of ___% per Class A-1 Note and
___% per Class A-2 Note. The Note Underwriters may allow, and such dealers may
reallow a discount of ___% per Class A-1 Note and __% per
S-58
<PAGE>
Class A-2 Note on sale to certain other dealers. After the initial public
offering of the Notes, the public offering prices and the concessions and
discounts to dealers may be changed by the Note Underwriters.
Subject to the terms and conditions set forth in an Underwriting
Agreement (the "Certificate Underwriting Agreement"), the Seller has agreed to
cause the Trust to sell to each of the Certificate Underwriters named below (the
"Certificate Underwriters" and, together with the Note Underwriters, the
"Underwriters"), and each of the Certificate Underwriters has severally agreed
to purchase, the principal amount of Certificates set for opposite its name
below:
Principal Amount
Certificate Underwriters of Certificate
------------------------ --------------
....................................
....................................
....................................
Total...........................
In addition, the Bank will directly offer $____________ principal amount
of the Certificates.
The Certificate Underwriters and the Bank propose initially to offer the
Certificates to the public initially at the public offering price set forth on
the cover page of this Prospectus, and the Certificate Underwriters may offer
the Certificates to certain dealers at such price less a concession of ___% per
Certificate. The Certificate Underwriters may allow, and such dealers may
reallow a discount of ___% per Certificate on sale to certain other dealers.
After the initial public offering of the Certificates, the public offering price
and the concession and discount to dealers may be changed by the Certificate
Underwriters and the Bank.
The Underwriting Agreements provide that the Seller 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 Trust may, from time to time, invest the funds in the Trust Accounts
in Eligible Investments acquired from the Underwriters.
The closing of the sale of the Certificates is conditioned on the
closing of the sale of the Notes and the closing of the sale of the Notes is
conditioned on the closing of the sale of the Certificates.
In the ordinary course of their respective businesses, the Underwriters
and their respective affiliates have engaged and may engage in investment
banking and/or commercial banking transactions with the Bank and its affiliates.
LEGAL MATTERS
Certain legal matters relating to the Securities will be passed upon for
the Trust, the Seller, the Master Servicer and the Administrator by McGuire,
Woods, Battle & Boothe, L.L.P., Richmond, Virginia and for the Underwriters by
Brown & Wood, LLP, New York, New York. Certain federal and Maryland income and
corporate tax matters and other matters will be passed upon for the Trust by
McGuire, Woods, Battle & Boothe, L.L.P.
S-59
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Notes of
Signet Student Loan Trust l996-A (the "Global Securities") will be available
only in book-entry form. Investors in the Global Securities may hold such Global
Securities through any of 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 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 specified by the Underwriter. 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 insure that settlement can be made on the desired value
date.
S-60
<PAGE>
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled 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 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, on the basis of the actual number of days in such
accrual period and year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
respective Depositary of 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 securities credit will appear the next day (European
time) and the cash debt 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 debt
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 preposition
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
preposition 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 European 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 Participants 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 the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
interest payment
S-61
<PAGE>
to and excluding the settlement date on the basis of the actual number of days
in such accrual period and a year assumed to consist of 360 days. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. 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 debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the 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 least three techniques
should be readily available to eliminate this potential problem:
(a) 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;
(b) 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
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least
one day prior to the value date of the sale to the Cedel Participant or
Euroclear Participant.
Certain U.S. Federal Withholding Taxes and Documentation Requirements
A beneficial owner of Global Securities through Cedel or Euroclear (or
through DTC if the holder has an address outside the U.S.) will be subject to
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 owners take 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 Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
S-62
<PAGE>
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are beneficial owners of Global
Securities residing in a country that has a tax treaty with the United States
can obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the
treaty provides 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
Noteholder 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 holder 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 of documentation requirements
does not deal with all aspects of U.S. Federal income tax withholding that may
be relevant to foreign holders of the Global Securities. Investors are advised
to consult their own tax advisors for specific tax advice concerning their
holding and disposing of the Global Securities. See, also, "Certain Federal Tax
Consequences -- Tax Consequences to Holders of the Notes -- Foreign Holders" in
the Prospectus.
S-63
<PAGE>
INDEX OF PRINCIPAL TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and the pages on which the definitions of such terms may be found
herein.
<TABLE>
<CAPTION>
Page
<S> <C>
Additional Fundings.......................................S-2, S-4, S-6,.S-7,
S-9, S-47, S-53
Additional Student Loans...........................................S-4, S-47
Administration Agreement.................................................S-4
Administration Fee......................................................S-12
Administrator............................................................S-3
Available Funds.........................................................S-49
Benefit Plan............................................................S-57
Cede.....................................................................S-2
CEDEL....................................................................S-3
Certificate Balance.....................................................S-50
Certificate LIBOR Rate............................................S-15, S-42
Certificate Rate..................................................S-15, S-42
Certificate Underwriters................................................S-58
Certificate Underwriting Agreement......................................S-58
Certificateholders................................................S-14, S-16
Certificateholders' Distribution Amount.................................S-50
Certificateholders' Interest Carryover
Shortfall..............................................................S-50
Certificateholders' Interest Distribution
Amount.................................................................S-51
Certificateholders' Interest LIBOR
Carryover..............................................................S-16
Certificateholders' Principal Carryover
Shortfall..............................................................S-51
Certificateholders' Principal Distribution
Amount.................................................................S-51
Certificates........................................................S-1,.S-3
Class A-1 Final Maturity Date.....................................S-15, S-41
Class A-1 LIBOR Rate..............................................S-12, S-40
Class A-1 Noteholders...................................................S-13
Class A-1 Notes.....................................................S-1,.S-3
Class A-1 Rate....................................................S-12, S-40
Class A-2 Final Maturity Date.....................................S-15, S-41
Class A-2 LIBOR Rate..............................................S-12, S-40
Class A-2 Noteholders...................................................S-13
Class A-2 Notes.....................................................S-1,.S-3
Class A-2 Rate....................................................S-12, S-40
Closing Date.............................................................S-4
Collection Account.......................................................S-7
Collection Period........................................................S-7
Company..................................................................S-4
Cumulative cash reserves................................................S-37
Cutoff Date..............................................................S-4
Deferral................................................................S-32
Department...............................................................S-2
Determination Date......................................................S-48
Distribution Date........................................................S-2
DOE Data Book......................................................S-37-S-39
DTC.................................................................S-2,.S-3
</TABLE>
S-64
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Eligible Lender Trustee.............................................S-1,.S-3
ERISA...................................................................S-19
Excess Distribution Amount...............................................S-9
Exchange Act.............................................................S-2
Expected Interest Collections.....................................S-13,.S-40
Final Maturity Date...............................................S-17,.S-42
Financed Student Loans..............................................S-1,.S-4
Forbearance.............................................................S-32
Funding Period...........................................................S-7
Global Securities.......................................................S-59
Grace...................................................................S-32
Guarantor...........................................................S-2,.S-4
In-School...............................................................S-32
Indenture...............................................................S-12
Indenture Trustee........................................................S-3
Initial Financed Student Loans...........................................S-4
Initial Pool Balances....................................................S-4
Insolvency Event........................................................S-55
Interest Payment Date............................................. S-2,.S-13
Interest Period...................................................S-13,.S-40
LIBOR...................................................................S-43
LIBOR Determination Date................................................S-43
Liquidated Student Loans................................................S-49
Liquidation Proceeds....................................................S-49
Loan Sale Agreement......................................................S-4
Master Servicer..........................................................S-3
Master Servicing Agreement...............................................S-3
Minimum Purchase Price..................................................S-55
Monthly Available Funds.................................................S-48
Monthly Collection Period...............................................S-48
Monthly Rebate Fee......................................................S-25
Note Interest Rates.....................................................S-12
Note Underwriters.......................................................S-57
Noteholders.............................................................S-13
Noteholders' Distribution Amount........................................S-51
Noteholders' Interest Carryover Shortfall...............................S-51
Noteholders' Interest Distribution Amount...............................S-51
Noteholders' Interest LIBOR Carryover...................................S-14
Noteholders' Principal Carryover Shortfall..............................S-51
Noteholders' Principal Distribution Amount..............................S-51
Notes...............................................................S-1,.S-3
Obligors................................................................S-18
Plan....................................................................S-56
Pool Balance............................................................S-18
Pre-Funded Amount........................................................S-7
Pre-Funding Account......................................................S-7
Principal Distribution Adjustment.......................................S-52
Principal Distribution Amount...........................................S-52
Purchase Amount.........................................................S-18
Realized Losses.........................................................S-52
Record Date.............................................................S-13
</TABLE>
S-65
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Reference Banks.........................................................S-43
Repayment...............................................................S-32
Reserve Account..........................................................S-8
Reserve Account Initial Deposit..........................................S-8
Secretary...............................................................S-36
Securities...............................................................S-3
Securityholders...................................................S-14, S-16
Seller..............................................................S-1, S-3
Serial Loan........................................................S-5, S-47
Serial Loans.......................................................S-5, S-47
Servicing Fee...........................................................S-11
Signet..............................................................S-2, S-3
Specified Reserve Account Balance.......................................S-53
Student Loan Rate.................................................S-13, S-40
Student Loan Rate Accrual Period........................................S-13
Student Loans............................................................S-4
Subsequent Cutoff Date..................................................S-47
Telerate Page 3750......................................................S-43
Transfer Agreement.................................................S-5, S-47
Transfer and Servicing Agreements.......................................S-46
Transfer Date...........................................................S-47
Trust...............................................................S-1, S-3
Trust Agreement..........................................................S-4
U.S. Person.............................................................S-62
Underwriters............................................................S-58
Underwriting Agreements.................................................S-57
</TABLE>
S-66
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT 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 OCTOBER 30, 1996
PROSPECTUS
THE SIGNET STUDENT LOAN TRUSTS
ASSET-BACKED NOTES
ASSET-BACKED CERTIFICATES
---------------
SIGNET BANK
SELLER AND MASTER SERVICER
---------------
The Asset-Backed Notes (the "Notes") and the Asset-Backed Certificates
(the "Certificates" and, together with the Notes, the "Securities") described
herein may be sold from time to time in one or more series, in amounts, at
prices and on terms to be determined at the time of sale and to be set forth in
a supplement to this Prospectus (a "Prospectus Supplement"). Each series of
Securities, which will include one or more classes of Notes and one or more
classes of Certificates, will be issued by a trust to be formed with respect to
such series (each, a "Trust"). Each Trust will be formed pursuant to a Trust
Agreement to be entered into among Signet Bank, as seller of the Student Loans
(as defined below)("Signet" or the "Seller"), an affiliate of the Seller
specified in the related Prospectus Supplement (the "Company") and the Eligible
Lender Trustee specified in the related Prospectus Supplement (the "Eligible
Lender Trustee"). The Notes of each series will be issued and secured pursuant
to an Indenture between the Trust and the Indenture Trustee specified in the
related Prospectus Supplement (the "Indenture Trustee") and will represent
indebtedness of the related Trust. The Certificates of a series will represent
fractional undivided interests in the related Trust. The property of each Trust
will include education loans to students and parents of dependent students (the
"Student Loans"), certain monies due or received thereunder on and after the
applicable Cutoff Date set forth in the related Prospectus Supplement and
certain other property, all as described herein and in the related Prospectus
Supplement.
Each class of Securities of any series will represent the right to
receive a specified amount of payments of principal and interest on the related
Student Loans, at the rates, on the dates and in the manner described herein and
in the related Prospectus Supplement. The right of each class of Securities to
receive payments may be senior or subordinate to the rights of one or more of
the other classes of such series. Distributions on Certificates of a series may
be subordinated in priority to payments due on the related Notes to the extent
described herein and in the related Prospectus Supplement. A series may include
one or more classes of Notes and Certificates which differ as to the timing and
priority of payment, interest rate or amount of distributions in respect of
principal or interest or both. The rate of payment in respect of principal of
the Notes and distributions in respect of the Certificate Balance of the
Certificates of any class will depend on the priority of payment of such class
and the rate and timing of payments (including prepayments, defaults, guarantee
payments, liquidations and repurchases of Student Loans) on the related Student
Loans. A rate of payment lower or higher than that anticipated may affect the
weighted average life of each class of Securities in the manner described herein
and in the related Prospectus Supplement.
THE NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF, AND THE
CERTIFICATES OF SUCH SERIES REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST
ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED
OR INSURED BY THE SELLER, THE MASTER SERVICER, THE ADMINISTRATOR, ANY
SUBSERVICER, ANY GUARANTOR OR ANY AFFILIATE THEREOF. NEITHER THE NOTES NOR THE
CERTIFICATES ARE GUARANTEED BY ANY GOVERNMENTAL AGENCY.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET
FORTH UNDER "RISK FACTORS" HEREIN BEGINNING ON PAGE ___ AND IN THE
RELATED PROSPECTUS SUPPLEMENT AT PAGE __.
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.
Retain this Prospectus for future reference. This Prospectus may not
be used to consummate sales of Securities offered hereby unless accompanied by a
Prospectus Supplement.
---------------
The date of this Prospectus is ___________, 1996
<PAGE>
AVAILABLE INFORMATION
The Seller, as originator of each Trust, 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
Securities 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 copies 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, New York, New York
10048, and 500 West Madison Street, 14th Floor, Chicago, Illinois 60661. Copies
of the Registration Statement may be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a Web site at http: // www. sec. gov
containing reports, proxy and information statements and other information
regarding registrants, including the Seller, that file electronically with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Seller, as originator of any Trust, pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, subsequent to the date of this Prospectus and prior to the termination
of the offering of the Securities shall be deemed to be incorporated by
reference in this Prospectus. 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
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 Seller will provide without charge to each person, including any
beneficial owner of Securities, 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 or in any related Prospectus Supplement by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to Treasury Department, Signet Banking Corporation,
7 North Eighth Street, Richmond, Virginia 23219 (Telephone: (804) 771-7060).
2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
AVAILABLE INFORMATION..................................................................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................................... 2
SUMMARY OF TERMS.......................................................................................................... 7
RISK FACTORS.............................................................................................................. 16
Failure to Comply with Student Loan Origination and Servicing Procedures for Federal Student Loans.................... 16
Failure to Comply with Student Loan Origination and Servicing Procedures for Private Student Loans.................... 17
Variability of Actual Cash Flows; Inability of Related Indenture Trustee to Liquidate Student Loans................... 17
Unsecured Nature of Student Loans; Financial Status of Federal Guarantor.............................................. 18
Change in Law......................................................................................................... 19
Subordination; Limited Assets of the Trust............................................................................ 20
Use of the Pre-Funding Account or Collateral Reinvestment Account to Make Additional Fundings......................... 20
Maturity and Prepayment Considerations................................................................................ 21
Servicer Default...................................................................................................... 21
Certain Legal Aspects................................................................................................. 22
FORMATION OF THE TRUSTS................................................................................................... 24
The Trusts............................................................................................................ 24
Eligible Lender Trustee............................................................................................... 24
USE OF PROCEEDS........................................................................................................... 24
THE SELLER, THE MASTER SERVICER AND THE SUBSERVICERS...................................................................... 25
The Seller and the Master Servicer ................................................................................... 25
The Subservicers...................................................................................................... 25
ASSUMPTION OF SIGNET'S OBLIGATIONS........................................................................................ 25
THE STUDENT LOAN POOLS.................................................................................................... 26
General............................................................................................................... 26
Origination and Marketing Process..................................................................................... 27
Servicing and Collections Process..................................................................................... 27
Claims and Recovery Rates............................................................................................. 28
FEDERAL FAMILY EDUCATION LOAN PROGRAM..................................................................................... 28
General............................................................................................................... 28
Legislative and Administrative Matters................................................................................ 29
Eligible Lenders, Students and Educational Institutions............................................................... 29
Financial Need Analysis............................................................................................... 30
Special Allowance Payments............................................................................................ 30
Federal Stafford Loans................................................................................................ 31
Interest........................................................................................................ 31
Interest Subsidy Payments....................................................................................... 32
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Loan Limits..................................................................................................... 32
Repayment....................................................................................................... 33
Grace Periods, Deferral Periods, Forbearance Periods............................................................ 33
Federal Unsubsidized Stafford Loans............................................................................. 34
Federal PLUS and Federal SLS Loan Programs............................................................................ 34
Loan Limits..................................................................................................... 34
Interest........................................................................................................ 34
Repayment, Deferments........................................................................................... 35
Federal Consolidation Loan Program.................................................................................... 35
Federal Guarantors.................................................................................................... 36
Federal Insurance and Reinsurance of Federal Guarantors............................................................... 37
PRIVATE STUDENT AND OTHER LOAN PROGRAMS................................................................................... 39
WEIGHTED AVERAGE LIFE OF THE SECURITIES................................................................................... 39
POOL FACTORS AND TRADING INFORMATION...................................................................................... 40
DESCRIPTION OF THE NOTES.................................................................................................. 40
General............................................................................................................... 40
Principal and Interest on the Notes................................................................................... 41
The Indenture......................................................................................................... 41
Modification of Indenture....................................................................................... 41
Events of Default; Rights Upon Event of Default................................................................. 42
Certain Covenants............................................................................................... 44
Annual Compliance Statement..................................................................................... 44
Indenture Trustee's Annual Report............................................................................... 44
Satisfaction and Discharge of Indenture......................................................................... 45
The Indenture Trustee........................................................................................... 45
DESCRIPTION OF THE CERTIFICATES........................................................................................... 45
General............................................................................................................... 45
Principal and Interest in Respect of the Certificates................................................................. 45
CERTAIN INFORMATION REGARDING THE SECURITIES.............................................................................. 46
Fixed Rate Securities................................................................................................. 46
Floating Rate Securities.............................................................................................. 46
Book-Entry Registration............................................................................................... 47
Definitive Securities................................................................................................. 48
List of Securityholders............................................................................................... 48
Reports to Securityholders............................................................................................ 49
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS...................................................................... 49
General............................................................................................................... 49
Sale of Student Loans; Representations and Warranties................................................................. 49
Additional Fundings................................................................................................... 50
Accounts.............................................................................................................. 51
Servicing Procedures.................................................................................................. 51
Payments on Student Loans............................................................................................. 52
Servicer Covenants.................................................................................................... 53
Servicer Compensation................................................................................................. 53
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Distributions............................................................................................................53
Credit and Cash Flow Enhancement.........................................................................................54
General............................................................................................................54
Reserve Account....................................................................................................54
Statements to Indenture Trustee and Trust................................................................................54
Evidence as to Compliance................................................................................................55
Certain Matters Regarding the Master Servicer............................................................................56
Servicer Default.........................................................................................................56
Rights Upon Servicer Default.............................................................................................57
Waiver of Past Defaults..................................................................................................57
Amendment................................................................................................................57
Payment of Notes.........................................................................................................58
Termination..............................................................................................................58
Optional Redemption................................................................................................58
Auction of Student Loans...........................................................................................58
Administration Agreement.................................................................................................59
CERTAIN LEGAL ASPECTS OF THE STUDENT LOANS...................................................................................59
Transfer of Student Loans................................................................................................59
Certain Matters Relating to Receivership.................................................................................60
Consumer Protection Laws.................................................................................................61
Loan Origination and Servicing Procedures Applicable to Student Loans....................................................61
Student Loans Generally Not Subject to Discharge In Bankruptcy...........................................................62
CERTAIN FEDERAL INCOME TAX CONSEQUENCES......................................................................................62
Tax Characterization of the Trust........................................................................................62
Tax Consequences to Holders of the Notes.................................................................................62
Treatment of the Notes as Indebtedness.............................................................................62
Original Issue Discount............................................................................................63
Interest Income on the Notes.......................................................................................63
Sale or Other Disposition..........................................................................................64
Foreign Holders....................................................................................................64
Backup Withholding.................................................................................................64
Possible Alternative Treatments of the Notes.......................................................................64
Tax Consequences to Holders of the Certificates..........................................................................65
Treatment of the Trust as a Partnership............................................................................65
Partnership Taxation...............................................................................................65
Computation of Income..............................................................................................66
Determining the Bases of Trust Assets..............................................................................66
Discount and Premium...............................................................................................66
Disposition of Certificates........................................................................................67
Allocations Between Transferors and Transferees....................................................................67
Section 754 Election...............................................................................................67
Administrative Matters.............................................................................................67
Tax Consequences to Foreign Certificateholders.....................................................................68
Proposed Tax Legislation...........................................................................................69
Backup Withholding.................................................................................................69
CERTAIN STATE TAX CONSEQUENCES...............................................................................................69
Tax Consequences with Respect to the Notes...............................................................................69
Tax Consequences with Respect to the Certificates........................................................................70
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
ERISA CONSIDERATIONS.........................................................................................................70
The Notes................................................................................................................70
The Certificates.........................................................................................................70
PLAN OF DISTRIBUTION.........................................................................................................71
LEGAL MATTERS................................................................................................................71
INDEX OF PRINCIPAL TERMS.....................................................................................................72
</TABLE>
6
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in this
Prospectus are defined elsewhere herein on the pages indicated in the "Index of
Principal Terms."
Issuer.................... With respect to each series of Securities, the trust
to be formed pursuant to a Trust Agreement (as
amended and supplemented from time to time, a
"Trust Agreement") among the Seller, the Company
and the Eligible Lender Trustee for such Trust (the
"Trust" or the "Issuer").
Seller.................... Signet Bank, a Virginia banking corporation
("Signet"), as seller (the "Seller"). See
"Assumption of Signet's Obligations".
Master Servicer........... Signet, as master servicer on behalf of the Trust
(the "Master Servicer") pursuant to a Master
Servicing Agreement to be dated as of
__________________, 1996 (as amended and
supplemented from time to time, the "Master
Servicing Agreement") among the Trust, the Master
Servicer and the Eligible Lender Trustee. See "The
Seller, the Master Servicer and the Subservicers"
and "Description of the Transfer and Servicing
Agreements --Servicing Procedures".
Eligible Lender Trustee... For each trust, such entity as is specified as the
Eligible Lender Trustee in the related Prospectus
Supplement.
Indenture Trustee......... With respect to each series of Securities, the
Indenture Trustee specified in the related
Prospectus Supplement.
Administrator............. Signet in its capacity as administrator (the
"Administrator").
The Notes................. Each series of Securities will include one or more
classes of Notes, which will be issued pursuant to
an Indenture between the Trust and the related
Indenture Trustee (as amended and supplemented from
time to time, an "Indenture").
Unless otherwise specified in the related Prospectus
Supplement, Notes will be available for purchase in
denominations of $1,000 and integral multiples
thereof and will be available in book-entry form
only. Unless otherwise specified in the related
Prospectus Supplement, Noteholders will be able to
receive Definitive Notes only in the limited
circumstances described herein or in the related
Prospectus Supplement. See "Certain Information
Regarding the Securities -- Definitive Securities".
Unless otherwise specified in the related Prospectus
Supplement, each class of Notes will have a stated
principal amount and will bear
7
<PAGE>
interest at a specified rate or rates (with respect
to each class of Notes, the "Interest Rate"). Each
class of Notes may have a different Interest Rate,
which may be a fixed, variable or adjustable
Interest Rate, or any combination of the foregoing.
The related Prospectus Supplement will specify the
Interest Rate for each class of Notes, or the
method for determining the Interest Rate.
With respect to a series that includes two or more
classes of Notes, each class may differ as to
timing and priority of payments, seniority,
allocations of losses, Interest Rate or amount of
payments of principal or interest, or payments of
principal or interest in respect of any such class
or classes may or may not be made upon the
occurrence of specified events.
The Certificates.......... Each series of Securities will include one or more
classes of Certificates which will be issued
pursuant to the related Trust Agreement.
Unless otherwise specified in the related Prospectus
Supplement, Certificates will be available for
purchase in a minimum denomination of $1,000 and in
integral multiples of $1,000 in excess thereof and
will be available in book-entry form. Unless
otherwise specified in the related Prospectus
Supplement, Certificateholders will be able to
receive Definitive Certificates only in the limited
circumstances described herein or in the related
Prospectus Supplement. See "Certain Information
Regarding the Securities -- Definitive Securities".
Unless otherwise specified in the related Prospectus
Supplement, each class of Certificates will have a
stated Certificate Balance specified in the related
Prospectus Supplement (the "Certificate Balance")
and will accrue interest on such Certificate
Balance at a specified rate (with respect to each
class of Certificates, the "Pass-Through Rate").
Each class of Certificates may have a different
Pass- Through Rate, which may be a fixed, variable
or adjustable Pass- Through Rate or any combination
of the foregoing. The related Prospectus Supplement
will specify the Pass-Through Rate for each class
of Certificates or the method for determining the
Pass- Through Rate.
With respect to a series that includes two or more
classes of Certificates, each class may differ as
to timing and priority of distributions, seniority,
allocations of losses, Pass-Through Rate or amount
of distributions in respect of principal or
interest, or distributions in respect of principal
or interest in respect of any such class or classes
may or may not be made upon the occurrence of
specified events.
To the extent specified in the related Prospectus
Supplement, distributions in respect of the
Certificates may be subordinated in priority of
payment to payments on the Notes.
8
<PAGE>
Assets of the Trust....... The assets of each Trust will include a pool of
student loans consisting of education loans to
students and parents of dependent students
("Student Loans"), which will include rights to
receive payments made with respect to such Student
Loans and the proceeds thereof. On or prior to the
Closing Date specified in the related Prospectus
Supplement with respect to a Trust (a "Closing
Date"), the Seller will sell Student Loans having
an aggregate principal balance specified in the
related Prospectus Supplement as of the date
specified therein (a "Cutoff Date"), to the
Eligible Lender Trustee on behalf of the Trust
pursuant to a Loan Sale Agreement (as amended and
supplemented from time to time, a "Loan Sale
Agreement") among the Seller, the related Trust and
the related Eligible Lender Trustee. The property
of each Trust will also include amounts on deposit
in certain trust accounts, including the related
Collection Account, any Reserve Account, any Pre-
Funding Account, any Collateral Reinvestment
Account and any other account identified in the
applicable Prospectus Supplement.
The Student Loans sold to any Trust will be selected
from Student Loans owned by the Seller based on
criteria specified in the applicable Loan Sale
Agreement and described herein and in the related
Prospectus Supplement.
Unless otherwise specified in the applicable
Prospectus Supplement, each Student Loan sold to
any Trust will, subject to compliance with specific
origination and servicing procedures prescribed by
federal and guarantor regulations, be guaranteed as
to the payment of principal and interest by either
(i) a state or private non-profit guarantor (each,
a "Federal Guarantor"), which agency is reinsured
by the United States Department of Education (the
"Department") for between 80% and 100% of the
amount of default claims paid by such Federal
Guarantor for a given federal fiscal year for loans
disbursed prior to October 1, 1993, for 78% to 98%
of default claims paid for loans disbursed on or
after October 1, 1993, and for 100% of death,
disability, bankruptcy, closed school and false
certification claims paid ("Federal Student
Loans"), (ii) a state or private guarantor (each, a
"Private Guarantor" and together with the Federal
Guarantors, the "Guarantors") that is not reinsured
by the Department ("Private Student Loans") or
(iii) a system of self insurance (items (ii) and
(iii) collectively, "Private Student Loans").
Amounts paid by a Guarantor pursuant to its
guarantee are herein referred to as "Guarantee
Payments." See "Federal Family Education Loan
Program -- Federal Guarantors," "-- Federal
Insurance and Reinsurance of Federal Guarantors"
and "Private Student Loan Programs".
If so provided in the related Prospectus Supplement,
during the period (the "Funding Period") from the
Closing Date until the first to occur of (i) the
amount on deposit in the Pre-Funding Account being
less than an amount specified in the related
Prospectus Supplement, (ii) an Event of Default
occurring under the Indenture,
9
<PAGE>
a Servicer Default occurring under the Master
Servicing Agreement or an Administrator Default
occurring under the Administration Agreement, (iii)
certain events of insolvency occurring with respect
to the Seller or (iv) the last day of the
Collection Period preceding a Distribution Date
specified in the related Prospectus Supplement, an
account will be maintained in the name of the
Indenture Trustee (the "Pre-Funding Account"). The
amount on deposit in the Pre-Funding Account (the
"Pre-Funding Amount") on the Closing Date will
equal an amount specified in the related Prospectus
Supplement (which will be deposited out of the net
proceeds of the sale of the related Securities)
and, during the Funding Period, will be reduced
from time to time by the amount thereof used to
make Additional Fundings.
In addition, if so provided in the related Prospectus
Supplement, in lieu of a Funding Period, during the
period (the "Revolving Period") from the Closing
Date until the first to occur of (i) an event
described in clauses (ii) or (iii) of the preceding
paragraph or of such additional event or events as
are described in the related Prospectus Supplement
as having such effect (each, an "Early Amortization
Event") or (ii) the last day of the Collection
Period preceding a Distribution Date specified in
the related Prospectus Supplement, an account will
be maintained in the name of the Indenture Trustee
(the "Collateral Reinvestment Account"). The amount
on deposit in the Collateral Reinvestment Account
on the Closing Date may, if so specified in the
related Prospectus Supplement, include an amount
specified in the related Prospectus Supplement
(which will be deposited out of the net proceeds of
the sale of the related Securities) and, during the
Revolving Period principal will not be distributed
on the Securities of the related series and
principal collections, together with (if and to the
extent described in the related Prospectus
Supplement) interest collections on the Student
Loans that are in excess of amounts required to be
distributed therefrom will be deposited from time
to time in the Collateral Reinvestment Account and
will be used to make Additional Fundings.
Additional Fundings will consist of one or more of
the following, in each case if and to the extent
specified in the related Prospectus Supplement: (i)
interest payments to Noteholders and
Certificateholders in lieu of collections of
interest on certain of the Student Loans to the
extent such interest is not paid currently but is
capitalized and added to the principal balance of
such Student Loans; (ii) payments to purchase from
the Seller during a Funding Period or a Revolving
Period, certain additional Student Loans made to
borrowers who have existing Student Loans that are
part of the pool of Student Loans of a series as of
the Cutoff Date ("Existing Borrowers") and, in the
case of a Revolving Period, made to borrowers which
may include, but will not be limited
10
<PAGE>
to, borrowers who at the time of such purchase by
the Trust have existing Student Loans that are part
of such pool; and (iii) payments to fund the
origination by the related Trust under certain
circumstances of certain additional Student Loans,
in the case of a Funding Period, made to Existing
Borrowers, and in the case of a Revolving Period,
made to borrowers who at the time of such
origination have existing Student Loans that are
part of the related pool. If so provided in the
related Prospectus Supplement, Additional Fundings
may continue to occur after the Funding Period or
Revolving Period. Additional Fundings occurring
after the Funding Period or Revolving Period will
be funded from distributions on the related Student
Loans in the manner specified in the related
Prospectus Supplement. See "Description of the
Transfer and Servicing Agreements -- Additional
Fundings".
Credit and Cash Flow
Enhancement............... If and to the extent specified in the related
Prospectus Supplement, credit or cash flow
enhancement with respect to a Trust or any class or
classes of Securities may include any one or more
of the following: subordination of one or more
other classes of Securities, a Reserve Account,
over-collateralization, letters of credit, credit
or liquidity facilities, surety bonds, guaranteed
investment contracts, repurchase obligations, other
agreements with respect to third-party payments or
other support, cash deposits or other arrangements.
Any form of credit or cash flow enhancement may
have certain limitations and exclusions from
coverage thereunder, which will be described in the
related Prospectus Supplement.
Reserve Account........... Unless otherwise specified in the related Prospectus
Supplement, an account in the name of the related
Indenture Trustee (the "Reserve Account") will be
established and maintained by the Administrator
with the Indenture Trustee in accordance with the
directions of the Administrator and will be an
asset of the applicable Trust. To the extent
specified in the related Prospectus Supplement, the
Seller will make an initial deposit into the
Reserve Account on the Closing Date having a value
equal to the amount specified in the Prospectus
Supplement (the "Reserve Account Initial Deposit");
the Reserve Account Initial Deposit will be
augmented on each Distribution Date by the deposit
into the Reserve Account of any remaining Available
Funds for such Distribution Date. See "Description
of the Transfer and Servicing Agreements --
Distributions" in the related Prospectus
Supplement.
Amounts in the Reserve Account will be available to
cover shortfalls in amounts due to the holders of
those classes of Securities specified in the
related Prospectus Supplement in the manner and
under the circumstances specified herein and
therein. The related Prospectus Supplement will
also specify to whom and the manner and
circumstances under which amounts on deposit in the
Reserve Account (after giving effect to all other
required distributions to be
11
<PAGE>
made by the applicable Trust) in excess of the
Specified Reserve Account Balance (as defined in
the related Prospectus Supplement) will be
distributed.
Transfer and Servicing
Agreements................ With respect to each Trust, the Seller will sell the
related Student Loans to such Trust pursuant to a
Loan Sale Agreement, with the related Eligible
Lender Trustee holding legal title thereto. The
rights and benefits of such Trust and the Eligible
Lender Trustee under the Loan Sale Agreement will
be assigned to the Indenture Trustee as collateral
for the Notes of the related series. Pursuant to a
Master Servicing Agreement among the related Trust,
the Master Servicer and the Eligible Lender Trustee
(the "Master Servicing Agreement"), the Master
Servicer will agree with such Trust to be
responsible for servicing, managing and maintaining
the custody of, and making collections on, the
Student Loans and preparing and filing with the
Department and the applicable Federal Guarantor all
appropriate claim 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 in
respect of the Federal Student Loans entitled
thereto. Subject to the terms and conditions of the
Master Servicing Agreement, the Master Servicer may
delegate certain of its obligations under the
Master Servicing Agreement to one or more student
loan servicers (each a "Subservicer"), but no such
delegation shall relieve the Master Servicer from
its responsibilities to service the Student Loans
as if it alone were servicing the Student Loans.
See "The Seller, the Master Servicer and the
Subservicers" and "Description of the Transfer and
Servicing Agreements --Servicing Procedures"
herein.
Unless otherwise specified in the related Prospectus
Supplement, the Seller will be obligated under the
related Loan Sale Agreement to repurchase, and the
Master Servicer will be obligated under the related
Master Servicing Agreement to purchase any Student
Loan if the interest of such Trust therein is
materially adversely affected by a breach of any
representation, warranty or covenant (including the
Master Servicer's covenant to service all the
Student Loans in accordance with applicable laws,
restrictions and guidelines) made by the Seller or
the Master Servicer, as the case may be, with
respect to the Student Loans, if the breach has not
been cured within 120 days following the discovery
by or notice to the Seller or Master Servicer, as
the case may be, of the breach (it being understood
that any such breach that does not affect any
Guarantor's obligation to guarantee payment of such
Student Loan will not be considered to have a
material adverse effect for this purpose). In the
event that Notes of any series remain outstanding
and there is a dispute regarding whether the
interests of the related Trust are materially
adversely affected by any such breach, the
determination as to whether the interests of such
Trust are so affected will be made by the Indenture
Trustee. In such event, the determination of the
Indenture Trustee will be dispositive. In the
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event only Certificates remain outstanding, any
such determination will be made by the Eligible
Lender Trustee and its determination will be
dispositive. In addition, if so specified in the
related Prospectus Supplement, the Seller or the
Master Servicer, as the case may be, will be
obligated to reimburse such Trust for any accrued
interest amounts not guaranteed by a Guarantor due
to, or any Interest Subsidy Payments or Special
Allowance Payments lost as a result of a breach of,
the Seller's representations and warranties or the
Master Servicer's covenants, as the case may be,
with respect to any Student Loan. The liability of
the Seller or the Master Servicer, as the case may
be, will not exceed the amount that the Guarantor
would have paid if the Student Loan had been
accepted and paid by the Guarantor as a claim.
Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will receive a fee
(the "Servicing Fee") equal to a specified
percentage of the Pool Balance, as set forth in the
related Prospectus Supplement, together with any
other administrative fees and similar charges
specified in the related Prospectus Supplement. The
Servicing Fee will be payable out of Available
Funds and amounts on deposit in the Reserve Account
on the date specified in the related Prospectus
Supplement. See "Description of the Transfer and
Servicing Agreements -- Servicing Compensation"
herein and in the related Prospectus Supplement.
In addition, the Administrator will undertake certain
administrative duties with respect to such Trust
under an Administration Agreement among the Trust,
the Administrator and the Indenture Trustee (as
amended and supplemented from time to time, the
"Administration Agreement"). See "Description of
the Transfer and Servicing Agreements --
Administration Agreement".
Termination............... The obligations of the Seller, the Master Servicer,
the Administrator, the Eligible Lender Trustee and
the Indenture Trustee relating to a particular
trust will terminate upon (i) the maturity or other
liquidation of the last Student Loan in such Trust
and the disposition of any amount received upon
liquidation of any such remaining Student Loans or
(ii) the payment to the Noteholders and the
Certificateholders of the related series of all
amounts required to be paid to them. See
"Description of the Transfer and Servicing
Agreements -- Termination".
Optional Redemption....... If the Seller exercises its option to purchase the
Student Loans of a Trust in the manner and on the
respective terms and conditions described under
"Description of the Transfer and Servicing
Agreements -- Termination-- Optional Redemption",
the outstanding Notes will be redeemed and the
Certificateholders will receive a distribution as
set forth in the related Prospectus Supplement.
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Mandatory Redemption...... Unless otherwise specified in the applicable
Prospectus Supplement, to the extent that amounts
on deposit in the Pre-Funding Account or Collateral
Reinvestment Account for a series have not been
fully applied to Additional Fundings by the Trust
by the end of the Funding Period or Revolving
Period, respectively, the related Noteholders or
the Certificateholders may receive as a prepayment
of principal an amount equal to the amount
remaining in the Pre-Funding Account or Collateral
Reinvestment Account following any Additional
Fundings on the last Distribution Date in such
period. See "Description of the Notes -- Principal
and Interest on the Notes" and "Description of the
Certificates -- Principal and Interest in Respect
of the Certificates".
Auction of Student Loans.. If so provided in the related Prospectus Supplement,
all remaining Student Loans held by a Trust will be
offered for sale by the Indenture Trustee on any
Distribution Date occurring on or after a date
specified in such Prospectus Supplement. The Seller
and unrelated third parties may offer bids for such
Student Loans. The Indenture Trustee will accept
the highest bid equal to or in excess of the
aggregate Purchase Amounts of such Student Loans as
of the end of the Collection Period immediately
preceding the related Distribution Date. The
proceeds of such sale will be used to redeem all
related Notes and to retire the Certificates. See
"Description of the Transfer and Servicing
Agreements -- Termination -- Auction of Student
Loans".
Tax Considerations........ Upon the issuance of each series of Securities,
except as otherwise provided in the related
Prospectus Supplement, McGuire, Woods, Battle &
Boothe, L.L.P., as federal tax counsel to the
applicable Trust ("Federal Tax Counsel"), will
deliver an opinion to the effect that, for federal
income tax purposes: (i) the Notes of such series
will be characterized as debt and (ii) the Trust
will not be characterized as an association (or a
publicly traded partnership) taxable as a
corporation.
Unless otherwise specified in the applicable
Prospectus Supplement, each Noteholder, by the
acceptance of a Note of a given series, will agree
to treat such note as indebtedness, and each
Certificateholder, by the acceptance of a
Certificate of a given series, will agree to treat
the related Trust as a partnership in which such
Certificateholder is a partner for federal income
and state and local income tax and franchise tax
purposes. Alternative characterizations of such
Trust and such Certificates are possible, but would
not result in materially adverse tax consequences
to Certificateholders.
Due to the method of allocation of Trust income to
the Certificateholders, cash basis holders may, in
effect, be required to report income from the
Certificates on an accrual basis. In addition,
because tax allocations and tax reporting will be
done on a uniform basis, but Certificateholders may
be purchasing
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Certificates at different times and at different
prices, Certificateholders may be required to
report on their tax returns taxable income that is
greater or less than the amount reported to them by
the Trust.
The Trust with respect to each series of Securities
will be established under the laws of the state
specified in the related Prospectus Supplement and
(except in certain circumstances described under
"Assumption of Signet's Obligations") will be
managed by the Administrator in the State of
Maryland. See "Certain Federal Income Tax
Consequences" for additional information concerning
the application of federal tax laws with respect to
the Notes and the Certificates.
ERISA Considerations...... Unless otherwise specified in the related Prospectus
Supplement, subject to the considerations discussed
under "ERISA Considerations" herein and unless
otherwise specified in the related Prospectus
Supplement, the Notes of each series are eligible
for purchase by employee benefit plans.
The Certificates may not be acquired by any employee
benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"),
or by any individual retirement account. See "ERISA
Considerations" herein.
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RISK FACTORS
Failure to Comply with Student Loan Origination and Servicing Procedures
for Federal Student Loans. The Federal Family Education Loan Program ("FFELP")
under Title IV of 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 "Act"), including the implementing regulations
thereunder, requires lenders making and servicing student loans and guarantors
guaranteeing student loans to follow specified procedures, including due
diligence procedures, to ensure that the student 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 Act, are
summarized herein. See "The Student Loan Pool -- The Student Loan Financing
Business", "Federal Family Education Loan Program" and "Description of the
Transfer and Servicing Agreements -- Servicing Procedures". Generally, those
procedures require that completed loan applications be processed, a
determination of whether an applicant is an eligible borrower under the 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 thereon. If a borrower becomes delinquent in repaying a loan, the
lender must perform certain collection procedures (primarily telephone calls and
demand letters) which vary depending upon the length of time a loan is
delinquent.
With respect to each series of Securities, the Master Servicer will
agree pursuant to the related Master Servicing Agreement to perform servicing
and collection procedures on behalf of each Trust. However, failure to follow
these procedures or failure of the originator of the loan to follow procedures
relating to the origination of any Federal Student Loans may result in the
Department's refusal to make reinsurance payments to the Federal Guarantor or to
make Interest Subsidy Payments and Special Allowance Payments to the related
Eligible Lender Trustee with respect to such Federal Student Loans or in the
Federal Guarantor's refusal to honor its Guarantee Agreements with the related
Eligible Lender Trustee with respect to such Federal Student Loans (each a
"Guarantee Agreement" and collectively, the "Guarantee Agreements"). See
"Formation of the Trusts -- Eligible Lender Trustee". Failure of the Federal
Guarantor to receive reinsurance payments from the Department could adversely
affect the Federal Guarantor's ability or legal obligation to make Guarantee
Payments to the related Eligible Lender Trustee. Loss of any such Guarantee
Payments, Interest Subsidy Payments or Special Allowance 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 related Notes and
Certificates.
If a breach of the representations, warranties or covenants of the
Seller or the Master Servicer, as the case may be, with respect to a Federal
Student Loan has a material adverse effect on the interest of the related Trust
therein and such breach is not cured within any applicable cure period, such
Trust will have the right under the related Loan Sale Agreement and Master
Servicing Agreement to cause the Seller to repurchase, or the Master Servicer to
purchase such Federal Student Loan. In addition, each Trust will have the right,
under certain circumstances specified in the related Loan Sale Agreement and
Master Servicing Agreement, to cause the Seller or the Master Servicer, as the
case may be, to reimburse such Trust for any accrued interest amounts not
guaranteed by a Federal Guarantor, or any Interest Subsidy Payments and Special
Allowance Payments lost with respect to a Federal Student Loan as a result of a
breach of the Seller's representations and warranties or the Master Servicer's
covenants, as the case may be, with respect to such Federal Student Loan. The
repurchase and reimbursement obligations of the Seller and the Master Servicer
will constitute the sole remedy available to or on behalf of a Trust, the
related Certificateholders or the related Noteholders for any such uncured
breach. See "Description of the Transfer and Servicing Agreements -- Sale of
Student Loans; Representations and Warranties" and "-- Servicer Covenants".
There can be no assurance, however, that the Seller will have the financial
resources, or the Master Servicer will have the ability, to meet these
obligations. The failure of the Seller to so repurchase, or the Master Servicer
to arrange for the repurchase of, a Federal Student Loan would constitute a
breach of the related Loan Sale Agreement and Master Servicing Agreement,
enforceable by the related Eligible Lender Trustee on behalf of such Trust and
the related Certificateholders or by the related
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Indenture Trustee on behalf of the Noteholders of the related series, but would
not constitute an Event of Default under each indenture or permit the exercise
of remedies thereunder.
On April 29, 1994, the Department published regulations amending the
Student Assistance General Provisions and FFELP regulations effective July l,
1994. These regulations, among other things, establish requirements governing
contracts between holders of Federal Student Loans and third-party servicers,
establish standards of administrative and financial responsibility for
third-party servicers that administer any aspect of a guarantor's or lender's
participation in the FFELP, and establish sanctions for third-party servicers
that fail to conform their administrative practices to such regulations.
Under these regulations, a third-party servicer (such as the Master
Servicer and, with respect to certain other holders, any Subservicer) is jointly
and severally liable with its client lenders for liabilities to the Department
arising from the servicer's violation of applicable requirements. In addition,
if a servicer fails to meet standards of financial responsibility or
administrative capability included in the new regulations, or violates other
FFELP requirements, the new regulations authorize the Department to fine the
servicer and/or limit, suspend or terminate the servicer's eligibility to
contract to service Federal Student Loans. The effect of such a limitation,
suspension, or termination on a servicer's eligibility to service loans already
on its system, or to accept new loans for servicing under existing contracts, is
unclear. No assurance exists that the Master Servicer or a Subservicer will not
be held liable by the Department for liabilities arising out of its FFELP
activities for a Trust or other client lenders, or that its eligibility will not
be limited, suspended, or terminated in the future. If the Master Servicer or a
Subservicer were so held liable or its eligibility limited, suspended, or
terminated, the Master Servicer's ability to properly service Student Loans and
to satisfy its obligation to arrange the purchase of loans as to which it
breaches its covenants under the applicable Master Servicing Agreement could be
adversely affected. In such event, a Servicer Default under the related Master
Servicing Agreement could occur resulting in the removal of the Master Servicer
and the appointment of a successor Master Servicer by the Indenture Trustee or
the holders of Notes of the related series evidencing not less than 75% in
principal amount of such then outstanding Notes. See "Description of the
Transfer and Servicing Agreements -- Rights Upon Servicer Default".
Failure to Comply with Student Loan Origination and Servicing Procedures
for Private Student Loans. Private Student Loans may be self-insured or insured
by a third-party Private Guarantor. The programs under which Private Student
Loans will be insured by third parties may prescribe rules and procedures
applicable to originating and servicing Private Student Loans, which procedures
will be similar to those set forth above with respect to Federal Student Loans.
Failure to make or service properly a Private Student Loan in accordance with
those procedures could adversely affect the Eligible Lender Trustee's ability to
obtain Guarantee Payments from a Private Guarantor. Loss of 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 and
the Certificates. Under certain circumstances the Trust has the right, pursuant
to the related Loan Sale Agreement or Master Servicing Agreement, as applicable,
to cause the Seller to repurchase, or the Master Servicer to purchase, a Private
Student Loan. See "Description of the Transfer and Servicing Agreements -- Sale
of Student Loans; Representations and Warranties" and "-- Servicer Covenants".
There can be no assurance, however, that the Seller or the Master Servicer will
have the financial resources to do so.
Variability of Actual Cash Flows; Inability of Related Indenture Trustee
to Liquidate Student Loans. Amounts received with respect to the Student Loans
for a particular Collection Period may vary greatly in both timing and amount
from the payments actually due on the 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 Student Loans.
Failures by borrowers to pay timely the principal and interest on the Student
Loans will affect the amount of Available Funds on a Distribution Date, which
may reduce the amount of principal and interest paid to the holders of the
Securities of the related series on such Distribution Date. Moreover, failures
by student loan borrowers generally to pay timely the principal and interest due
on their student loans could obligate the respective Guarantor to make payments
thereon, which could adversely affect the solvency of the Guarantor and its
ability to meet its guarantee obligations (including with respect to the Student
Loans). The
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inability of any Guarantor to meet its guarantee obligations could reduce the
amount of principal and interest paid to the holders of the Securities of the
related series on a Distribution Date. The effect of such factors, including the
effect on a Guarantor's ability to meet its guarantee obligations with respect
to the Student Loans, on a Trust's ability to pay principal and interest with
respect to the Securities, is impossible to predict. Pursuant to the Higher
Education Amendments of 1992 (the "1992 Amendments"), under Section 432(o) of
the Act if the Department has determined that a Federal Guarantor 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 of the Federal Guarantor. 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 Federal 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.
If an Event of Default occurs under the related Indenture, subject to
certain conditions, the related Indenture Trustee is authorized, without the
consent of the Certificateholders of the related series, to sell the Student
Loans pledged thereunder. There can be no assurance, however, that the related
Indenture Trustee will be able to find a purchaser for the Student Loans in a
timely manner or that the market value of such Student Loans is equal to the
aggregate outstanding principal amount of the Securities and accrued interest
thereon. If the proceeds of any such sale, together with amounts then available
in any Reserve Account or pursuant to any other credit enhancement specified as
being available therefor in the related Prospectus Supplement, do not equal or
exceed the aggregate outstanding principal amount of Notes and accrued interest
thereon, the Noteholders of the related series will suffer a loss. In such
circumstances, the Certificateholders, to the extent the Certificates of such
series are subordinated to the Notes of such series, will also suffer a
loss.
Unsecured Nature of Student Loans; Financial Status of Federal
Guarantor. The Act and the programs under which Private Student Loans are
insured require all Student Loans to be unsecured. As a result, the only
security for payment of the Student Loans are the Guarantee Agreements between
the related 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 Student Loans could result in a failure by the Guarantor to
make Guarantee Payments to such Eligible Lender Trustee. One of the primary
causes of a possible deterioration in a Guarantor's financial status is the
amount and percentage of defaulting Student Loans guaranteed by a Federal
Guarantor. Moreover, to the extent that default reimbursement claims submitted
by a Federal Guarantor for any fiscal year exceed certain specified levels, the
Department's obligation to reimburse the Federal Guarantor for default claim
losses is reduced on a sliding scale from 100% to a minimum of 80% (98% to 78%,
respectively, for default claim losses for Federal Student Loans made on or
after October l, 1993). Death, disability, bankruptcy, closed school and false
certification claims are reimbursed 100% by the Department. Private Guarantors
are not entitled to any federal reinsurance or assistance from the Department.
Although each Private Guarantor maintains a loan loss reserve intended to absorb
losses arising from its guarantee commitments, there can be no assurance that
the amount of such reserve will be sufficient to cover the obligations of such
Private Guarantor over the term of Private Student Loans insured by a Private
Guarantor. No assurance exists that any Guarantor will have the financial
resources to make all Guarantee Payments to a given Trust in respect of the
related Student Loans that may arise from time to time. See "The Federal Family
Education Loan Program -- Guarantors" and "-- Federal Insurance and Reinsurance
of Federal Guarantors".
Default Risk on Certain Student Loans. Under the Omnibus Budget
Reconciliation Act of 1993, Student Loans first disbursed on or after October 1,
1993 are 98% insured by the applicable Guarantor. As a result, to the extent a
borrower of such a Student Loan defaults, the Trust will experience a loss of 2%
of outstanding principal and accrued interest on each such Student Loan. A
defaulted loan will be fully assigned to the applicable Guarantor in exchange
for a guarantee payment on the 98% guaranteed portion and the Trust may have no
right thereafter to pursue the borrower for the 2% unguaranteed portion. Student
Loans continue to be 100% guaranteed in the event of death, disability or
bankruptcy of the borrower and a closing of or false certification by the
borrower's school regardless of disbursement date.
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Fees Payable on Certain Financed Students Loans. Under the Federal
Consolidation Program, the Trust will be obligated to pay to the Department a
monthly rebate fee (the "Monthly Rebate Fee") at an annualized rate of 1.05% of
the outstanding principal balance on the last day of each month plus accrued
interest thereon of each Federal Consolidation Loan which is a part of the
Trust, which rebate will be payable prior to distributions to the Noteholders or
the Certificateholders and which rebate will reduce the amount of funds which
would otherwise be available to make distributions on the Securities and will
reduce the Student Loan Rate. In addition, if specified in the related
Prospectus Supplement, the Trust or the Eligible Lender Trustee may originate
Federal Student Loans during the Funding Period. In such cases, the Trust may be
required to pay to the Department a 0.50% origination fee (the "Federal
Origination Fee") on the initial principal balance of each Student Loan which is
originated on its behalf by the Eligible Lender Trustee (i.e., each Federal
Student Loan originated on its behalf by the Eligible Lender Trustee during the
Funding Period), which fee will be deducted by the Department out of Interest
Subsidy and Special Allowance Payments. If sufficient Interest Subsidy and
Special Allowance Payments are not due to the Trust to cover the amount of the
Federal Origination Fee, the balance of such Federal Origination Fee will be
deferred by the Department until sufficient Interest Subsidy and Special
Allowance Payments accrue to cover such fee. If such amounts never accrue, the
Trust would be obligated to pay any remaining fee from other assets of the Trust
prior to making distributions to Noteholders or Certificateholders. The offset
of Interest Subsidy and Special Allowance Payments, and the payment of any
remaining fee from other Trust assets, will further reduce the amount of
Available Funds (or Monthly Available Funds) from which payments to Noteholders
and Certificateholders may be made. Furthermore, any offset of Interest Subsidy
and Special Allowance Payments will further reduce the Student Loan Rate.
Change in Law. No assurance can be made that the 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 guaranteed
student loans made thereunder, including the Student Loans, or the Guarantors.
In addition, existing legislation and future measures to reduce the federal
budget deficit or for other purposes may adversely affect the amount and nature
of federal financial assistance available with respect to these programs or even
abolish these programs. In recent years, federal budget legislation has provided
for the recovery of certain funds held by the Federal Guarantors in order to
achieve reductions in federal spending. No assurance can be made that future
federal budget legislation or administrative actions will not adversely affect
expenditures by the Department or the financial condition of the Federal
Guarantors.
On August 10, 1993, President Clinton signed the Omnibus Budget
Reconciliation Act of 1993 (the "1993 Act"), which made a number of changes to
the Federal Student Loan programs, including imposing on lenders or holders of
Student Loans certain fees and affecting the Department's financial assistance
to Federal Guarantors, including reducing the percentage of claim payments the
Department will reimburse to Federal Guarantors and reducing more substantially
the premiums and default collections that Federal Guarantors are entitled to
receive and/or retain. In addition, such legislation contemplates replacement of
a minimum of approximately 60% of the Federal Student Loan programs with direct
lending by the Department by 1998. The introduction of the new program may
involve increasing reductions in the volume of loans made under the existing
programs which could result in increased costs for the Master Servicer or any
Subservicer due to reduced economies of scale. Such cost increases could affect
the ability of the Seller or Master Servicer to satisfy their respective
obligations to repurchase Student Loans in the event of certain breaches of
representations, warranties or covenants or to service Student Loans. See
"Description of the Transfer and Servicing Agreements -- Sale of Student Loans;
Representations and Warranties" and " -- Servicer Covenants". Such volume
reductions could also reduce revenues received by the Federal Guarantors that
are available to pay claims on defaulted Federal Student Loans. Finally, the
level of competition in existence in the secondary market for loans made under
the existing programs could be reduced, resulting in fewer potential buyers of
the Federal Student Loans and lower prices available in the secondary market for
those loans. Such a price reduction could have an adverse effect on the ability
of the Indenture Trustee to sell the Student Loans pursuant to auction or upon a
liquidation or termination of the Trust. See "Description of the Transfer and
Servicing Agreements -- Termination"; "Description of the Notes - The Indenture
- - Events of Default; Rights Upon Events of Default". Further, the Department is
implementing a direct consolidation loan program (the
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"Federal Direct Consolidation Loan Program"), which program may further reduce
the volume of Federal Student Loans and increase prepayments on Student
Loans.
The 1993 Act granted the Department broad powers over Federal
Guarantors and their reserves. These powers include the authority to require a
Federal Guarantor to return all reserve funds to the Department if the
Department determines such action is necessary to ensure an orderly termination
of the Federal Guarantor, to serve the best interests of the student loan
programs or to ensure the proper maintenance of such Federal Guarantor's funds
or assets. The Department is also now authorized to direct a Federal 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
Federal Guarantor and/or to cease any activities involving the use of the
Federal Guarantor's reserve funds or assets which the Department determines is a
misapplication or otherwise improper. The Department may also terminate a
Federal 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. In such
event, however, the Department is required to assume the functions of such
Federal Guarantor as described under the heading "Federal Family Education Loan
Program -- Federal Guarantors" herein. These various changes create a
significant risk that the resources available to the Federal Guarantors to meet
their guarantee obligations will be significantly reduced.
Subordination; Limited Assets of the Trust. To the extent specified in
the related Prospectus Supplement, distributions of interest and principal on
the Certificates of a series may be subordinated in priority of payment to
interest and principal due on the Notes of such series. Moreover, each Trust
will not have, nor is it permitted or expected to have, any significant assets
or sources of funds other than the Student Loans and, to the extent provided in
the related Prospectus Supplement, a Reserve Account and any other credit
enhancement. The Notes of any series will represent obligations solely of, and
the Certificates of such series will represent interests solely in, the related
Trust and neither the Notes nor the Certificates of such series will be insured
or guaranteed by the Seller, the Master Servicer, the Administrator, any Federal
Guarantor, any Subservicer, the applicable Eligible Lender Trustee, the
applicable Indenture Trustee or any other person or entity. Consequently,
holders of the Securities of any series must rely for repayment upon payments on
the related Student Loans and, if and to the extent available, amounts on
deposit in the Reserve Account (if any) and other credit enhancement (if any),
all as specified in the related Prospectus Supplement.
Use of the Pre-Funding Account or Collateral Reinvestment Account to
Make Additional Fundings. The use of a Pre-Funding Account or Collateral
Reinvestment Account to add Student Loans to a Trust after the applicable
Closing Date will cause the aggregate characteristics of the entire pool of
Student Loans with respect to such Trust, including, if and to the extent set
forth in the related Prospectus Supplement, the composition of such pool and in
the case of a Revolving Period, of the borrowers thereof, the applicable
Guarantors thereof (if, as may be so specified in the related Prospectus
Supplement, the Guarantors with respect to Student Loans added after the Closing
Date may include Guarantors other than those represented in pool as of the
Closing Date and named in such Prospectus Supplement) and the distribution by
loan type, interest rate, principal balance and remaining term to stated
maturity to vary, possibly significantly, from those of the applicable pool as
existing on the Closing Date and described in the related Prospectus
Supplement.
If, as to any series for which a Pre-Funding Account or Collateral
Reinvestment Account is provided, the sum of (i) the principal amount plus
accrued interest thereon to be capitalized upon repayment plus any premium paid
thereon of eligible Student Loans acquired by the related Trust during the
Funding Period or the Revolving Period, as the case may be, less the principal
amount of the Student Loans sold to the Seller or prepaid by the related Trust
during such applicable period in connection with the making of Federal
Consolidation Loans or such other types of Student Loans as may be specified in
the related Prospectus Supplement and (ii) the amount of interest on the Student
Loans capitalized and not paid currently by or on behalf of the borrowers during
such applicable period is less, in the case of the Funding Period, than the
Pre-Funded Amount, or, in the case of the Revolving Period, than the amount on
deposit in the Collateral Reinvestment account at the end of the Revolving
Period, the related Trust will have insufficient opportunities to make
Additional Fundings during such applicable period,
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thereby resulting in a prepayment of principal to Noteholders as described in
the following paragraph. In addition, any conveyance of Student Loans to a Trust
through Additional Funding is subject to the following conditions, among others:
(i) each such Student Loan must satisfy the eligibility criteria specified in
the related Loan Sale Agreement and (ii) the Seller will not select such Student
Loans in a manner that it believes is materially adverse to the interests of the
related Noteholders or the Certificateholders.
To the extent that amounts on deposit in the Pre-Funding Account or
Collateral Reinvestment Account for a series have not been fully applied to
Additional Fundings by the Trust by the end of the Funding Period or the
Revolving Period, the related Noteholders or Certificateholders may receive as a
prepayment of principal an amount equal to the amount remaining in the
Pre-Funding Account or Collateral Reinvestment Account following any Additional
Fundings on the last day of the final Collection Period in such applicable
period. It is anticipated that, in the case of each series, the amount of
Additional Fundings made by the Trust will not be exactly equal to the amount on
deposit in the Pre-Funding Account or Collateral Reinvestment Account and that
therefore there may be at least a nominal amount of principal prepaid to the
Noteholders or Certificateholders. See also "Maturity and Prepayment
Considerations" in the related Prospectus Supplement regarding the risk to
Noteholders and Certificateholders of prepayments in connection with the making
of Federal Consolidation Loans both during and after the Funding Period or
Revolving Period.
Maturity and Prepayment Considerations. All the Student Loans are
prepayable at any time. (For this purpose the term "prepayments" includes
prepayments in full or in part (including pursuant to Federal Consolidation
Loans) and liquidations due to default (including receipt of Guarantee
Payments). The rate of prepayments on the Student Loans may be influenced by a
variety of economic, social and other factors affecting borrowers, including
interest rates and the availability of alternative financing. In addition, under
certain circumstances, the Seller or the Master Servicer will be obligated to
purchase or arrange for the purchase of Student Loans from the Trust pursuant to
the related Loan Sale Agreement or Master Servicing Agreement, as applicable, as
a result of breaches of their respective representations, warranties or
covenants. See "Description of the Transfer and Servicing Agreements -- Sale of
Student Loans; Representations and Warranties" and "-- Servicer Covenants".
Moreover, a borrower of Federal Student Loans may elect to borrow a Federal
Consolidation Loan to consolidate and refinance such Federal Student Loans. The
related Prospectus Supplement will describe whether and under what circumstances
such Trust may originate or acquire the resulting Federal Consolidation Loan if
at all. No assurance can be made that borrowers with Federal Student Loans will
not seek to obtain Federal Consolidation Loans with respect to such Federal
Student Loans or, if they do so, that such Federal Consolidation Loans will be
held by the related Eligible Lender Trustee on behalf of the Trust, if so
permissible. See "The Federal Family Education Loan Program".
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 Seller on a loan
originated by the Seller under the Federal Consolidation Loan Program. The
availability of such lower-rate, income-contingent loans may decrease the
likelihood that the Seller would be the originator of a Consolidation Loan with
respect to borrowers with Federal Student Loans, as well as increase the
likelihood that a Federal Student Loan in the Trust will be prepaid through the
issuance of a Federal Direct Consolidation Loan.
On the other hand, scheduled payments with respect to, and maturities
of, the Student Loans may be extended as a result of Grace Periods, Deferral
Periods and, under certain circumstances, Forbearance Periods, which may
lengthen the remaining term of the Student Loans and the average life of the
Notes and the Certificates. See "The Federal Family Education Loan Program". Any
reinvestment risks resulting from a faster or slower incidence of prepayment of
Student Loans will be borne entirely by the Noteholders and the
Certificateholders. See also "Description of the Transfer and Servicing
Agreements -- Insolvency Event" regarding the sale of the Student Loans if an
Insolvency Event occurs with respect to the Seller and "-- Termination"
regarding the Seller's option to repurchase the Student Loans.
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Noteholders and Certificateholders should consider, in the case of Notes
or Certificates, as the case may be, purchased at a discount, the risk that a
slower than anticipated rate of principal payments on the Student Loans could
result in an actual yield that is less than the anticipated yield and, in the
case of Notes or Certificates, as the case may be, purchased at a premium, the
risk that a faster than anticipated rate of principal payments on the Student
Loans could result in an actual yield that is less than the anticipated yield.
See "Weighted Average Life of the Securities".
Servicer Default. Unless otherwise specified in the related Prospectus
Supplement with respect to a given series of Securities, in the event of (a) any
failure by the Master Servicer to deliver to the Indenture Trustee for deposit
in any of the Trust Accounts any required payment or to direct such Indenture
Trustee to make any required distributions therefrom, which failure continues
unremedied for five business days after written notice from such Indenture
Trustee or the related Eligible Lender Trustee is received by the Master
Servicer or after discovery by the Master Servicer, (b) any failure by the
Master Servicer to observe or perform in any material respect any other covenant
or agreement of the Master Servicer under the related Master Servicing
Agreement, (c) any limitation, suspension or termination by the Secretary of
Education (the "Secretary") of the Master Servicer's eligibility to service
Student Loans which materially and adversely affects its ability to service the
Student Loans in the related Trust or (d) an Insolvency Event with respect to
the Master Servicer occurs (collectively, a "Servicer Default"), the Indenture
Trustee or 75% (by principal amount) of the Noteholders with respect to such
series, as described under "Description of the Transfer and Servicing
Agreements -- Rights upon Servicer Default," may remove the Master Servicer
without the consent of the Eligible Lender Trustee or any of the
Certificateholders with respect to such series. Moreover, only the Indenture
Trustee or the Noteholders with respect to such series, and not the Eligible
Lender Trustee or the Certificateholders, have the ability to remove the Master
Servicer if a Servicer Default occurs. In addition, the Noteholders with respect
to such series have the ability, with certain specified exceptions, to waive
defaults by the Master Servicer, including defaults that could materially
adversely affect the Certificateholders with respect to such series. See
"Description of the Transfer and Servicing Agreements -- Waiver of Past
Defaults".
Consolidation of Federal Benefit Billings and Receipts with Other
Trusts. Due to a recent change in Department policy limiting the granting of new
lender identification numbers, the Eligible Lender Trustee is allowed under the
Trust Agreements to permit trusts established by the Seller to securitize
Student Loans to use a common Department lender identification number. The
billings submitted to the Department for Interest Subsidy and Special Allowance
Payments on loans in such Trusts will 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 will be made by the
Department in lump sum form. Such lump sum payments will then be allocated among
the various trusts using the lender identification number.
In addition, the sharing of the lender identification number by a Trust
with other Trusts may result in the receipt of claim payments by guarantors in
lump sum form. In that event, such payments would be allocated 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 FFELP. 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 Student Loan for which the Eligible Lender Trustee is or was
legal titleholder, including loans held in a Trust, the Department or guarantor
may seek to collect that liability by offset against payments due the Eligible
Lender Trustee under such Trust. In the event that the Department or 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 offset against amounts due the Eligible Lender Trustee
under the shared lender identification number, including amounts owed in
connection with such Trusts.
In addition, Trusts using a shared lender identification number may in a
given quarter incur fees associated with the origination of Federal Student
Loans that exceed the Interest Subsidy and Special Allowance Payments payable by
the Department on the loans in such other Trusts, resulting in the consolidated
payment
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from the Department received by the Eligible Lender Trustee under such 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 trusts established by the Seller which will
share lender identification numbers will require such Trusts to indemnify the
other Trusts for a shortfall or an offset by the Department or a guarantor
arising from the Student Loans held by the Eligible Lender Trustee on such
Trust's behalf.
Certain Legal Aspects. The Seller will warrant to each Trust in the
related Loan Sale Agreement that the sale of the Student Loans by the Seller to
such Trust is a valid sale of the Student Loans by the Seller to such Trust.
Notwithstanding the foregoing, in the event of an insolvency of the Seller, it
is possible that a conservator or receiver for, or a creditor of, the Seller may
argue that each transaction between the Seller and a Trust was a pledge of the
related Student Loans in connection with a borrowing by the Seller rather than a
true sale. Such an attempt, even if unsuccessful, could result in delays in
distributions on the Securities. In addition, if the transfer of the Student
Loans to the Eligible Lender Trustee is deemed to create a security interest
therein, a tax or government lien on property of the Seller arising before the
Student Loans came into existence may have priority over the Eligible Lender
Trustee's interest in such Student Loans.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") significantly expanded the powers of the Federal Deposit Insurance
Corporation ("FDIC") as a conservator or receiver of insolvent banks. To the
extent that the Seller has granted a first priority perfected security interest
in the Student Loans to each Trust, and the interest is validly perfected and
was not taken in contemplation of insolvency or with the intent to hinder, delay
or defraud the Seller's creditors, that security interest should not be subject
to avoidance by the FDIC as conservator or receiver of the Seller. If, however,
the FDIC were to take a contrary position, such as by requiring the Indenture
Trustee or Eligible Lender Trustee with respect to each Trust to establish its
rights in the related Student Loans by submitting to and complying with the
administrative claims procedure established under FIRREA, delays in payments on
the Securities and possible reductions in the amounts of those payments could
occur. In addition, under FIRREA, the FDIC may disaffirm or repudiate any
contract to which an insolvent bank is a party, the performance of which is
determined to be burdensome, and the disaffirmance of which is determined to
promote the orderly administration of such bank's affairs. If the FDIC were to
contend successfully that the Securities of any series evidence a secured
borrowing and that it has the power to repudiate such Securities, the effect of
such repudiation should be to accelerate the maturities of such Securities. In
the event of such acceleration, the amount paid on such Securities would depend,
among other things, on the amount which could be realized from the sale or other
disposition of the related Student Loans at such time. Although each Master
Servicing Agreement will provide for the replacement of the Seller as Master
Servicer in the event of the appointment of a conservator or receiver of the
Seller, the FDIC as conservator or receiver may enforce most types of contracts,
including a Master Servicing Agreement, pursuant to their terms, notwithstanding
any such provision. The FDIC, as conservator or receiver, may also transfer to a
new obligor an insolvent bank's assets and liabilities (including, in the event
that the Securities of any series were deemed to evidence a secured borrowing,
the related Student Loans and the liability evidenced by such Securities)
without the approval of the bank's creditors (including, in the event such
Securities were deemed to evidence a secured borrowing, holders of such
Securities).
If an Insolvency Event with respect to the Seller occurs, the Indenture
Trustee will, except under certain limited circumstances, promptly sell, dispose
of or otherwise liquidate the related Student Loans in a commercially reasonable
manner on commercially reasonable terms. The proceeds from any such sale,
disposition or liquidation of Student Loans will be treated as collections on
the Student Loans and deposited in the Collection Account of the related Trust.
If the proceeds from the liquidation of the Student Loans and any amounts on
deposit in the Reserve Account (if any) with respect to any Trust and any
amounts available from any credit enhancement, if any, are not sufficient to pay
the Notes and Certificates of the related series in full, the amount of
principal returned to Noteholders or Certificateholders will be reduced and
Noteholders and Certificateholders will incur a loss. See "Description of the
Transfer and Servicing Agreements -- Insolvency Event".
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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 liability that could affect an assignee's ability to
enforce consumer finance contracts such as the Student Loans. In addition, the
remedies available to the related Indenture Trustee or the Noteholders of the
related series upon an Event of Default under the Indenture may not be readily
available or may be limited by applicable state and federal laws.
Book-Entry Registration. Each class of the Notes and the Certificates of
a given series will be initially represented by one or more certificates
registered in the name of Cede & Co. ("Cede"), or any other nominee for DTC set
forth in the related Prospectus Supplement (Cede, or such other nominee, "DTC's
Nominee"), and will not be registered in the names of the holders of the
Securities of such series or their nominees. Because of this, unless and until
Definitive Securities for such series are issued, holders of such Securities
will not be recognized by the applicable Indenture Trustee or Eligible Lender
Trustee as "Noteholders," "Certificateholders" or "Securityholders," as the case
may be (as such terms are used herein or in the related Indenture and Trust
Agreement, as the case may be). Hence, unless and until Definitive Securities
(as defined below) are issued, holders of such Securities will only be able to
exercise the rights of Securityholders indirectly through DTC and its
participating organizations. See "Certain Information Regarding the Securities
- -- Book-Entry Registration" and "-- Definitive Securities."
FORMATION OF THE TRUSTS
The Trusts
With respect to each series of Securities, the Seller will establish a
separate Trust pursuant to the respective Trust Agreement for the transactions
described herein and in the related Prospectus Supplement. The property of each
Trust will consist of (a) a pool of Student Loans, legal title to which is held
by the related Eligible Lender Trustee on behalf of each Trust, (b) all funds
collected or to be collected in respect thereof (including any Guarantee
Payments with respect thereto) on or after the applicable Cutoff Date and (c)
all moneys and investments on deposit in the Collection Account, any Reserve
Account and any other trust accounts or any other form of credit or cash flow
enhancement that may be obtained for the benefit of holders of one or more
classes of such Securities. To the extent provided in the applicable Prospectus
Supplement, the Notes will be collateralized by the property of the related
Trust. To facilitate servicing and to minimize administrative burden and
expense, the Master Servicer will retain possession of the promissory notes
representing the Student Loans and the other documents related thereto as
custodian for each Trust and the related Eligible Lender Trustee.
The principal offices of each Trust and the related Eligible Lender
Trustee will be specified in the applicable Prospectus Supplement.
Eligible Lender Trustee
The Eligible Lender Trustee for each Trust will be such entity as is
specified in the related Prospectus Supplement. The Eligible Lender Trustee on
behalf of the related Trust will acquire legal title to all the related Student
Loans acquired pursuant to the related Loan Sale Agreement and will enter into a
Guarantee Agreement with each of the Guarantors with respect to such Student
Loans. Each Eligible Lender Trustee will qualify as an eligible lender and owner
of all Federal Student Loans and Private Student Loans for all purposes under
the Act and the Guarantee Agreements. Failure of the Federal Student Loans to be
owned by an eligible lender would result in the loss of any Federal Guarantee
Payments from any Federal Guarantor and any Federal Assistance with respect to
such Federal Student Loans. See "The Federal Family Education Loan Program --
Eligible Lenders, Students and Institutions" and "-- Federal Insurance and
Reinsurance of Federal Guarantors". An Eligible Lender Trustee's liability in
connection with the issuance and sale of the Notes and the Certificates is
limited solely to the express obligations of the Eligible Lender Trustee set
forth in the related Trust Agreement and the related Loan Sale Agreement. An
Eligible Lender
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Trustee may resign at any time, in which event the Administrator, or its
successor, will be obligated to appoint a successor trustee. The Administrator
of a Trust may also remove the Eligible Lender Trustee if the Eligible Lender
Trustee ceases to be eligible to continue as Eligible Lender Trustee under the
related Trust Agreement or if the Eligible Lender Trustee becomes insolvent. In
such circumstances, the Administrator will be obligated to appoint a qualified
successor trustee. Any resignation or removal of an Eligible Lender Trustee and
appointment of a successor trustee will not become effective until acceptance of
the appointment by the successor trustee.
USE OF PROCEEDS
Unless otherwise provided in the related Prospectus Supplement, the net
proceeds from the sale of Securities of a given series will be applied by the
applicable Trust to purchase the related Student Loans on the Closing Date from
the Seller and to make the initial deposit into the Reserve Account, the
Pre-Funding Account and the Collateral Reinvestment Account, if any. Unless
otherwise specified in the related Prospectus Supplement, the Seller will use
such net proceeds paid to it with respect to any such Trust for general
corporate purposes.
THE SELLER, THE MASTER SERVICER AND THE SUBSERVICERS
The Seller and the Master Servicer
Signet will act as Seller and Master Servicer with respect to the
Student Loans of each Trust. Signet is a Virginia banking corporation providing
a wide variety of banking and financial services to corporate, institutional and
individual customers through branch offices and automated teller machines
located throughout Virginia, Maryland and the District of Columbia. Signet is a
wholly-owned subsidiary of Signet Banking Corporation, a Virginia corporation
and a bank holding company. Signet (and its predecessors) have been originating
student loans for over 25 years.
The Master Servicer will be responsible for servicing the Student Loans
acquired by the Eligible Lender Trustee on behalf of the related Trust in
accordance with the terms set forth in the Master Servicing Agreement, pursuant
to which it is required to maintain its eligibility as a third-party servicer
under the Act. Certain data processing and administrative functions are
performed on behalf of Signet by Electronic Data Systems. The Master Servicer
may perform its servicing obligations under the Master Servicing Agreement
through one or more Subservicing Agreements with other student loan servicers
(each, a "Subservicer" and a "Subservicing Agreement"). It is anticipated that a
portion of the servicing activities with respect to the Student Loans will be
performed by the Subservicers. Such Subservicing Agreements may be terminated by
the Master Servicer with notice, and the Subservicing Agreements may not have a
term which extends to the maturity date of a series of Securities. In the event
such Subservicing Agreements are terminated or are not renewed or extended, the
Trust may experience delays in collections on the Student Loans until the
servicing obligations of such Subservicer are transferred and assumed by another
Subservicer. See "-- The Subservicers" below.
The Subservicers
The Master Servicer may from time to time enter into agreements with
Subservicers to the extent specified in the related Prospectus Supplement. As
the scheduled termination date of any Subservicing Agreement may be prior to the
maturity date of a series of Securities, successor subservicers not identified
herein or in the relevant Prospectus Supplement may be engaged to subservice a
portion of the related Student Loans; provided, however, that no successor
subservicer shall be engaged unless the Master Servicer shall have received
prior written notice from each of the Rating Agencies that the engagement of
such successor subservicer shall not cause such Rating Agency to lower its
then-current rating on any of the Securities. Any successor subservicer shall be
deemed a Subservicer under each of the Loan Sale and Master Servicing
Agreements. Notwithstanding the provisions of any Subservicing Agreement, each
Master Servicing Agreement will provide that the Master Servicer will remain
liable for its servicing duties and obligations under the Master Servicing
Agreement as if the Master Servicer were servicing the Student Loans.
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ASSUMPTION OF SIGNET'S OBLIGATIONS
Signet and its parent, Signet Banking Corporation, may from time to time
consider a transfer of its student lending business to another party, which may
or may not be affiliated with Signet (an "Assuming Entity"). The effect of such
a transfer would be, among other things, to transfer Signet's student lending
business and the loans arising in connection therewith, which would include all,
but not less than all, of the Student Loans (the "Assigned Assets"), together
with all servicing and administrative functions and other obligations under the
Loan Sale Agreement, the Master Servicing Agreement, the Administration
Agreement and the related transactions contemplated thereby (collectively, the
"Assumed Agreements" and the "Assumed Obligations"), to the Assuming Entity.
Pursuant to each of the Assumed Agreements, Signet is permitted to assign,
convey and transfer the Assigned Assets and the Assumed Obligations to the
Assuming Entity, without the consent or approval of the Noteholders or the
Certificateholders, if the following conditions, among others, are satisfied:
(i) the Assuming Entity, Signet, the Eligible Lender Trustee, and the Indenture
Trustee shall have entered into an Assumption Agreement providing for the
Assuming Entity to assume the Assumed Obligations, (ii) all filings required to
continue the perfection of the interest of the Eligible Lender Trustee or the
Indenture Trustee in the Student Loans shall have been duly made and copies
thereof shall have been delivered by Signet to the Eligible Lender Trustee and
the Indenture Trustee, (iii) if the Assuming Entity is a savings and loan
association, a national banking association, a bank or other entity that is not
subject to Title 11 of the Untied States Code (a "Non-Code Entity"), Signet
shall have delivered notice of such transfer and assumption to each Rating
Agency (in which case there is no requirement that such transfer and assumption
will not result in a downgrade of the Notes and the Certificates) or, if such
Assuming Entity is not a Non-Code Entity, the Seller shall have received written
notice from each Rating Agency that such transfer and assumption will not have
the effect of reducing the then current rating of the Notes and the
Certificates, (iv) the Trustee shall have received an opinion of counsel with
respect to clause (ii) above as to certain other matters specified in the
Assumed Agreements and (v) the Eligible Lender Trustee and the Indenture Trustee
shall have received opinions of counsel acceptable to such Trustees that for
Federal, State and local income and franchise tax purposes and for income and
franchise tax purposes of the jurisdiction in which the Assuming Entity engages
in its principal servicing activities, if different from Maryland, (x) following
the transaction the Trust will not be deemed to be an association (or publicly
traded partnership) taxable as a corporation and (y) such transaction will not
affect the tax characterization as debt of any Notes or Certificates that were
characterized as debt at the time of their issuance and will not cause a taxable
event to the holders of the Notes or Certificates (an opinion of counsel with
respect to any matter to the effect referred to in clauses (x) and (y) with
respect to any action is referred to herein as a "Tax Opinion"). The Assumed
Agreements provide that Signet may enter into amendments to the Assumed
Agreements to permit the transfer and assumption described above without the
consent of the holders of any Notes or Certificates. After any permitted
transfer and assumption, the Assuming Entity will be considered to be "Signet",
the "Seller", the "Master Servicer" and the "Administrator", as applicable, for
all purposes hereof, and Signet Bank will have no further liability or
obligation under the Assumed Agreements.
THE STUDENT LOAN POOLS
General
The Student Loans to be sold by the Seller to the Eligible Lender
Trustee on behalf of a Trust pursuant to the related Loan Sale Agreement will be
selected from the portfolio of Student Loans originated under the Federal Family
Education Loan Program or a private guarantee program by several criteria,
including that, each Student Loan (i) is self insured or guaranteed as to
principal and interest by a Guarantor (and, in the case of Federal Student
Loans, that Guarantor is a Federal Guarantor and is in turn reinsured by the
Department in accordance with the terms of the Federal Family Education Loan
Program), (ii) was originated in the United States of America, its territories
or its possessions under and in accordance with the Federal Family Education
Loan Program or a specified private guarantee program, (iii) contains terms in
accordance with those required by the Federal Family Education Loan Program or a
specified private guarantee program, the applicable Guarantee Agreements and
other applicable requirements, (iv)
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provides for regular payments that fully amortize the amount financed over its
original term to maturity (exclusive of any deferral or forbearance periods) and
(v) satisfies the other criteria, if any, set forth in the related Prospectus
Supplement. No selection procedures believed by the Seller to be adverse to the
Securityholders of any series will be used in selecting the related Student
Loans.
The Student Loans that comprise assets of each Trust will be held by the
related Eligible Lender Trustee, as trustee on behalf of such Trust. The
Eligible Lender Trustee will also enter into, on behalf of such Trust, Guarantee
Agreements with the Guarantors specified in the applicable Prospectus Supplement
pursuant to which each of such Student Loans will be guaranteed by one of such
Guarantors. See "Formation of the Trusts -- Eligible Lender Trustee".
Information with respect to each pool of Student Loans for a given Trust
will be set forth in the related Prospectus Supplement, including, but not
limited to, to the extent appropriate, the composition, the distribution by loan
type, loan payment status, and states of borrowers' residence and the portion of
such Student Loans guaranteed by the specified Guarantors.
In the case of each series for which the related Trust may acquire or
originate Student Loans after the related Cutoff Date, information with respect
to the Student Loans eligible to be acquired or originated by the related Trust
will be set forth in the related Prospectus Supplement as will information
regarding the duration and conditions of the related Funding Period or Revolving
Period the circumstances under which Additional Fundings will be made during
such Funding Period or Revolving Period, and, if Additional Fundings may
continue to be made after the Funding Period or Revolving Period, the
circumstances under which such Additional Fundings will be made.
Origination and Marketing Process
The Act and the private guarantee programs specify rules regarding loan
origination practices, which lenders must comply with in order for the Student
Loans to be guaranteed and to be eligible to receive Federal Assistance, in the
case of Federal Student Loans, and the benefits of the private guarantee
program, in the case of Private Student Loans. Lenders of Federal Student Loans
are prohibited from offering points, premiums, payments or other inducements,
directly or indirectly, to any educational institution, guarantor or individual
in order to secure Federal Student Loan applications, and no lender may conduct
unsolicited mailings of Federal Student Loan applications to students who have
not previously received student loans from that lender.
Generally the student and school complete the combined application with
promissory note and mail it either to a lender or directly to the applicable
Guarantor. Both the lender and such Guarantor must approve such application,
including confirming that such application is complete and that it (and the
prospective borrower and institution) complies with all applicable requirements
of the Act and the requirements of such Guarantor. The Act requires that each
Guarantor have procedures designed to assure that it guarantees Federal Student
Loans only to students attending institutions which meet the requirements of the
Act. Certain lenders establish maximum default rates for institutions whose
students they will serve. Each lender will only make loans that are approved by
the applicable Guarantor (consistent with the approval requirements of the Act
and the Guarantor). For each such application that is approved, the applicable
Guarantor will issue a guarantee certificate to the lender, which will then
cause the loan to be disbursed (typically in multiple installments) and a
disclosure statement confirming the terms of the Student Loan to be sent to the
student (or parent) borrower.
These procedures differ slightly for Consolidation Loans.
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Servicing and Collections Process
The applicable Guarantee Agreements, and the Act in the case of Federal
Student Loans, require the holder of Student 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
Student Loans. These procedures are designed to ensure that such Student Loans
are repaid on a timely basis by or on behalf of borrowers. The Master Servicer
agrees to perform such servicing and collection procedures with respect to the
Student Loans on behalf of each Trust pursuant to the related Master Servicing
Agreement. Such procedures generally include periodic attempts to contact any
delinquent borrower by telephone and by mail, commencing with one written notice
within the first ten days 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 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 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 a given
Eligible Lender Trustee, as holder of legal title to the Student Loans on behalf
of the related Trust, to realize the benefits of any Guarantee Agreement or, in
the case of Federal Student Loans, 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 Student 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 Student Loan. See "Risk Factors -- Failure to
Comply with Student Loan Origination and Servicing Procedures for Federal
Student Loans" and " -- Failure to Comply with Student Loan Origination and
Servicing Procedures for Private Student Loans".
At prescribed times prior to submitting a claim for payment under a
Guarantee Agreement for a delinquent Student Loan, the Master Servicer generally
is required to notify the applicable Guarantor of the existence of such
delinquency. These notices advise the Guarantor of seriously delinquent accounts
and allow the Guarantor to make additional attempts to collect on such loans
prior to the filing of claims. Any Student Loan which becomes 180 days
delinquent is considered to be in default, after which the Master Servicer will
submit a claim for reimbursement therefor to the applicable Guarantor. Failure
to file a claim within specified time frames of delinquency may result in denial
of the guarantee claim with respect to such Student Loan, and failure to file
such a claim within certain shorter specified time frames of delinquency may
result in a denial of certain interest amounts included in such claims. The
Master Servicer's failure to file a guarantee claim in a timely fashion would
constitute a breach of its covenants and would, if as a result of such failure
the related guarantee payment is no longer available to the related Trust,
create an obligation of the Master Servicer to arrange for the purchase of the
applicable Student Loan from the applicable Eligible Lender Trustee on behalf of
the related Trust. The obligation of the Master Servicer to arrange for such a
purchase will constitute the sole remedy available to Securityholders or the
Eligible Lender Trustee for such a failure by the Master Servicer. See
"Description of the Transfer and Servicing Agreements -- Servicer Covenants".
Claims and Recovery Rates
Certain historical information concerning the Guarantors for the Student
Loans with respect to each series of Securities, including but not limited to
guarantee claims and recovery rates, will be set forth in each Prospectus
Supplement. There can be no assurance that the claim and recovery experience on
any pool of Student Loans with respect to a given Trust will be comparable to
prior experience or to any such information.
FEDERAL FAMILY EDUCATION LOAN PROGRAM
General
The Act provides for loans to be made to students or parents of
dependent students enrolled in eligible institutions to finance a portion of the
costs of attending school. As described herein, payment of principal and
interest
28
<PAGE>
with respect to the Federal Student Loans is guaranteed by the applicable
Guarantor against default, death, bankruptcy or disability of the applicable
borrower and claims of school closure and false certification. The Guarantors
are entitled, subject to certain conditions, to be reimbursed by the Department
for from 100% to 78% of the amount of each Guarantee Payment made pursuant to a
program of federal reinsurance under the Act. In addition, the related Eligible
Lender Trustee, as a holder of the Federal Student Loans on behalf of a Trust,
is entitled to receive from the Department certain interest subsidy payments and
special allowance payments with respect to certain of such Federal Student Loans
as described herein.
FFELP provides for loans to students and parents of dependent students
which are (i) insured by a Guarantor and reinsured by the federal government or
(ii) directly insured by the federal government. Several types of Federal
Student Loans are currently authorized under the Act: (i) loans to students who
demonstrate need ("Federal Stafford Loans"); (ii) loans to students who do not
demonstrate need or who need additional loans to supplement their Federal
Stafford Loans ("Federal Unsubsidized Stafford Loans"); (iii) loans to parents
of students ("Federal PLUS Loans") who are dependents and whose need exceeds the
available Federal Unsubsidized Stafford Loans and/or Stafford Loans and (iv)
loans to consolidate the borrower's obligations under various federally
authorized student loan programs into a single loan ("Federal Consolidation
Loans"). Prior to July 1, 1994, the Act also authorized loans to graduate and
professional students, independent undergraduate students and, under certain
circumstances, dependent undergraduate students to supplement their Federal
Stafford Loans ("Federal Supplemental Loans to Students" or "Federal SLS
Loans"). The description and summaries of the Act, FFELP, the Guarantee
Agreements and the other statutes, regulations and amendments referred to in
this Prospectus do not purport to be comprehensive and are qualified in their
entirety by reference to each such statute, regulation or document. There can be
no assurance that future amendments or modifications will not materially change
any of the terms or provisions of the programs described in this Prospectus or
of the statutes and regulations implementing these programs. See "Risk Factors
- --Change in Law".
Legislative and Administrative Matters
Both the Act and the regulations promulgated thereunder have been the
subject of extensive amendments in recent years and there can be no assurance
that further amendment will not materially change the provisions described
herein or the effect thereof. The 1992 Amendments extended the principal
provisions of FFELP to October l, 1998 (or in the case of borrowers who have
received loans prior to that date, September 30, 2002, except that authority to
make Federal Consolidation Loans expires on September 30, 1998).
The 1993 Act made a number of changes to the Federal Student Loan
programs, including imposing certain fees on lenders or holders of Federal
Student Loans and affecting the Department's financial assistance to Federal
Guarantors, including the reduction of the percentage of claim payments the
Department will reimburse to Federal Guarantors and reducing more substantially
the insurance premiums and default collections that Federal Guarantors are
entitled to receive and/or retain. In addition, such legislation contemplates
replacement of a minimum of approximately 60% of the Federal Student Loan
programs with direct lending by the Department by 1998. The expansion of the new
program may involve further reductions in the volume of loans made under the
existing programs, and/or the prepayment of existing FFELP loans via the Federal
Direct Consolidation Loan Program. The volume of existing loans that may be
prepaid in this fashion is not determinable at this time. This reduction could
result in increased costs for the Master Servicer or any Subservicer due to
reduced economics of scale. Such cost increases could affect the ability of the
Master Servicer to satisfy its obligation to service the Student Loans or the
obligations of the Seller and the Servicer to repurchase the Student Loans in
the event of certain breaches of their respective representations and warranties
or covenants. See "Description of the Transfer and Servicing Agreements -- Sale
of Student Loans; Representations and Warranties" and " -- Servicer Covenants".
Such volume reductions could also reduce revenues received by Federal Guarantors
that are available to pay claims on defaulted Student Loans. Finally, the level
of competition in existence in the secondary market for loans made under the
existing programs could be reduced, resulting in fewer potential buyers of
Federal Student Loans and lower prices available in the secondary market for
those loans. Such a price reduction could have an adverse effect on the ability
of the Indenture Trustee to sell the Student Loans pursuant to an auction or
upon a liquidation or termination of the
29
<PAGE>
Trust. See " Description of the Transfer and Servicing Agreements --
Termination"; "Description of the Notes - The Indenture Events of Default;
Rights Upon Events of Default".
Eligible Lenders, Students and Educational Institutions
Lenders eligible to make loans under FFELP generally include banks,
savings and loan associations, credit unions, pension funds, insurance
companies, and under certain conditions, schools and guarantors. Federal Student
Loans may only be made to a "qualified student", generally defined as a United
States citizen or national or otherwise eligible individual under federal
regulations who (a) has been accepted for enrollment or is enrolled and is
maintaining satisfactory progress at an eligible school, (b) is carrying at
least one-half of the normal full-time academic workload for the course of study
the student is pursuing, as determined by such institution, (c) has agreed to
notify promptly the holder of the loan of any address change and (d) meets the
application "need" requirements for the particular loan program. Each loan is to
be evidenced by an unsecured promissory note.
Eligible schools include institutions of higher education and
proprietary institutions. Institutions of higher education must meet certain
standards, which generally provide that the institution (i) only admits persons
that have a high school diploma or its equivalent; (ii) is legally authorized to
operate within the state; (iii) provides not less than a two-year program with
credit acceptable toward a bachelor's degree; (iv) is a public or non-profit
institution and (v) is accredited by a nationally recognized accrediting agency
or is determined by the Department to meet the standards of an accredited
institution. Eligible proprietary institutions include business, trade and
vocational schools meeting standards which provide that the institution (i) only
admits persons that have a high school diploma or its equivalent, or persons
that are beyond the age of compulsory school attendance and have the ability to
benefit from the training offered (as defined in the Act); (ii) is authorized by
the state to provide a program of vocational education designed to fit
individuals for useful employment in recognized occupations; (iii) provides at
least a six-month training program to prepare students for gainful employment in
a recognized occupation; (iv) has been in existence for at least two years and
(v) is accredited by a nationally recognized accrediting agency or association.
With specified exceptions, institutions are excluded from consideration
as educational institutions if the institution (i) offers more than 50 percent
of its courses by correspondence, (ii) enrolls 50 percent or more of its
students in correspondence courses, (iii) has a student enrollment in which more
than 25 percent of the students are incarcerated, or (iv) has a student
enrollment in which more than 50 percent of the students are admitted without a
high school diploma or its equivalent on the basis of their ability to benefit
from the education provided (as defined by statute and regulation). Further,
schools are specifically excluded from participation if (i) the educational
institution has filed for bankruptcy, (ii) the owner, or its chief executive
officer, has been convicted or pleaded nolo contendere or guilty to a crime
involving the acquisition, use or expenditure of federal student aid funds, or
has been judicially determined to have committed fraud involving funds under the
student aid program or (iii) the educational institution has a cohort default
rate in excess of the rate prescribed by the Act. In order to participate in the
program, the eligibility of a school must be approved by the Department under
standards established by regulation.
Financial Need Analysis
Federal Student Loans may generally be made in amounts, subject to
certain limits and conditions, to cover the student's estimated costs of
attendance, including tuition and fees, books, supplies, room and board,
transportation and miscellaneous personal expenses (as determined by the
institution). With the exception of certain borrowers under the Federal
Unsubsidized Stafford Loan, Federal PLUS Loan, and Federal Consolidation Loan
programs, each borrower must undergo a financial need analysis, which requires
the borrower to submit a financial need analysis form to a multiple data entry
processor which forwards the information to the federal central processor. The
central processor evaluates the parents' and student's financial condition under
federal guidelines and calculates the amount that the student and/or the family
must contribute towards the student's cost of education (the "family
contribution"). After receiving information on the family contribution, the
institution then subtracts the family contribution from the cost for the student
to attend such institution to determine the student's eligibility for grants,
loans, and work assistance. The difference between the amount of grants and
Federal Stafford Loans for which the borrower is eligible
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<PAGE>
and the student's estimated cost of attendance (the "Unmet Need") may be
borrowed through Federal Unsubsidized Stafford Loans and, after exhausting
Federal Unsubsidized Stafford Loan limits, Federal SLS and Federal PLUS Loans.
Parents may finance the family contribution amount through their own resources
or through Federal PLUS Loans.
Special Allowance Payments
The Act provides for quarterly special allowance payments ("Special
Allowance Payments") to be made by the Department to holders of Federal Student
Loans to the extent necessary to ensure that such holder receives at least a
specified market interest rate of return on such loans. The rates for Special
Allowance Payments are based on formulas that differ according to the type of
loan, the date the loan was originally made or insured and the type of funds
used to finance such loan (tax-exempt or taxable). A Special Allowance Payment
is made for each of the 3- month periods ending March 31, June 30, September 30,
and December 31. The Special Allowance Payment equals the average unpaid
principal balance (including interest permitted to be capitalized) of all
eligible loans held by such holder during such period multiplied by the special
allowance percentage. The special allowance percentage is computed by (i)
determining the average of the bond equivalent rates of 91-day Treasury bills
auctioned for such 3- month period, (ii) subtracting the applicable borrower
interest rate on such loan from such average, (iii) adding the applicable
Special Allowance Margin (as set forth below) to the resultant percentage, and
(iv) dividing the resultant percentage by 4, provided, that, if the amount
determined by the application of clauses (i), (ii) and (iii) is in the negative,
the Special Allowance Margin is zero.
<TABLE>
<CAPTION>
Date of Disbursement Special Allowance Margin
-------------------- ------------------------
<S> <C>
Prior to 10/17/86............................ 3.50%
10/17/86 - 09/30/92.......................... 3.25%
10/01/92 - 06/30/95.......................... 3.10%
07/01/95 - 06/30/98.......................... 2.50% (Federal Stafford Loans and Federal Unsubsidized
Stafford Loans that are
in school, grace or
deferment) 3.10%
(Federal Stafford Loans
and Federal Unsubsidized
Stafford Loans that are
in repayment and all
other loans)
</TABLE>
Special Allowance Payments are available on variable rate Federal PLUS
and Federal SLS Loans only if the variable rate, which is reset annually based
on the 52-week Treasury Bill, exceeds the applicable maximum rate. Such maximum
is generally between 9% and 12%.
Federal Stafford Loans
The Act provides for (i) federal insurance or reinsurance of Federal
Stafford Loans made by eligible lenders to qualified students, (ii) federal
interest subsidy payments on certain eligible Federal Stafford Loans to be paid
by the Department to holders of the loans in lieu of the borrower making
interest payments ("Interest Subsidy Payments") and (iii) Special Allowance
Payments representing an additional subsidy paid by the Department to the
holders of eligible Federal Stafford Loans (such federal reinsurance
obligations, together with those obligations referred to in clauses (ii) and
(iii) above, being collectively referred to herein as "Federal Assistance").
Interest. The borrower's interest rate on a Federal Stafford Loan may be
fixed or variable. Federal Stafford Loan interest rates are summarized in the
chart below.
31
<PAGE>
<TABLE>
<CAPTION>
Trigger Date(1) Borrower Rate(2) Maximum Rate Interest Rate Margin
--------------- ------------- ------------ --------------------
<S> <C> <C> <C>
Prior to 01/01/81 7% 7% N/A
01/01/81 - 09/12/83 9% 9% N/A
09/13/83 - 06/30/88.......... 8% 8% N/A
07/01/88 - 09/30/92.......... 8% for 48 months; 8% for 48 months, then 3.25%
thereafter, 91-Day 10%
Treasury + Interest Rate
Margin
10/01/92 - 06/30/94.......... 91-Day Treasury + 9% 3.10%
Interest Rate Margin
07/01/94 - 06/30/95.......... 91-Day Treasury + 8.25% 3.10%
Interest Rate Margin
07/01/95 - 06/30/98.......... 91-Day Treasury + 8.25% 2.50% (in school, grace
Interest Rate Margin or deferment);
3.10% (in repayment)
</TABLE>
- ---------------------------------
(1) The Trigger Date for Federal Stafford Loans made before October 1, 1992
is the first day of enrollment period for which a borrower's first
Federal Stafford Loans is made and for Federal Stafford Loans made on
October 1, 1992 and after the Trigger Date is the date of the
disbursement of a borrower's first Federal Stafford Loan.
(2) The rate for variable rate Federal Stafford Loans applicable for any 12-
month period beginning on July 1 and ending on June 30, is determined on
the preceding June 1 and is equal to the lesser of (a) the applicable
Maximum Rate or (b) the sum of (i) the bond equivalent rate of 91-day
Treasury bills auctioned at the final auction held prior to such June 1
and (ii) the applicable Interest Rate Margin.
The 1992 Amendments provide that, for fixed rate loans made on or after
July 23, 1992 and for certain loans made to new borrowers on or after July 1,
1988, the lender must have converted by January 1, 1995 the interest rate on
such loans to an annual interest rate adjusted each July 1 equal to (1) for
certain loans made between July 1, 1988 and July 23, 1992, the 91-day Treasury
bill rate at the final auction prior to the preceding June 1 plus 3.25% and (2)
for loans made on or after July 23, 1992, the 91-day Treasury bill rate at the
final auction prior to the preceding June 1 plus 3.10%, in each case capped at
the applicable interest rate for such loan existing prior to the conversion. The
variable interest rate does not apply to loans made prior to July 23, 1992
during the first 48 months of repayment.
Interest Subsidy Payments. The Department is responsible for paying
interest on Federal Stafford Loans while the borrower is a qualified student,
during a grace period or during certain deferral periods. The Department makes
quarterly Interest Subsidy Payments to the owner of Federal Stafford Loans in
the amount of interest accruing on the unpaid balance thereof prior to the
commencement of repayment or during any Deferral Periods. The Act provides that
the owner of an eligible Federal Stafford Loan shall be deemed to have a
contractual right against the United States of America to receive Interest
Subsidy Payments (and Special Allowance Payments) in accordance with its
provisions. Receipt of Interest Subsidy Payments and Special Allowance Payments
is conditioned on compliance with the requirements of the 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 such loan for federal reinsurance. Such
eligibility may be lost, however, if the loans are not held by an eligible
lender, in accordance with the requirement of the Act and the applicable Federal
Guarantee Agreements. See "-- Eligible Lenders, Students and Institutions"
above; "Risk Factors -- Failure to Comply with Student Loan Origination and
Servicing Procedures for Federal Student Loans"; "Formation of the Trust --
Eligible Lender Trustee" and "Description of the Transfer and Servicing
Agreements -- Servicing Procedures". The Seller expects that substantially
32
<PAGE>
all of the Federal Stafford Loans that are conveyed to a Trust will be eligible
to receive Interest Subsidy Payments and Special Allowance Payments.
Interest Subsidy Payments and Special Allowance Payments are generally
received within 45 days to 60 days after submission to the Department of the
applicable claim 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
Related Indenture Trustee to Liquidate 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 each Eligible Lender Trustee as
owner of the related Federal Student Loans on behalf of each Trust. The Master
Servicer has also agreed to assist each Eligible Lender Trustee in monitoring,
pursuing and obtaining such Interest Subsidy Payments and Special Allowance
Payments, if any, with respect to such Federal Student Loans. Each Eligible
Lender Trustee will be required to remit Interest Subsidy Payments and Special
Allowance Payments it receives with respect to such Federal Student Loans within
two business days of receipt thereof to the related Collection Account.
Loan Limits. The Act requires that loans be disbursed by eligible
lenders in at least two separate and equal disbursements. The Act limited the
amount a student can borrow in any academic year and the amount he or she can
have outstanding in the aggregate. The following chart sets forth the current
and historic loan limits.
<TABLE>
<CAPTION>
All Students (1) Independent Students (1)
Borrower's Academic Subsidized Subsidized Base Amount Additional Total
Level Pre-1/1/87 on or after Subsidized and Unsubsidized Amount
1/1/87 Unsubsidized on only on or
or after after
10/1//93(2) 7/1/94(3)
<S> <C> <C> <C> <C> <C>
Undergraduate (per year)
1st year.............. $ 2,500 $ 2,625 $ 2,625 $ 4,000 $ 6,625
2nd year.............. $ 2,500 $ 2,625 $ 3,500 $ 4,000 $ 7,500
3rd year and above.... $ 2,500 $ 4,000 $ 5,500 $ 5,000 $ 10,500
Graduate (per year) $ 5,000 $ 7,500 $ 8,500 $10,000 $ 18,500
Aggregate Limited
Undergraduate......... $12,500 $17,250 $23,000 $23,000 $ 46,000
Graduate (including
undergraduate)..... $25,000 $54,750 $65,500 $73,000 $138,500
</TABLE>
- ----------------------------
(1) The loan limits are inclusive of both Federal Stafford Loans and Federal
Direct Student Loans.
(2) These amounts represent the combined maximum loan amount per year for
Federal Stafford and Federal Unsubsidized Stafford Loans. Accordingly,
the maximum amount that a student may borrow under an Federal
Unsubsidized Loan is the difference between the combined maximum loan
amount and the amount the student received in the form of a Federal
Stafford Loan.
(3) Independent undergraduate students, graduate students or professional
students may borrow these additional amounts. In addition, dependent
undergraduate students may also receive these additional loan amounts if
the parents of such students are unable to provide the family
contribution amount and it is unlikely that the student's parents will
qualify for a Federal PLUS Loan.
33
<PAGE>
The annual loan limits are reduced in some instances where the student has less
than a full academic year remaining in his or her program. The Department has
discretion to raise these limits to accommodate highly specialized or
exceptionally expensive courses of study.
Repayment. Repayment of principal on a Federal Stafford Loan generally
does not commence while a student remains a qualified student, but generally
begins upon expiration of the applicable grace period, as described below. Any
borrower may voluntarily prepay without premium or penalty any loan and in
connection therewith may waive any Grace Period or Deferral Period. In general,
each loan must be scheduled for repayment over a period of not more than ten
years after the commencement of repayment. The Act currently requires minimum
annual payments of $600 or, if greater, the amount of accrued interest for that
year, unless the borrower and the lender agree to lesser payments. Effective
July 1, 1993, the Act and regulations promulgated thereunder require lenders to
offer graduated or income-sensitive repayment schedules to all borrowers who
receive a loan on or after such date.
Grace Periods, Deferral Periods, Forbearance Periods. Repayment of
principal on a Federal Stafford Loan must generally commence following a period
of (a) not less than 9 months or 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 9% per
annum or 8% per annum and for loans to first time borrowers on or after July l,
1988) after the borrower ceases to pursue at least a half-time course of study
(a "Grace Period"). However, during certain other periods (each, a "Deferral
Period") and subject to certain conditions, no principal repayments need be
made, including periods when the student has returned to an eligible educational
institution on a full-time basis or is pursuing studies pursuant to an approved
graduate fellowship program, or when the student is a member of the Armed Forces
or a volunteer under the Peace Corps Act or the Domestic Volunteer Service Act
of 1973, or when the borrower is temporarily totally disabled, or periods during
which the borrower may defer principal payments because of temporary financial
hardship. For new borrowers to whom loans are first disbursed on or after July
l, 1993, payment of principal may be deferred only while the borrower is at
least a half-time student or is in an approved graduate fellowship program or is
enrolled in a rehabilitation program, or when the borrower is seeking but unable
to find full-time employment, subject to a maximum deferment of three years, or
when for any reason the lender determines that payment of principal will cause
the borrower economic hardship, also subject to a maximum deferment of three
years. The 1992 Amendments also permit forbearance of loan collection in certain
circumstances (each such period, a "Forbearance Period").
Federal Unsubsidized Stafford Loans
The Federal Unsubsidized Stafford Loan program created under the 1992
Amendments is designed for students who do not qualify for the maximum Federal
Stafford Loan due to parental and/or student income and assets in excess of
permitted amounts. The basic requirements for Federal Unsubsidized Stafford
Loans are essentially the same as those for the Federal Stafford Loans,
including with respect to provisions governing the interest rate, the annual
loan limits and the Special Allowance Payments. The terms of the Federal
Unsubsidized Stafford Loans, however, differ in some respects. The federal
government does not make Interest Subsidy Payments on Federal Unsubsidized
Stafford Loans. The borrower must either begin making interest payments within
60 days after the time the loan is disbursed or permit capitalization of the
interest by the lender until repayment begins. Prior to July 1, 1994, Federal
Unsubsidized Stafford Loan borrowers were required to pay, upon disbursement, a
6.5% insurance fee to the Department, though no guarantee fee may be charged by
the applicable Federal Guarantor. Effective July 1, 1994, the maximum insurance
premium is reduced to l% and the origination fee is 3%. Subject to the same loan
limits established for Federal Stafford Loans, the student may borrow up to the
amount of such student's Unmet Need. Lenders are authorized to make Federal
Unsubsidized Stafford Loans for periods of enrollment beginning on or after
October l, 1992.
Federal PLUS and Federal SLS Loan Programs
The Act authorizes Federal PLUS Loans to be made to parents of eligible
dependent students and Federal SLS Loans to be made to certain categories of
students. After July l, 1993, only parents who do not have an adverse credit
34
<PAGE>
history are eligible for Federal PLUS Loans. The basic provisions applicable to
Federal PLUS and Federal SLS Loans are similar to those of Federal Stafford
Loans with respect to the federal insurance and reinsurance on the loans.
However, Federal PLUS and Federal SLS Loans differ from Federal Stafford Loans,
particularly because Interest Subsidy Payments are not available under the
Federal PLUS and Federal SLS Programs and in some instances Special Allowance
Payments are more restricted.
Loan Limits. Federal PLUS and Federal SLS Loans disbursed prior to July
l, 1993 are limited to $4,000 per academic year with a maximum aggregate amount
of $20,000. Federal SLS Loan limits for loans disbursed on or after July l, 1993
depended upon the class year of the student and the length of the academic year.
The annual loan limit for Federal SLS Loans first disbursed on or after July l,
1993 ranged from $4,000 for first and second year undergraduate borrowers to
$10,000 for graduate borrowers, with a maximum aggregate amount of $23,000 for
undergraduate borrowers and $73,000 for graduate and professional borrowers.
After July l, 1994, for purposes of new loans being originated, the Federal SLS
programs will be merged with the Federal Unsubsidized Stafford Loan program with
the borrowing limits reflecting the combined eligibility under both programs.
The only limit on the annual and aggregate amounts of Federal PLUS Loans first
disbursed on or after July l, 1993 is the cost of the student's education less
other financial aid received, including scholarship, grants and other student
loans.
Interest. The interest rate determination for a PLUS or SLS loan is
dependent on when the loan was originally made and disbursed and the period of
enrollment. For PLUS or SLS loans that carry a variable rate, the rate is set
annually for 12-month periods beginning on July 1 and ending on June 30. The
interest rates for PLUS and SLS loans are summarized in the following chart.
<TABLE>
<CAPTION>
Trigger Date Borrower Rate(1) Maximum Rate(2) Interest Rate Margin
<S> <C> <C> <C>
Prior to 10/01/81.................. 9% 9% N/A
10/01/81 - 10/30/82................ 14% 14% N/A
11/01/82 - 06/30/87................ 12% 12% N/A
07/01/87 - 09/30/92................ 52-Week Treasury + 12% 3.25%
Interest Rate Margin
10/01/92 - 06/30/94................ 52-Week Treasury + PLUS 10% 3.10%
Interest Rate Margin SLS 11%
After 06/30/94..................... 52-Week Treasury + 9% 3.10%
(SLS repealed 07/01/94) Interest Rate Margin
</TABLE>
- ---------------------------------
(1) The Trigger Date for PLUS and SLS loans made before October 1, 1992 is
the first day of enrollment period for which loan is made, and for PLUS
and SLS loans made on October 1, 1992 and after the Trigger Date is the
date of the disbursement of loan, respectively.
(2) The rate is set on the preceding June 1 and is equal to the lessor of
(a) the applicant maximum rate or (b) the sum of (i) the bond equivalent
rate of 52-week Treasury bills auctioned at the final auction held prior
to such June 1, and (ii) the applicable Interest Rate Margin.
A holder of a PLUS or SLS loan is eligible to receive Special Allowance
Payments during any such 12-month period if (a) the sum of (i) the bond
equivalent rate of 52-week Treasury bills auctioned at the final auction held
prior to such June 1 and (ii) the Interest Rate Margin exceeds (b) the Maximum
Rate.
35
<PAGE>
Repayment, Deferments. The 1992 Amendments provide Federal SLS borrowers
with the option to defer commencement of repayment of principal until the
commencement of repayment of Federal Stafford Loans. Otherwise, repayment of
principal of Federal PLUS and Federal SLS Loans is required to commence no later
than 60 days after the date of disbursement of such loan, subject to certain
deferral and forbearance provisions. The deferral provisions which apply are
more limited than those which apply to Federal Stafford Loans. Repayment of
interest, however, may be deferred and capitalized during certain periods of
educational enrollments and periods of unemployment or hardship as specified
under the Act. Further, whereas Interest Subsidy Payments are not available for
such deferments, interest may be capitalized during such periods upon agreement
of the lender and borrower. Maximum loan repayment periods and minimum payment
amounts are the same as for Federal Stafford Loans.
A borrower may refinance all outstanding Federal PLUS Loans under a
single repayment schedule for principal and interest, with the new repayment
period calculated from the date of repayment of the most recent included loan.
The interest rate of such refinanced loan shall be the weighted average of the
rates of all Federal PLUS Loans being refinanced. A second type of refinancing
enables an eligible lender to reissue a Federal PLUS Loan which was initially
originated at a fixed rate prior to July l, 1987 in order to permit the borrower
to obtain the variable interest rate available on Federal PLUS Loans on and
after July 1, 1987. If a lender is unwilling to refinance the original Federal
PLUS Loan, the borrower may obtain a loan from another lender for the purpose of
discharging the loan and obtaining a variable interest rate.
Federal Consolidation Loan Program
The Act authorizes a program under which certain borrowers may
consolidate one or more of their Federal Student Loans into a single loan (a
"Federal Consolidation Loan") insured and reinsured on a basis similar to
Federal Stafford Loans. Federal Consolidation Loans may be made in an amount
sufficient to pay outstanding principal, unpaid interest and late charges on all
federally insured or reinsured student loans incurred under FFELP selected by
the borrower, as well as loans made pursuant to various other federal student
loan programs and which may have been made by different lenders. Under this
program, a lender may make a Federal Consolidation Loan to an eligible borrower
at the request of the borrower if the lender holds an outstanding loan of the
borrower or the borrower certifies that he has been unable to obtain a Federal
Consolidation Loan from the holders of the outstanding loans made to the
borrower. Borrowers that are unable to obtain a Federal Consolidation Loan from
an eligible lender or a Federal Consolidation Loan with an income-sensitive
repayment plan acceptable to the borrower may obtain a Federal Consolidation
Loan under the direct loan program. Federal Consolidation Loans that are made on
or after July 1, 1994 will have no minimum loan amount, although Federal
Consolidation Loans for less than $7,500 must be repaid in ten years.
Applications for Federal Consolidation Loans received on or after January l,
1993 but prior to July l, 1994, are available only to borrowers who have
aggregate outstanding student loan balances of at least $7,500; for applications
received before January l, 1993, Federal Consolidation Loans arc available only
to borrowers who have aggregate outstanding student loan balances of at least
$5,000. The borrowers must be either in repayment status or in a grace period
preceding repayment and, for applications received prior to January l, 1993 the
borrower must not be delinquent by more than 90 days on any student loan
payment; for applications received on or after January 1, 1993 delinquent or
defaulted borrowers are eligible to obtain Federal Consolidation Loans if they
will reenter repayment through loan consolidation. For applications received on
or after January l, 1993, borrowers may within 180 days of the origination of a
Federal Consolidation Loan add additional loans made prior to consolidation
("Add-on Consolidation Loans") for consolidation therewith. For applications
received on or after January l, 1993, married couples who agree to be jointly
and severally liable will be treated as one borrower for purposes of loan
consolidation eligibility.
Federal Consolidation Loans bear interest at a rate which equals the
weighted average of interest rates on the unpaid principal balance of
outstanding loans, rounded to the nearest whole percent, with a minimum rate of
9% for loans originated prior to July 1, 1994. For Federal Consolidation Loans
made on or after July 1, 1994, such weighted average interest rate must be
rounded up to the nearest whole percent. Interest on Federal Consolidation Loans
accrues and, for applications received prior to January l, 1993, is to be paid
without Interest Subsidy by the Department. For Federal Consolidation Loans
received on or after January l, 1993, all interest of the borrower is paid
during all periods
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of Deferment. However, Federal Consolidation Loan applications received on or
after August 10, 1993 will only be subsidized if all of the underlying loans
being consolidated were subsidized Federal Stafford Loans. Borrowers may elect
to accelerate principal payments without penalty. Further, no insurance premium
may be charged to a borrower and no insurance premium may be charged to a lender
in connection with a Federal Consolidation Loan. However, lenders must pay a
monthly rebate fee at an annualized rate of 1.05% for loans disbursed on or
after October l, 1993. The rate for Special Allowance Payments for Federal
Consolidation Loans is determined in the same manner as for Federal Stafford
Loans.
Repayment of Federal Consolidation Loans begins 60 days after discharge
of all prior loans which are consolidated. Repayment schedules must include, for
applications received on or after January l, 1993, the establishment of
graduated or income sensitive repayment plans, subject to certain limits
applicable to the sum of the Federal Consolidation Loan and the amount of the
borrower's other eligible student loans outstanding. The lender may, at its
option, include such graduated and income sensitive repayment plans for
applications received prior to that date. Generally, depending on the total of
loans outstanding, repayment may be scheduled over periods no shorter than ten
but not more than twenty-five years in length. For applications received on or
after January l, 1993, the maximum maturity schedule is 30 years for Federal
Consolidation Loans of $60,000 or more.
All eligible loans of a borrower paid in full through consolidation are
discharged in the consolidation process when the new Federal Consolidation Loan
is issued.
Federal Guarantors
The Act authorizes Federal Guarantors to support education financing and
credit needs of students at post-secondary schools. The Act encourages every
state either to establish its own agency or to designate another Federal
Guarantor in cooperation with the Secretary. Under various programs throughout
the United States of America, Federal Guarantors insure and sometimes service
guaranteed student loans. The Federal Guarantors are reinsured by the federal
government for from 80% to 100% of each default claim paid, depending on their
claims experience, for loans disbursed prior to October l, 1993 and from 78% to
98% of each default claim paid for loans disbursed on or after October l, 1993.
Federal Guarantors are reinsured by the federal government for 100% of death,
disability, and bankruptcy claims paid. See "-- Federal Insurance and
Reinsurance of Federal Guarantors" below.
Federal Guarantors collect a one-time insurance premium ranging from 0%
to 3% of the principal amount of each guaranteed loan, depending on the Federal
Guarantor. Federal Guarantors are prohibited from charging insurance premiums on
loans made under the Federal Unsubsidized Stafford Loan program prior to July
1,1994. On such loans made prior to July 1, 1994, the Act requires that a 6.5%
combined loan origination fee and insurance premium be paid by the borrower on
Federal Unsubsidized Stafford Loans. This fee is passed through to the
Department by the originating lender. Effective July 1, 1994, the maximum
insurance premium and origination fee for Federal Stafford Loans and Federal
Unsubsidized Stafford Loans will be 1% and 3%, respectively.
Each Federal Student Loan to be sold to an Eligible Lender Trustee on
behalf of a Trust will be guaranteed as to principal and interest by a Federal
Guarantor pursuant to a Guarantee Agreement between such Federal Guarantor and
the applicable Eligible Lender Trustee. The applicable Prospectus Supplement for
each Trust will identify each related Federal Guarantor for the Federal Student
Loans held by such Trust as of the applicable Closing Date and the amount of
such Federal Student Loans it is guaranteeing for such Trust.
The 1993 Act granted the Department broad powers over Federal Guarantors
and their reserves. These powers include the authority to require a Federal
Guarantor to return all reserve funds to the Department if the Department
determines such action is necessary to ensure an orderly termination of the
Federal Guarantor, to serve the best interests of the student loan programs or
to ensure the proper maintenance of such Federal Guarantor's funds or assets.
The Department is also now authorized to direct a Federal 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 Federal Guarantor
and/or to cease any activities involving the use of the Federal Guarantor's
reserve funds or assets which
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the Department determines is a misapplication or otherwise improper. The
Department may also terminate a Federal 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 Federal Guarantors to meet their guarantee
obligations will be significantly reduced.
Federal Insurance and Reinsurance of Federal Guarantors
A Federal Student Loan is considered to be in default for purposes of
the Act when the borrower fails to make an installment payment when due, or to
comply with other terms of the loan, and if the failure persists for 180 days,
as specified by the Act. Under certain circumstances a loan deemed ineligible
for Federal Reinsurance may be restored to eligibility. Procedures for such
restoration of eligibility are discussed below.
If the loan in default is covered by federal loan insurance in
accordance with the provisions of the Act, the Department is to pay the
applicable Federal Guarantor, as insurance beneficiary, the amount of the loss
sustained thereby, upon notice and determination of such amount, within 90 days
of such notification, subject to reduction as described below.
If the loan is guaranteed by a Federal Guarantor, the eligible lender is
reimbursed by the Federal Guarantor for 100% (or not less than 98% for loans
disbursed on or after October l, 1993) of the unpaid principal balance of the
loan plus accrued and unpaid interest on any loan defaulted so long as the
eligible lender has properly originated and serviced such loan. Under the Act,
the Department enters into a guarantee agreement with each Federal Guarantor,
which provides for federal reinsurance for amounts paid to eligible lenders by
the Federal Guarantor with respect to defaulted loans.
Pursuant to such agreements, the Department also agrees to reimburse a
Federal Guarantor for 100% of the amounts expended in connection with a claim
resulting from the death, bankruptcy, total and permanent disability of a
borrower, the death of a student whose parent is the borrower of a Federal PLUS
Loan or claims by borrowers who received loans on or after January l, 1986 and
who are unable to complete the programs in which they are enrolled due to school
closure or borrowers whose borrowing eligibility was falsely certified by the
eligible institution; such claims are not included in calculating a Federal
Guarantor's claims rate experience for federal reinsurance purposes. The
Department is also required to repay the unpaid balance of any loan if the
borrower files for relief under Chapter 12 or 13 of the Bankruptcy Code or files
for relief under Chapter 7 or 11 of the Bankruptcy Code and commences an action
for a determination of dischargeability under Section 523(a)(8)(b) of the
Bankruptcy Code, and is authorized to acquire the loans of borrowers who are at
high risk of default and who request an alternative repayment option from the
Department.
The amount of such reinsurance payment to the Federal Guarantor for
default claims is subject to reduction based upon the annual default claims rate
of the Federal Guarantor, calculated to equal the amount of federal reinsurance
as a percentage of the original principal amount of guaranteed loans in
repayment on the last day of the prior federal fiscal year. The formula is
summarized as follows:
<TABLE>
<CAPTION>
Reimbursement to Federal Guarantor by the
Claims Rate of Federal Guarantor Department of Education (1)
- -------------------------------- ----------------------------------------------
<S> <C>
0% to and including 5%; 100%
Greater than 5% to and including 9%; 100% of claims to and including 5%; 90% of claims greater than
5%
Greater than 9% 100% of claims to and including 5%; 90% of claims greater than
5% to and including 9%; and 80% of claims greater than 9%
</TABLE>
- --------------------------
(1) The federal reimbursement is reduced to 98%, 88% and 78% for loans
disbursed on or after October l, 1993.
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The claims experience is not accumulated from year to year, but is
determined solely on the basis of claims in any one federal fiscal year compared
with the original principal amount of loans in repayment at the beginning of
that year.
The 1992 Amendments to the Act addressed education loan industry
concerns regarding the Department's commitment to providing support in the event
of Federal Guarantor failures. Pursuant to the 1992 Amendments, Federal
Guarantors are required to maintain specified reserve fund levels. Such levels
are defined as 0.5% of the total attributable amount of all outstanding loans
guaranteed by the Federal Guarantor for the fiscal year of the Federal Guarantor
that begins in 1993, 0.7% for the Federal Guarantor's fiscal year beginning in
1994, 0.9% for the Federal Guarantor's fiscal year beginning in 1995, and 1.1%
for the Federal Guarantor's fiscal year beginning on or after January l, 1996.
If the Federal Guarantor fails to achieve the minimum reserve level in any two
consecutive years, if the Federal Guarantor's federal annual claims rate equals
or exceeds 9% or if the Department determines the Federal Guarantor's
administrative or financial condition jeopardizes its continued ability to
perform its responsibilities, the Department may require the Federal Guarantor
to submit and implement a management plan to address the deficiencies. The
Department may terminate the Federal Guarantor's agreements with the Department
if the Guarantor fails to submit the required plan, or fails to improve its
administrative or financial condition substantially, or if the Department
determines the Federal Guarantor is in danger of financial collapse. In such
event, the Department is required to assume responsibility for the functions of
such Federal Guarantor and in connection therewith is authorized to undertake
specified actions to assure the continued payment of claims, including maturity
advances to Federal Guarantors to cover immediate cash needs, transferring of
guarantees to another Federal Guarantor, or transfer of guarantees to the
Department itself. No assurance can be made that the Department will under any
given circumstance exercise its right to terminate a reimbursement agreement
with a Federal Guarantor or make a determination that such Federal Guarantor is
unable to meet its guarantee obligations.
The Act requires that, subject to compliance with the Act, the Secretary
must pay all amounts which may be required to be paid under the Act as a result
of certain events of death, disability, bankruptcy, school closure or false
certification by the educational institution described therein. It further
provides that Federal Guarantors shall be deemed to have a contractual right
against the United States of America to receive reinsurance in accordance with
its provisions. In addition, the 1992 Amendments provide that if the Department
determines that a Federal Guarantor is unable to meet its insurance obligations,
holders of loans may submit insurance claims directly to the Department until
such time as the obligations are transferred to a new Federal Guarantor capable
of meeting such obligations or until a successor Federal Guarantor assumes such
obligations. No assurance can be made that the Department would under any given
circumstances assume such obligation to assure satisfaction of a guarantee
obligation by exercising its right to terminate a reimbursement agreement with a
Federal Guarantor or by making a determination that such Federal Guarantor is
unable to meet its guarantee obligations.
PRIVATE STUDENT AND OTHER LOAN PROGRAMS
A description of each private guarantee or other student loan program
relating to the Private Student Loans or other student loans in a Trust will be
set forth in the related Prospectus Supplement.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Notes and the Certificates of any
series will generally be influenced by the rate at which the principal balances
of the related Student Loans are paid, which payment may be in the form of
scheduled amortization or prepayments. (For this purpose, the term "prepayments"
includes prepayments in full or in part (including pursuant to Federal
Consolidation Loans), as a result of (i) borrower default, death, disability or
bankruptcy, (ii) a closing or a false certification by the borrower's school and
(iii) subsequent liquidation or collection of Guarantee Payments with respect
thereto and as a result of Student Loans being repurchased by the Seller or the
Master Servicer for administrative reasons.) All of the Student Loans are
prepayable at any time without penalty
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to the borrower. The rate of prepayment of Student Loans is influenced by a
variety of economic, social and other factors, including as described below and
in the applicable Prospectus Supplement. 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 Student Loans. However, because many of the Student Loans bear
interest that either actually or effectively is floating, it is impossible to
predict whether changes in prevailing interest rates will be similar to or will
vary from changes in the interest rates on the Student Loans. In addition, under
certain circumstances, the Seller or the Master Servicer will be obligated to
repurchase or arrange for the repurchase of Student Loans from a given Trust
pursuant to the related Loan Sale Agreement or Master Servicing Agreement, as
applicable, as a result of breaches of applicable representations and warranties
or covenants. See "Description of the Transfer and Servicing Agreements -- Sale
of Student Loans; Representations and Warranties" and " -- Servicer Covenants".
See also "Description of the Transfer and Servicing Agreements -- Termination"
regarding the Master Servicer's option to purchase the Student Loans from a
given Trust and "-- Insolvency Event" regarding the sale of the Student Loans if
an Insolvency Event with respect to the Seller or the Company occurs. In
addition, if specified in the related Prospectus Supplement, the initial
principal balance of the Notes and the Certificates may exceed the initial pool
balance of the Student Loans in the Trust. In such case, amounts representing
interest payments on Student Loans in excess of certain amounts required to be
paid to the Noteholders and the Certificateholders, may be used to reduce the
principal balance of the Notes and the Certificates, thus reducing the weighted
average life of the Notes and the Certificates. Also, in the case of a Trust
having a Funding Period or Revolving Period, the addition of Student Loans to
the Trust during such period could affect the weighted average life of the
Securities of the related series. See "Description of the Transfer and Servicing
Agreements --Additional Fundings" herein.
On the other hand, scheduled payments with respect to, and maturities
of, the Student Loans may be extended, including pursuant to applicable grace,
deferral and forbearance periods. The rate of payment of principal of the Notes
and the Certificates and the yield on the Notes and the Certificates may also be
affected by the rate of defaults resulting in losses on Student Loans, by the
severity of those losses and by the timing of those losses, which may affect the
ability of the Guarantors to make Guarantee Payments with respect thereto.
In light of the above considerations, there can be no assurance as to
the amount of principal payments to be made on the Notes or the Certificates of
a given series on each Distribution Date, since such amount will depend, in
part, on the amount of principal collected on the related pool of Student Loans
during the applicable Collection Period. Any reinvestment risks resulting from a
faster or slower incidence of prepayment of Student Loans will be borne entirely
by the Noteholders and the Certificateholders of a given series. The related
Prospectus Supplement will set forth certain additional information with respect
to the maturity and prepayment considerations applicable to the particular pool
of Student Loans and the related series of Securities.
POOL FACTORS AND TRADING INFORMATION
Each of the "Note Pool Factor" for each class of Notes and the
"Certificate Pool Factor" for each class of Certificates (each, a "Pool Factor")
will be a seven-digit decimal which the Master Servicer will compute prior to
each Distribution Date indicating the remaining outstanding principal balance of
such class of Notes or the remaining Certificate Balance for such class of
Certificates, respectively, as of that Distribution Date (after giving effect to
distributions to be made on such Distribution Date), as a fraction of the
initial outstanding principal balance of such class of the Notes or the initial
Certificate Balance, for such class of Certificates, respectively. Each Pool
Factor will be 1.0000000 as of the Closing Date, and thereafter will decline to
reflect reductions in the outstanding principal balance of the applicable class
of Notes or reductions of the Certificate Balance of the applicable class of
Certificates, as applicable. A Securityholder's portion of the aggregate
outstanding principal balance of the related class of Notes or of the aggregate
outstanding Certificate Balance for the related class of Certificates, as
applicable, is the product of (i) the original denomination of that
Securityholder's Note or Certificate and (ii) the applicable Pool Factor.
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Unless otherwise provided in the related Prospectus Supplement with
respect to each Trust, the Securityholders will receive reports on or about each
Distribution Date concerning the payments received on the Student Loans, the
Pool Balance (as such term is defined in the related Prospectus Supplement, the
"Pool Balance"), the applicable Pool Factor and various other items of
information. Securityholders of record during any calendar year will be
furnished information for tax reporting purposes not later than the latest date
permitted by law. See "Certain Information Regarding the Securities -- Reports
to Securityholders".
DESCRIPTION OF THE NOTES
General
With respect to each Trust, one or more classes of Notes of a given
series will be issued pursuant to the terms of an Indenture, a form of which has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part. The following summary describes certain terms of the Notes and the
Indenture. The summary does not purport to be complete and is qualified in its
entirety by reference to all the provisions of the Notes and the Indenture.
Unless otherwise specified in the related Prospectus Supplement, each
class of Notes will initially be represented by one or more Notes, in each case
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. Unless otherwise specified in the related Prospectus Supplement, the
Notes will be available for purchase in denominations of $1,000 and integral
multiples thereof in book-entry form only. The Seller has been informed by DTC
that DTC's nominee will be Cede, unless another nominee is specified in the
related Prospectus Supplement. Accordingly, such nominee is expected to be the
holder of record of the Notes of each class. Unless and until Definitive Notes
(as defined below) are issued under the limited circumstances described herein
or in the related Prospectus Supplement, no Noteholder will be entitled to
receive a physical certificate representing a Note. All references herein and in
the related Prospectus Supplement 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 its nominee, as the registered holder of the Notes, as the
case may be, for distribution to Noteholders in accordance with DTC's procedures
with respect thereto. See "Certain Information Regarding the Securities -- Book-
Entry Registration" and " -- Definitive Securities".
Principal and Interest on the Notes
The timing and priority of payment, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal and
interest on each class of Notes of a given series will be described in the
related Prospectus Supplement. The right of holders of any class of Notes to
receive payments of principal and interest may be senior or subordinate to the
rights of holders of any other class or classes of Notes of such series, as
described in the related Prospectus Supplement. Unless otherwise provided in the
related Prospectus Supplement, payments of interest on the Notes of such series
will be made prior to payments of principal thereon. Each class of Notes may
have a different Interest Rate, which may be a fixed, variable or adjustable
Interest Rate or any combination of the foregoing. The related Prospectus
Supplement will specify the Interest Rate for each class of Notes of a given
series or the method for determining such Interest Rate. See also "Certain
Information Regarding the Securities -- Fixed Rate Securities" and "-- Floating
Rate Securities". One or more classes of Notes of a series may be redeemable in
whole or in part under the circumstances specified in the related Prospectus
Supplement, including as a result of the Seller's exercising its option to
purchase the related Student Loans.
Unless otherwise specified in the related Prospectus Supplement,
payments to Noteholders of all classes within a series in respect of interest
will have the same priority. Under certain circumstances, the amount available
for such payments could be less than the amount of interest payable on the Notes
on any of the dates specified for payments in the related Prospectus Supplement
(each, a "Distribution Date"), in which case each class of Noteholders will
receive its ratable share (based upon the aggregate amount of interest due to
such class of Noteholders) of the
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aggregate amount available to be distributed in respect of interest on the Notes
of such series. See "Description of the Transfer and Servicing Agreements --
Distributions" and "-- Credit and Cash Flow Enhancement".
In the case of a series of Notes which includes two or more classes of
Notes, the sequential order and priority of payment in respect of principal and
interest, and any schedule or formula or other provisions applicable to the
determination thereof, of each such class will be set forth in the related
Prospectus Supplement. Payments in respect of principal and interest of any
class of Notes will be made on a pro rata basis among all the Noteholders of
such class.
In the case of a series of Notes relating to a Trust having a
Pre-Funding Account or Collateral Reinvestment Account, the Notes of such series
will be redeemed in part on the Distribution Date on or immediately following
the last day of the related Funding Period or Revolving Period, respectively, in
the event that any amount remains on deposit in the applicable account after
giving effect to all Additional Fundings on or prior to such date, in an
aggregate principal amount described in the related Prospectus Supplement.
See "Description of the Transfer and Servicing Agreement -- Credit and
Cash Flow Enhancement -- Reserve Account" for a description of the Reserve
Account and the distribution of amounts in excess of the Specified Reserve
Account Balance (as defined in the related Prospectus Supplement).
The Indenture
Modification of Indenture. With respect to each Trust, with the consent
of the holders of a majority of the outstanding Notes of the related series, the
Indenture Trustee and the Trust may execute a supplemental indenture to add
provisions to, or change in any manner or eliminate any provisions of, the
Indenture with respect to the Notes, or to modify (except as provided below) in
any manner the rights of the related Noteholders.
Unless otherwise specified in the related Prospectus Supplement with
respect to a series of Notes, without the consent of the holder of each such
outstanding Note affected thereby, however, no supplemental indenture will (i)
change the due date of any installment of principal of or interest on any such
Note or reduce the principal amount thereof, the interest rate specified thereon
or the redemption price with respect thereto or change any place of payment
where or the coin or currency in which any such Note or any interest thereon is
payable, (ii) impair the right to institute suit for the enforcement of certain
provisions of the related Indenture regarding payment, (iii) reduce the
percentage of the aggregate amount of the outstanding Notes of such 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 related Indenture or of certain defaults
thereunder and their consequences as provided for in such Indenture, (iv) modify
or alter the provisions of the related Indenture regarding the voting of Notes
held by the applicable Trust, the Seller, an affiliate of either of them or any
obligor on such Notes, (v) reduce the percentage of the aggregate outstanding
amount of such Notes, the consent of the holders of which is required to direct
the related Eligible Lender Trustee on behalf of the applicable Trust to sell or
liquidate the Student Loans if the proceeds of such sale would be insufficient
to pay the principal amount and accrued but unpaid interest on the outstanding
Notes of such series, (vi) decrease the percentage of the aggregate principal
amount of such Notes required to amend the sections of the related Indenture
which specify the applicable percentage of aggregate principal amount of such
Notes necessary to amend the related Indenture or certain other related
agreements or (vii) permit the creation of any lien ranking prior to or on a
parity with the lien of the related Indenture with respect to any of the
collateral for the Notes of such series or, except as otherwise permitted or
contemplated in such Indenture, terminate the lien of such Indenture on any such
collateral or deprive the holder of any Note of the security afforded by the
lien of such Indenture.
Unless otherwise specified in the applicable Prospectus Supplement, the
applicable Trust and the related Indenture Trustee may also enter into
supplemental indentures without obtaining the consent of Noteholders of such
series, for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the related Indenture or of modifying in
any manner the rights of Noteholders of such series so long as such action
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<PAGE>
will not, in the opinion of counsel satisfactory to the applicable Indenture
Trustee, materially and adversely affect the interest of any Noteholder of such
series and in the circumstances described under the heading "Assumption of
Signet's Obligations".
Events of Default; Rights Upon Event of Default. With respect to the
Notes of a given series, unless otherwise specified in the related Prospectus
Supplement, an "Event of Default" under the related indenture will consist of
the following: (i) a default for five days or more in the payment of any
interest on any such Note after the same becomes due and payable; (ii) a default
in the payment of the principal of or any installment of the principal of any
such Note when the same becomes due and payable; (iii) a default in the
observance or performance of any covenant or agreement of the applicable Trust
made in the related Indenture and the continuation of any such default for a
period of thirty days after notice thereof is given to the applicable Trust by
the applicable Indenture Trustee or to the applicable Trust and the applicable
Indenture Trustee by the holders of at least 25% in principal amount of such
Notes then outstanding; provided, however, that if the Trust demonstrates that
it is making a good faith attempt to cure such default, such thirty-day period
may be extended by the Indenture Trustee to ninety days; (iv) any representation
or warranty made by the applicable Trust in the related 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 thirty days after notice thereof is given to such Trust by the
applicable Indenture Trustee or to such Trust and the applicable Indenture
Trustee by the holders of at least 25% in principal amount of the Notes of such
series then outstanding; provided, however, that if the Trust demonstrates that
it is making a good faith attempt to cure such breach, such thirty-day period
may be extended by the Indenture Trustee to ninety days or (v) certain events of
bankruptcy, insolvency, receivership or liquidation of such Trust. However, the
amount of principal required to be distributed to Noteholders of such series
under the related Indenture on any Distribution Date will generally be limited
to amounts available after payment of all prior obligations of such Trust.
Therefore, unless otherwise specified in the related Prospectus Supplement, the
failure to pay principal on a class of Notes generally will not result in the
occurrence of an Event of Default until the final scheduled Distribution Date
for such class of Notes. If, with respect to any series of Notes, interest is
paid at a variable rate based on an index, the related Prospectus Supplement may
provide that, in the event that, for any Distribution Date, the Interest Rate as
calculated based on the index is less than an alternate rate calculated for such
Distribution Date based on interest collections on the Student Loans (the amount
of such difference, the "Index Shortfall Carryover"), the Interest Rate for such
Distribution Date shall be such alternate rate and the Interest Shortfall
Carryover shall be payable as described in such Prospectus Supplement. Unless
otherwise provided in such Prospectus Supplement, payment of the Index Shortfall
Carryover shall be lower in priority than payment of interest on the Notes at
the Interest Rate (whether the Interest Rate is based on the index or such
alternate rate) and, accordingly, the nonpayment of the Interest Shortfall
Carryover on any Distribution Date shall not generally constitute a default in
the payment of interest on such Notes.
If an Event of Default should occur and be continuing with respect to
the Notes of any series, the related Indenture Trustee or holders of a majority
in principal amount of such Notes then outstanding may declare the principal of
such Notes to be immediately due and payable. Unless otherwise specified in the
related Prospectus Supplement, such declaration may be rescinded by the holders
of a majority in principal amount of such notes then outstanding if (i) the
Eligible Lender Trustee on behalf of the related Trust has paid or deposited
with the Indenture Trustee a sum sufficient to pay (A) all payments of principal
of and interest on all Notes and all other amounts that would then be due under
the related Indenture 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 under the related Indenture 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 Notes that has become due solely by such acceleration, have
been cured or, under the circumstances described below, waived.
If the Notes of any series have been declared to be due and payable
following an Event of Default with respect thereto, the related Indenture
Trustee may, in its discretion, exercise remedies as a secured party, require
the related Eligible Lender Trustee to sell the Student Loans or elect to have
the related Eligible Lender Trustee maintain possession of the Student Loans and
continue to apply collections with respect to such Student Loans as if there had
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been no declaration of acceleration. Unless otherwise specified in the related
Prospectus Supplement, however, the related Indenture Trustee is prohibited from
directing the related Eligible Lender Trustee to sell the Student Loans
following an Event of Default, other than a default in the payment of any
principal or a default for five days or more in the payment of any interest on
any Note with respect to any series, unless (i) the holders of all such
outstanding Notes consent to such sale, (ii) the proceeds of such sale are
sufficient to pay in full the principal of and the accrued interest on such
outstanding Notes at the date of such sale or (iii) the related Indenture
Trustee determines that the collections on the Student Loans would not be
sufficient on an ongoing basis to make all payments on such Notes as such
payments would have become due if such obligations had not been declared due and
payable, and the related Indenture Trustee obtains the consent of the holders of
66 2/3% of the aggregate principal amount of such Notes then outstanding.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default should occur and
be continuing with respect to a series of Notes, the related Indenture Trustee
will be under no obligation to exercise any of the rights or powers under the
applicable Indenture at the request or direction of any of the holders of such
Notes, if such 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 related Indenture, the
holders of a majority in principal amount of the outstanding Notes of a given
series will have the right to direct the time, method and place of conducting
any proceeding or any remedy available to such Indenture Trustee and the holders
of a majority in principal amount of such 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 applicable Indenture that cannot be modified without the waiver or consent
of all the holders of such outstanding Notes.
Unless otherwise specified in the related Prospectus Supplement, no
holder of Notes of any series will have the right to institute any proceeding
with respect to the related Indenture, unless (i) such holder previously has
given to the applicable Indenture Trustee written notice of a continuing Event
of Default, (ii) the holders of not less than 25% in principal amount of such
outstanding Notes have requested in writing that such Indenture Trustee
institute such proceeding in its own name as Indenture Trustee, (iii) such
holder or holders have offered such Indenture Trustee reasonable indemnity, (iv)
such Indenture Trustee has for 60 days failed to institute such proceeding and
(v) no direction inconsistent with such written request has been given to such
Indenture Trustee during such 60-day period by the holders of a majority in
principal amount of such outstanding Notes.
In addition, each Indenture Trustee and the related Noteholders will
covenant that they will not at any time institute against the applicable Trust
any bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
With respect to any Trust, none of the related Indenture Trustee, the
Seller, the Administrator, the Master Servicer or the Eligible Lender Trustee in
its individual capacity, nor any holder of a Certificate representing an
ownership interest in the applicable Trust, nor any of their respective owners,
beneficiaries, agents, officers, directors, employees, successors or assigns
will, in the absence of an express agreement to the contrary, be personally
liable for the payment of the principal of or interest on the Notes or for the
agreements of the Trust contained in the Indenture.
Certain Covenants. Except as described under "Assumption of Signet's
Obligations," each Indenture will provide that the related 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 of America, any state or the District of Columbia, (ii) such
entity expressly assumes such Trust's obligation to make due and punctual
payments upon the Notes of the related series and the performance or observance
of every agreement and covenant of such Trust under the related Indenture, (iii)
no Event of Default shall have occurred and be continuing immediately after such
merger or consolidation, (iv) such Trust has been advised that the rating of the
Notes and the Certificates of the related series would not be reduced or
withdrawn by the Rating Agencies as a result of such merger or
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consolidation and (v) such Trust has received an opinion of counsel to the
effect that such consolidation or merger would have no material adverse federal
or Maryland state tax consequence to such Trust or to any Certificateholder or
Noteholder of the related series.
Each Trust will not, among other things, (i) except as expressly
permitted by the applicable Indenture, the applicable Transfer and Servicing
Agreements or certain related documents (collectively, the "Related Documents"),
sell, transfer, exchange or otherwise dispose of any of the assets of such
Trust, (ii) claim any credit on or make any deduction from the principal and
interest payable in respect of the Notes of the related series (other than
amounts withheld under the Code or applicable state law) or assert any claim
against any present or former holder of such Notes because of the payment of
taxes levied or assessed upon such 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 applicable Indenture to be impaired or permit
any person to be released from any covenants or obligations with respect to such
Notes under the applicable Indenture except as may be expressly permitted
thereby or (v) permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance to be created on or extend to or otherwise arise
upon or burden the assets of the Trust or any part thereof, or any interest
therein or the proceeds thereof, except as expressly permitted by the Related
Documents.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust". No Trust will
incur, assume or guarantee any indebtedness other than indebtedness incurred
pursuant to the Notes of a related series and the applicable Indenture or
otherwise in accordance with the Related Documents.
Annual Compliance Statement. Each Trust will be required to file
annually with the applicable Indenture Trustee a written statement as to the
fulfillment of its obligations under the related Indenture.
Indenture Trustee's Annual Report. Each Indenture Trustee will be
required to mail each year to all related Noteholders a brief report relating
to, among other things, its eligibility and qualification to continue as such
Indenture Trustee under the applicable Indenture, any amounts advanced by it
under the Indenture, the amount, interest rate and maturity date of certain
indebtedness owing by such Trust to the applicable Indenture Trustee in its
individual capacity, the property and funds physically held by the applicable
Indenture Trustee as such and any action taken by it that materially affects the
related Notes and that has not been previously reported.
Satisfaction and Discharge of Indenture. An Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
The Indenture Trustee. The Indenture Trustee for a series of Notes will
be specified in the related Prospectus Supplement. The Indenture Trustee for any
series may resign at any time, in which event the Issuer will be obligated to
appoint a successor trustee for such series. The Issuer may also remove any such
Indenture Trustee if such Indenture Trustee ceases to be eligible to continue as
such under the related Indenture or if such Indenture Trustee becomes insolvent.
In such circumstances, the Issuer will be obligated to appoint a successor
trustee for the applicable series of Notes. Any resignation or removal of the
Indenture Trustee and appointment of a successor trustee for any series of Notes
does not become effective until acceptance of the appointment by the successor
trustee for such series.
DESCRIPTION OF THE CERTIFICATES
General
With respect to each Trust, one or more classes of Certificates of a
given series will be issued pursuant to the terms of a Trust Agreement, a form
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The following summary describes certain terms of the
Certificates and the Trust Agreement. The
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summary does not purport to be complete and is qualified in its entirety by
reference to all the provisions of the Certificates and the Trust Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
class of Certificates will initially be represented by a single Certificate
registered in the name of the Depository, except as set forth below. Unless
otherwise specified in the related Prospectus Supplement and except for the
Certificates of a given series purchased by the Seller, the Certificates will be
available for purchase in minimum denominations of $1,000 and integral multiples
of $1,000 in excess thereof in book-entry form only. The Seller has been
informed by DTC that DTC's nominee will be Cede, unless another nominee is
specified in the related Prospectus Supplement. Accordingly, such nominee is
expected to be the holder of record of the Certificates of any series that are
not purchased by the Seller. Unless and until Definitive Certificates (as
defined below) are issued under the limited circumstances described herein or in
the related Prospectus Supplement, no Certificateholder (other than the Seller)
will be entitled to receive a physical certificate representing a Certificate.
All references herein and in the related Prospectus Supplement to actions by
Certificateholders refer to actions taken by DTC upon instructions from the
Participants and all references herein and in the related Prospectus Supplement
to distributions, notices, reports and statements to Certificateholders refer to
distributions, notices, reports and statements to DTC or its nominee, as the
registered holder of the Certificates, as the case may be, for distribution to
Certificateholders in accordance with DTC's procedures with respect thereto. See
"Certain Information Regarding the Securities -- Book-Entry Registration" and
"-- Definitive Securities". Unless otherwise specified in the related Prospectus
Supplement, Certificates of a given series owned by the Seller or its affiliates
will be entitled to equal and proportionate benefits under the applicable Trust
Agreement, except that, assuming that all Certificates of a given series are not
all owned by the Seller and its affiliates, such Certificates will be deemed not
to be outstanding for the purpose of determining whether the requisite
percentage of Certificateholders have given any request, demand, authorization,
direction, notice, consent or other action under the Related Documents (other
than the commencement by the related Trust of a voluntary proceeding in
bankruptcy as described under "Description of the Transfer and Servicing
Agreements -- Insolvency Event").
Principal and Interest in Respect of the Certificates
The timing and priority of distributions, seniority, allocations of
losses, Pass-Through Rate and amount of or method of determining distributions
with respect to principal and interest of each class of Certificates of a given
series will be described in the related Prospectus Supplement. Distributions of
interest on such Certificates will be made on each Distribution Date and will be
made prior to distributions with respect to principal of such Certificates. Each
class of Certificates may have a different Pass-Through Rate, which may be a
fixed, variable or adjustable Pass-Through Rate or any combination of the
foregoing. The related Prospectus Supplement will specify the Pass-Through Rate
for each class of Certificates of a given series or the method for determining
such Pass-Through Rate. See also "Certain Information Regarding the Securities
- --Fixed Rate Securities" and "-- Floating Rate Securities". Unless otherwise
provided in the related Prospectus Supplement, distributions in respect of the
Certificates of a given series may be subordinate to payments in respect of the
Notes of such series as more fully described in the related Prospectus
Supplement. Distributions in respect of interest on and principal of any class
of Certificates will be made on a pro rata basis among all the
Certificateholders of such class.
In the case of a series of Certificates which includes two or more
classes of Certificates, the timing, sequential order, priority of payment or
amount of distributions in respect of interest and principal, and any schedule
or formula or other provisions applicable to the determination thereof, of each
such class shall be as set forth in the related Prospectus Supplement.
In the case of a series of Certificates relating to a Trust having a
Pre-Funding Account or Collateral Reinvestment Account, cash distributions to
Certificateholders of such series may be made, on a pro rata basis, on the
Distribution Date on or immediately following the last day of the related
Funding Period or Revolving Period, respectively, in the event that any amount
remains on deposit in the applicable account after giving effect to all
Additional Fundings on or prior to such date, in an aggregate principal amount
described in the related Prospectus Supplement.
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See "Description of the Transfer and Servicing Agreements -- Credit and
Cash Flow Enhancement -- Reserve Account" for a description of the Reserve
Account and the distribution of amounts in excess of the Specified Reserve
Account Balance (as defined in the related Prospectus Supplement).
CERTAIN INFORMATION REGARDING THE SECURITIES
Fixed Rate Securities
Each class of Securities may bear interest at a fixed rate per annum
("Fixed Rate Securities") or at a variable or adjustable rate per annum
("Floating Rate Securities"), as more fully described below and in the
applicable Prospectus Supplement. Each class of Fixed Rate Securities will bear
interest at the applicable per annum Interest Rate or Pass-Through Rate, as the
case may be, specified in the applicable Prospectus Supplement. Unless otherwise
set forth in the applicable Prospectus Supplement, interest on each class of
Fixed Rate Securities will be computed on the basis of a 360-day year of twelve
30-day months. See "Description of the Notes -- Principal and Interest on the
Notes" and "Description of the Certificates -- Principal and Interest in Respect
of the Certificates".
Floating Rate Securities
Each class of Floating Rate Securities will bear interest for each
applicable Interest Reset Period (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Securities,
"Interest Reset Period") at a rate per annum determined by reference to an
interest rate basis (the "Base Rate"), plus or minus the Spread, if any, or
multiplied by the Spread Multiplier, if any, in each case as specified in the
related Prospectus Supplement. The "Spread" is the number of basis points (one
basis point equals one one-hundredth of a percentage point) that may be
specified in the applicable Prospectus Supplement as being applicable to such
class, and the "Spread Multiplier" is the percentage that may be specified in
the applicable Prospectus Supplement as being applicable to such class.
The applicable Prospectus Supplement will designate a Base Rate for a
given Floating Rate Security based on LIBOR, commercial paper rates, Federal
funds rates, U.S. Government treasury securities rates, negotiable certificates
of deposit rates or another rate or rates as set forth in such Prospectus
Supplement.
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (i) a maximum limitation, or ceiling,
on the rate at which interest may accrue during any interest period and (ii) a
minimum limitation, or floor, on the rate at which interest may accrue during
any interest period. In addition to any maximum interest rate that may be
applicable to any class of Floating Rate Securities, the interest rate
applicable to any class of Floating Rate Securities will in no event be higher
than the maximum rate permitted by applicable law, as the same may be modified
by United States law of general application.
Each Trust with respect to which a class of Floating Rate Securities
will be issued will appoint, and enter into agreements with, a calculation agent
(each, a "Calculation Agent") to calculate interest rates on each such class of
Floating Rate Securities issued with respect thereto. The applicable Prospectus
Supplement will set forth the identity of the Calculation Agent for each such
class of Floating Rate Securities of a given series, which may be the
Administrator, the Eligible Lender Trustee or the Indenture Trustee with respect
to such series. All determinations of interest by the Calculation Agent shall,
in the absence of manifest error, be conclusive for all purposes and binding on
the holders of Floating Rate Securities of a given class. Unless otherwise
specified in the applicable Prospectus Supplement, all percentages resulting
from any calculation of the rate of interest on a Floating Rate Security will be
rounded, if necessary, to the nearest 1/100,000 of 1% (.0000001), with five
one-millionths of a percentage point rounded upward.
Book-Entry Registration
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DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC and a "clearing agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its Participants and to facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Unless otherwise specified in the related Prospectus Supplement,
Securityholders that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
Securities may do so only through Participants and Indirect Participants. In
addition, Securityholders will receive all distributions of principal and
interest from the related Indenture Trustee or the related Eligible Lender
Trustee, as applicable (the "Applicable Trustee"), through Participants and
Indirect Participants. Under a book-entry format, Securityholders may experience
some delay in their receipt of payments, since such payments will be forwarded
by the Applicable Trustee to DTC's nominee. DTC will forward such payments to
its Participants, which thereafter will forward them to Indirect Participants or
Securityholders. Except for the Seller with respect to any series of Securities,
it is anticipated that the only "Securityholder", "Certificateholder" and
"Noteholder" will be DTC's nominee. Securityholders will not be recognized by
the Applicable Trustee as Noteholders or Certificateholders, as such terms are
used in each Indenture and each Trust Agreement, respectively, and
Securityholders will be permitted to exercise the rights of Securityholders only
indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Securities among Participants on whose behalf it acts with respect to the
Securities and to receive and transmit distributions of principal of, and
interest on, the Securities. Participants and Indirect Participants with which
Securityholders have accounts with respect to the Securities similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Securityholders. Accordingly, although
Securityholders will not possess Securities, the Rules provide a mechanism by
which Participants will receive payments and will be able to transfer their
interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
DTC has advised the Seller that it will take any action permitted to be
taken by a Securityholder under the related Indenture or the related Trust
Agreement, as the case may be, only at the direction of one or more Participants
to whose accounts with DTC the Securities are credited. DTC may take conflicting
actions with respect to other undivided interests to the extent that such
actions are taken on behalf of Participants whose holdings include such
undivided interests.
Except as required by law, neither the Administrator nor the Applicable
Trustee will have any liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Securities
held by DTC's nominee or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
Definitive Securities
Unless otherwise specified in the related Prospectus Supplement and
except with respect to the Certificates of a given series that may be purchased
by the Seller, the Notes and the Certificates of a given series will be issued
in fully registered, certificated form ("Definitive Notes" and "Definitive
Certificates", respectively, and collectively referred to herein as "Definitive
Securities") to Noteholders or Certificateholders or their respective nominees,
rather than to DTC or its nominee, only if (i) the related Administrator advises
the Applicable Trustee in writing that DTC
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is no longer willing or able to discharge properly its responsibilities as
depository with respect to the Securities and the Administrator is unable to
locate a qualified successor, (ii) the Administrator, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of an
Event of Default or a Servicer Default, Securityholders representing at least a
majority of the outstanding principal amount of the Notes or the Certificates,
as the case may be, of such series advise the Applicable Trustee through DTC in
writing that the continuation of a book-entry system through DTC (or a successor
thereto) with respect to such Notes or Certificates is no longer in the best
interest of the holders of such Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee will be required to notify all applicable
Securityholders of a given series through Participants of the availability of
Definitive Securities. Upon surrender by DTC of the Definitive Securities
representing the corresponding Securities and receipt of instructions for
re-registration, the Applicable Trustee will reissue such Securities as
Definitive Securities to such Securityholders.
Distributions of principal of, and interest on, such Definitive
Securities will thereafter be made by the Applicable Trustee in accordance with
the procedures set forth in the related Indenture or the related Trust
Agreement, as the case may be, directly to holders of Definitive Securities in
whose names the Definitive Securities were registered at the close of business
on the applicable date of record specified for such Securities in the related
Prospectus Supplement. Such distributions will be made by check mailed to the
address of such holder as it appears on the register maintained by the
Applicable Trustee. The final payment on any such Definitive Security, however,
will be made only upon presentation and surrender of such Definitive Security at
the office or agency specified in the notice of final distribution to applicable
Securityholders.
Definitive Securities will be transferable and exchangeable at the
offices of the Applicable Trustee or of a registrar named in a notice delivered
to holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the Applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
List of Securityholders
Unless otherwise specified in the related Prospectus Supplement, holders
of Notes evidencing not less than 25% of the aggregate outstanding principal
balance of such Notes may, by written request to the related Indenture Trustee,
obtain access to the list of all Noteholders maintained by such Indenture
Trustee for the purpose of communicating with other Noteholders with respect to
their rights under the related Indenture or such Notes. Such 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 of such
series.
Unless otherwise specified in the related Prospectus Supplement, three
or more Certificateholders of such series or one or more holders of such
Certificates evidencing not less than 25% of the Certificate Balance of such
Certificates may, by written request to the related Eligible Lender Trustee,
obtain access to the list of all Certificateholders for the purpose of
communicating with other Certificateholders with respect to their rights under
the related Trust Agreement or under such Certificates.
Reports to Securityholders
With respect to each series of Securities, on each Distribution Date,
the Applicable Trustee will provide to Securityholders of record as of the
related date of record a statement setting forth substantially the same
information as is required to be provided on the periodic report provided to the
related Indenture Trustee and the related Trust described under "Description of
Transfer and Servicing Agreements -- Statements to Indenture Trustee and Trust".
The statements provided to Securityholders will not constitute financial
statements prepared in accordance with generally accepted accounting principles.
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Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of each Trust, the Applicable
Trustee will mail to each person who at any time during such calendar year was a
Securityholder with respect to such Trust and received any payment thereon, a
statement containing certain information for the purposes of such
Securityholder's preparation of federal income tax returns. See "Certain Federal
Income Tax Consequences".
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
General
The following is a summary of certain terms of each Loan Sale Agreement
and Master Servicing Agreement, pursuant to which the related Eligible Lender
Trustee on behalf of a Trust will purchase Student Loans from the Seller and the
Master Servicer will service the same; each Administration Agreement, pursuant
to which the Administrator will undertake certain administrative duties with
respect to a Trust and the Student Loans; and each Trust Agreement, pursuant to
which a Trust will be created and the related Certificates will be issued
(collectively, the "Transfer and Servicing Agreements"). Forms of each of the
Transfer and Servicing Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. The summary does not
purport, however, to be complete and is qualified in its entirety by reference
to all of the provisions of the Transfer and Servicing Agreements.
Sale of Student Loans; Representations and Warranties
On or prior to the Closing Date specified with respect to any given
Trust in the related Prospectus Supplement (the "Closing Date"), the Seller will
sell and assign to the related Eligible Lender Trustee on behalf of such Trust,
without recourse, its entire interest in the Student Loans, all collections
received and to be received with respect thereto for the period on and after the
Cutoff Date pursuant to the Loan Sale Agreement. Each Student Loan will be
identified in schedules appearing as an exhibit to such Loan Sale Agreement.
Each Eligible Lender Trustee will, concurrently with such sale and assignment,
execute, authenticate and deliver the related Certificates and Notes. The net
proceeds received from the sale of the related Notes and Certificates will be
applied to the purchase of the Student Loans.
In each Loan Sale Agreement, the Seller will make certain
representations and warranties with respect to the Student Loans transferred to
a Trust for the benefit of the Certificateholders and the Noteholders of a given
series, including, among other things, that (i) each Student Loan, on the date
on which it is transferred to such Trust, is free and clear of all security
interests, liens, charges and encumbrances and no offsets, defenses or
counterclaims have been asserted or threatened; (ii) the information provided
with respect to the Student Loans is true and correct as of the Cutoff Date and
(iii) each Student Loan, at the time it was originated, complied and, at the
Closing Date, complies in all material respects with applicable federal and
state laws (including, without limitation, the Act (in the case of Federal
Student Loans), consumer credit, truth in lending, equal credit opportunity and
disclosure laws) and applicable restrictions imposed by FFELP, in the case of
Federal Student Loans, the applicable private guarantee program, in the case of
Private Student Loans, or, in all cases, any Guarantee Agreement.
Unless otherwise provided in the related Prospectus Supplement,
following the discovery by or notice to the Seller of a breach of any
representation or warranty with respect to any Student Loan that materially and
adversely affects the interests of the related Certificateholders or the
Noteholders in such Student Loan (it being understood that any such breach that
does not affect any Guarantor's obligation to guarantee payment of such Student
Loan will not be considered to have such a material adverse effect), the Seller
will, unless such breach is cured within 120 days, repurchase such Student Loan
from the related Eligible Lender Trustee, as of the first day following the end
of such 120-day period that is the last day of a Collection Period, at a price
equal to the unpaid principal balance owed by the applicable borrower thereon
plus (i) accrued interest thereon to the day of repurchase and (ii) any premium
paid to the Seller in the initial sale of such Student Loan to the Trust (the
"Purchase Amount"). Alternatively, the Seller may, at its option, remit all or a
portion of the Purchase Amount by substituting into the related Trust a Student
Loan
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that meets certain criteria set forth in the related Loan Sale Agreement for the
Student Loan as to which the breach has occurred. In addition, the Seller will
reimburse the related 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 in the case of Federal Student Loans, with respect to a Student
Loan as a result of a breach of any such representation or warranty by the
Seller. The repurchase, substitution and reimbursement obligations of the Seller
will constitute the sole remedy available to or on behalf of a Trust, the
related Certificateholders or the related Noteholders for any such uncured
breach. The Seller's repurchase and reimbursement obligations are contractual
obligations pursuant to a Loan Sale Agreement that may be enforced against the
Seller, but the breach of which will not constitute an Event of Default.
To assure uniform quality in servicing and to reduce administrative
costs, the Master Servicer will be appointed custodian of the promissory notes
representing the Student Loans and any other related documents by the related
Eligible Lender Trustee on behalf of each Trust. The Seller's and the Master
Servicer's records and computer systems will reflect the sale and assignment by
the Seller of the Student Loans to the related Eligible Lender Trustee on behalf
of the related Trust, and Uniform Commercial Code ("UCC") financing statements
reflecting such sale and assignment will be filed by the Administrator.
Additional Fundings
In the case of a Trust having a Pre-Funding Account or a Collateral
Reinvestment Account, such Trust will use funds on deposit in the Pre-Funding
Account from time to time during the related Funding Period or Revolving Period,
respectively, (i) to deposit into the Collection Account in lieu of collections
of interest on certain of the Student Loans to the extent such interest is not
paid currently but is capitalized and added to the principal balance of such
Student Loans and (ii) to fund the addition of Student Loans to the Trust under
the circumstances and having the characteristics described in the related
Prospectus Supplement ("Additional Fundings"). Such additional Student Loans may
be purchased by the Trust from the Seller or may be originated by the Trust, if
and to the extent specified in the related Prospectus Supplement.
There can be no assurance that substantially all of the amounts on
deposit in any Pre-Funding Account or Collateral Reinvestment Account will be
expended during the related Funding Period or Revolving Period, respectively. If
the amount initially deposited into a Pre-Funding Account or Collateral
Reinvestment Account for a series has not been reduced to zero by the end of the
related Funding Period or Revolving Period, respectively, the amounts remaining
on deposit therein will be distributed to the related Securityholders in the
amounts described in the related Prospectus Supplement.
If and to the extent specified in the related Prospectus Supplement, the
related Trust may use distributions on the Student Loans, or may exchange
Student Loans with the Seller, in order to pay for Additional Fundings after the
Funding Period.
Accounts
With respect to each Trust, the Administrator will establish and
maintain with the applicable Indenture Trustee one or more accounts, in the name
of the Indenture Trustee on behalf of the related Noteholders and
Certificateholders, into which all payments made on or with respect to the
related Student Loans will be deposited (the "Collection Account"). Any other
accounts to be established with respect to a Trust, including any Reserve
Account and any Pre-Funding Account and any Collateral Reinvestment Account,
will be described in the related Prospectus Supplement.
For any series of Securities, funds in the Collection Account, any
Reserve Account, any Pre-Funding Account and any Collateral Reinvestment Account
and any other accounts identified as such in the related Prospectus Supplement
(collectively, the "Trust Accounts") will be invested as provided in the
applicable Trust Indenture in Eligible Investments. "Eligible Investments" are
generally limited to investments acceptable to the Rating Agencies
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as being consistent with the rating of such Securities. Except as described
below or in the related Prospectus Supplement, Eligible Investments are limited
to obligations or securities that mature not later than the business day
immediately preceding the next applicable Distribution Date. However, to the
extent permitted by the Rating Agencies, funds in any Reserve Account may be
invested in securities that will not mature prior to the date of the next
distribution with respect to such Securities and will not be sold to meet any
shortfalls. Thus, the amount of cash in any Reserve Account at any time may be
less than the balance of the Reserve Account. If the amount required to be
withdrawn from any Reserve Account to cover shortfalls in collections on the
related Student Loans (as provided in the related Prospectus Supplement) exceeds
the amount of cash in the Reserve Account, a temporary shortfall in the amounts
distributed to the related Noteholders or Certificateholders could result, which
could, in turn, increase the average life of the Notes or the Certificates of
such series. Except as otherwise specified in the related Prospectus Supplement,
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 on each Distribution Date and will be treated as
collections of interest on the related 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.
"Eligible Institution" means either Signet Trust Company or 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), (i) which has either (A) a long-term unsecured debt rating
acceptable to the Rating Agencies or (B) a short-term unsecured debt rating or
certificate of deposit rating acceptable to the Rating Agencies and (ii) whose
deposits are insured by the FDIC.
Servicing Procedures
Pursuant to each Master Servicing Agreement, the Master Servicer has
agreed to be responsible for servicing, and performing all other related tasks
with respect to, all the Student Loans acquired from time to time on behalf of
each Trust. The Master Servicer is required pursuant to the related Master
Servicing Agreement to be responsible for performing all services and duties
customary to the servicing of Student Loans (including all collection
practices), and to do so in compliance with, and to otherwise comply with, all
standards and procedures provided for in the Act, the Guarantee Agreements and
all other applicable federal and state laws. The Master Servicer is also
required to maintain its eligibility as a third-party servicer under the Act.
The Master Servicer may from time to time perform a portion of its
servicing obligations under the applicable Loan Sale Agreement through
Subservicing Agreements with unrelated third-party student loan servicers
approved by the Rating Agencies ("Subservicers"). It is anticipated that a
portion of the servicing activities with respect to the Student Loans acquired
by the Eligible Lender Trustee on behalf of the related Trust will be performed
by one or more Subservicers. Notwithstanding the provisions of any Subservicing
Agreement, each Master Servicing Agreement will provide that the Master Servicer
will remain liable for its servicing duties and obligations under the Master
Servicing Agreement as if the Master Servicer were servicing the Student Loans.
The Master Servicing Agreement provides that the Master Servicer shall
terminate all of the rights and obligations of a Subservicer with respect to all
Student Loans being serviced by such Subservicer in the event of a breach by
such Subservicer of a Subservicing Agreement if the Master Servicer reasonably
considers such termination to be in the best interests of the Certificateholders
and Noteholders. Upon termination or expiration of any Subservicing Agreement,
the Master Servicer has agreed to take all appropriate steps to maintain
adequate provisions for the administration, servicing, custody and collection of
the Student Loans, including without limitation, the appointment of any
successor Subservicer, as the case may be, pursuant to the terms of a
Subservicing Agreement which satisfies the criteria described above. In the
event a Subservicer is removed, the Master Servicer will continue
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to be responsible for servicing the related Student Loans. In the event the
Master Servicer is terminated, the successor Master Servicer will succeed to all
of the rights and obligations of the predecessor Master Servicer under each of
the Subservicing Agreements, including the right to terminate any such
Subservicer as described above. The termination of the Master Servicer may not
result in the termination of any Subservicer.
Without limiting the foregoing, the responsibilities of the Master
Servicer with respect to each Trust under the related Master Servicing Agreement
include, but are not limited to, the following: collecting and depositing into
the Collection Account all payments with respect to the Student Loans, including
claiming and obtaining any Guarantee Payments, any Interest Subsidy Payments and
Special Allowance Payments with respect to Student Loans, responding to
inquiries from borrowers on the Student Loans, investigating delinquencies and
sending out statements and payment coupons. In addition, the Master Servicer
will keep ongoing records with respect to such Student Loans and collections
thereon and will furnish monthly and annual statements with respect to such
information to the Administrator, in accordance with the Master Servicer's
customary practices with respect to the Seller and as otherwise required in the
related Master Servicing Agreement.
Payments on Student Loans
With respect to each Trust, the Master Servicer will deposit all
payments on Student Loans and all proceeds of Student Loans received by it
during each collection period specified in the related Prospectus Supplement
(each, a "Collection Period") into the related Collection Account within two
business days of receipt thereof. The Eligible Lender Trustee will deposit all
Interest Subsidy Payments and all Special Allowance Payments with respect to the
Federal Student Loans received by it during each Collection Period into the
Collection Account within two business days of receipt thereof.
However, in the event that the Administrator satisfies certain
requirements and the Rating Agencies affirm their ratings of the Notes and the
Certificates at the initial level, then so long as Signet is the Administrator
and provided that (i) there exists no Administrator Default (as described below)
and (ii) each other condition as may be specified by the Rating Agencies is
satisfied, the Master Servicer and the Eligible Lender Trustee will pay all the
amounts referred to in the preceding paragraph that would otherwise be deposited
into the Collection Account to the Administrator, and the Administrator will not
be required to deposit such amounts into the Collection Account until on or
before the Business Day immediately preceding each Distribution Date. In such
event, the Administrator will deposit the aggregate Purchase Amount of Student
Loans repurchased by the Seller and purchased by the Master Servicer into the
Collection Account on or before the business day preceding each Distribution
Date. Pending deposit into the Collection Account, collections may be invested
by the Administrator at its own risk and for its own benefit, and will not be
segregated from other funds of the Administrator.
Servicer Covenants
With respect to each Trust, in the related Master Servicing Agreement,
the Master Servicer will covenant that: (a) it will duly satisfy all obligations
on its part to be fulfilled under or in connection with the Student Loans,
maintain in effect all qualifications required in order to service the Student
Loans and comply in all material respects with all requirements of law in
connection with servicing the Student Loans, the failure to comply with which
would have a materially adverse effect on the related Certificateholders or
Noteholders; (b) it will not permit any rescission or cancellation of a Student
Loan except as ordered by a court of competent jurisdiction or other government
authority or as otherwise consented to by the related Eligible Lender Trustee
and the related Indenture Trustee; (c) it will not, nor will it permit any
Subservicer to, impair the rights of the related Certificateholders and the
related Noteholders in the Student Loans and (d) it will not, nor will it permit
any Subservicer to, reschedule, revise, defer or otherwise compromise with
respect to payments due on any Student Loan except pursuant to any applicable
deferral or forbearance periods or otherwise in accordance with its guidelines
for servicing student loans in general and those of the Seller in particular and
any applicable FFELP, private guarantee program or Guarantor requirements.
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Under the terms of each Master Servicing Agreement, if the Administrator
or 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 120 days
thereafter and has a materially adverse effect on the interest of the related
Certificateholders or Noteholders in any Student Loan, unless such breach is
cured or unless the Seller is otherwise required to purchase the related Student
Loan as a result of a breach of the Seller's warranties in the related Loan Sale
Agreement, the Master Servicer will arrange for the purchase of such Student
Loan as of the first day following the end of such 120-day period that is the
last day of a Collection Period. In that event, the Master Servicer will arrange
to be deposited into the Collection Account an amount equal to the Purchase
Amount of such Student Loan and the related Trust's interest in any such
purchased Student Loan will be automatically assigned to the Master Servicer or
its designee. Upon such assignment, the Master Servicer or its designee will be
entitled to all payments made on the Student Loan. In addition, if so specified
in the related Prospectus Supplement, the Master Servicer will reimburse the
related Trust for any accrued interest amounts that a Federal Guarantor refuses
to pay pursuant to its Federal 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 Federal Student Loan as a result of a breach
of any such covenant of the Master Servicer.
Servicer Compensation
Unless otherwise specified in the related Prospectus Supplement with
respect to any Trust, the Master Servicer will be entitled to receive the
Servicing Fee for each Collection Period (as set forth in the related Prospectus
Supplement) together with any other administrative fees and similar charges
specified in the related Prospectus Supplement, as compensation for performing
the functions as servicer for the related Trust described above (the "Servicing
Fee"). The Servicing Fee (together with any portion of the Servicing Fee that
remains unpaid from prior Distribution Dates) will be paid prior to any payment
in respect of the related Securities, as specified in the applicable Prospectus
Supplement.
The Servicing Fee will compensate the Master Servicer for performing the
functions of a third-party servicer of student loans as an agent for their
beneficial owner, including collecting and posting all payments, responding to
inquiries of borrowers on the Student Loans, investigating delinquencies,
pursuing, filing and directing the payment of any Guarantee Payments, Interest
Subsidy Payments or Special Allowance Payments, accounting for collections and
furnishing periodic accounting reports to the Administrator with respect to
distributions.
Distributions
With respect to each series of Securities, beginning on the Distribution
Date specified in the related Prospectus Supplement, distributions of principal
and interest on each class of such Securities entitled thereto will be made by
the applicable Trustee to the Noteholders and the Certificateholders of such
series. The timing, calculation, allocation, order, source, priorities of and
requirements for all payments to each class of Noteholders and all distributions
to each class of Certificateholders of such series will be set forth in the
related Prospectus Supplement.
With respect to each Trust, on each Distribution Date, collections on
the related Student Loans will be distributed from the Collection Account to
Noteholders and Certificateholders to the extent provided in the related
Prospectus Supplement. Credit and cash flow enhancement, such as a Reserve
Account, will be available to cover any shortfalls in the amount available for
distribution on such date to the extent specified in the related Prospectus
Supplement. As more fully described in the related Prospectus Supplement, and
unless otherwise specified therein, distributions in respect of principal of a
class of Securities of a given series will be subordinate to distributions in
respect of interest on such class, and distributions in respect of the
Certificates of such series may be subordinate to distributions in respect of
the Notes of such series.
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Credit and Cash Flow Enhancement
General. The amounts and types of credit enhancement arrangements and
the provider thereof, if applicable, with respect to each class of Securities of
a given series, if any, will be set forth in the related Prospectus Supplement.
If and to the extent provided in the related Prospectus Supplement, credit
enhancement may be in the form of subordination of one or more classes of
Securities, Reserve Accounts, over-collateralization, letters of credit, credit
or liquidity facilities, surety bonds, guaranteed investment contracts,
repurchase obligations, other agreements with respect to third-party payments or
other support, cash deposits or such other arrangements as may be described in
the related Prospectus Supplement or any combination of two or more of the
foregoing. If specified in the applicable Prospectus Supplement, credit
enhancement for a class of Securities may cover one or more other classes of
Securities of the same series, and credit enhancement for a series of Securities
may cover one or more other series of Securities.
The presence of a Reserve Account and other forms of credit enhancement
for the benefit of any class or series of Securities is intended to enhance the
likelihood of receipt by the Securityholders of such class or series of the full
amount of principal and interest due thereon and to decrease the likelihood that
such Securityholders will experience losses. Unless otherwise specified in the
related Prospectus Supplement, the credit enhancement for a class or series of
Securities will not provide protection against all risks of loss and will not
guarantee repayment of the entire principal balance and interest thereon. If
losses occur which exceed the amount covered by any credit enhancement or which
are not covered by any credit enhancement, Securityholders of any class or
series will bear their allocable share of deficiencies, as described in the
related Prospectus Supplement. In addition, if a form of credit enhancement
covers more than one series of Securities, Securityholders of any such series
will be subject to the risk that such credit enhancement will be exhausted by
the claims of Securityholders of other series.
Reserve Account. If so provided in the related Prospectus Supplement,
pursuant to the related Loan Sale Agreement, the Seller will establish for a
series or class of Securities an account, as specified in the related Prospectus
Supplement (the "Reserve Account"), which will be maintained in the name of the
applicable Indenture Trustee. Unless otherwise provided in the related
Prospectus Supplement, the Reserve Account will be funded by an initial deposit
by the Seller on the Closing Date in the amount set forth in the related
Prospectus Supplement. As further described in the related Prospectus
Supplement, the amount on deposit in the Reserve Account will be increased on
each Distribution Date thereafter up to the Specified Reserve Account Balance
(as defined in the related Prospectus Supplement) by the deposit therein of the
amount of collections on the related Student Loans remaining on each such
Distribution Date after the payment of all other required payments and
distributions on such date. Amounts in the Reserve Account will be available to
cover shortfalls in amounts due to the holders of those classes of Securities
specified in the related Prospectus Supplement in the manner and under the
circumstances specified therein. The related Prospectus Supplement will also
specify to whom and the manner and circumstances under which amounts on deposit
in the Reserve Account (after giving effect to all other required distributions
to be made by the applicable Trust) in excess of the Specified Reserve Account
Balance (as defined in the related Prospectus Supplement) will be distributed.
Statements to Indenture Trustee and Trust
Prior to each Distribution Date with respect to each series of
Securities, the Administrator will prepare and provide to the related Indenture
Trustee and the related Eligible Lender Trustee as of the close of business on
the last day of the preceding Collection Period a statement, which will include
the following information (and any other information so specified in the related
Prospectus Supplement) with respect to such Distribution Date or the preceding
Collection Period as to the Notes and the Certificates of such series, to the
extent applicable:
(i) the amount of the distribution allocable to principal of each
class of the Notes and the Certificates;
(ii) the amount of the distribution allocable to interest on each
class of the Notes and the Certificates, together with the interest
rates applicable with respect thereto;
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(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 and the Note
Pool Factor of each class of the Notes, and the Certificate Balance and
the Certificate Pool Factor for each class of the Certificates as of
such Distribution Date, each after giving effect to payments allocated
to principal reported under clause (i) above;
(v) the amount of the Servicing Fee and the Administration Fee
paid to the Master Servicer and the Administrator, respectively, with
respect to such Collection Period;
(vi) the Interest Rate or Pass-Through Rate for the next period
for any class of Notes or Certificates of such series with variable or
adjustable rates;
(vii) the amount of the aggregate realized losses, if any, for
such Collection Period;
(viii) the Noteholders' Interest Carryover Shortfall, the
Noteholders' Principal Carryover Shortfall, the Certificateholders'
Interest Carryover Shortfall and the Certificateholders' Principal
Carryover Shortfall (each as defined in the related Prospectus
Supplement), if any, in each case as applicable to each class of
Securities, and the change in such amounts from the preceding statement;
(ix) the aggregate Purchase Amounts for Student Loans, if any,
that were repurchased in such Collection Period;
(x) the balance of the Reserve Account (if any) on such
Distribution Date, after giving effect to changes therein on such
Distribution Date;
(xi) for each date during the Funding Period (if any), the
remaining Pre-Funded Amount or, for each date during the Revolving
Period (if any), the amount on deposit in the Collateral Reinvestment
Account; and
(xii) the principal balance and number of Student Loans conveyed
to or originated by the Trust during such Collection Period.
Each amount set forth pursuant to subclauses (i), (ii), (v) and (viii)
with respect to the Notes or the Certificates of any series will also be
expressed as a dollar amount per $1,000 of the initial principal balance of such
Notes or the initial Certificate Balance of such Certificates, as applicable.
Evidence as to Compliance
Each Master Servicing Agreement will provide that a firm of independent
public accountants will furnish to the related Trust and 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
twelve months (or, in the case of the first such certificate, the period from
the applicable Closing Date) with all applicable standards under the Master
Servicing Agreement relating to the servicing of student loans, the Master
Servicer's accounting records and computer files with respect thereto, the
Master Servicer's eligibility under the Act and certain other matters.
Each Master Servicing Agreement will also provide for delivery to the
related Trust and 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 stating that, to his knowledge, the Master Servicer has
fulfilled its obligations under such Master Servicing Agreement throughout the
preceding twelve months (or, in the case of the first such certificate, the
period from the applicable Closing Date) or, if there has been a default in the
fulfillment of any such obligation,
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describing each such default. The Master Servicer has agreed to give the
Administrator, the related Indenture Trustee and Eligible Lender Trustee notice
of certain Servicer Defaults under such Master Servicing Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Trustee.
Certain Matters Regarding the Master Servicer
Except as described under "Assumption of Signet's Obligations" herein,
each Master 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. No such resignation will become
effective until the related Indenture Trustee or a successor servicer has
assumed the Master Servicer's servicing obligations and duties under the Master
Servicing Agreement.
Each Master Servicing Agreement will further provide that neither the
Master Servicer nor any of its directors, officers, employees or agents will be
under any liability to the related Trust or the related Noteholders or
Certificateholders for taking any action or for refraining from taking any
action pursuant to the related Master Servicing Agreement, or for errors in
judgment; provided, however, that neither 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
the Master Servicer's duties thereunder or by reason of reckless disregard of
its obligations and duties thereunder. In addition, each Master Servicing
Agreement will provide that the Master Servicer is under no obligation to appear
in, prosecute, or defend any legal action that is not incidental to its
servicing responsibilities under such Master Servicing Agreement and that, in
its opinion, may cause it to incur any expense or liability. Each Master
Servicing Agreement will, however, provide that the Master Servicer may
undertake any reasonable action that it deems necessary or desirable in respect
of the Master Servicing Agreement and the interests of the Securityholders.
Under the circumstances specified in each Master 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,
which corporation or other entity in each of the foregoing cases assumes the
obligations of the Master Servicer, will be the successor of the Master Servicer
under such Master Servicing Agreement.
Servicer Default
Except as otherwise provided in the related Prospectus Supplement, a
"Servicer Default" under each Master Servicing Agreement will occur in the event
of (a) any failure by the Master Servicer to deliver to the Indenture Trustee
for deposit in any of the Trust Accounts any required payment, which failure
continues unremedied for five business days after written notice from such
Indenture Trustee or the related Eligible Lender Trustee is received by the
Master Servicer or after discovery by the Master Servicer, (b) any failure by
the Master Servicer to observe or perform in any material respect any other
covenant or agreement of the Master Servicer under the related Master Servicing
Agreement, which failure materially and adversely affects the rights of the
Noteholders or Certificateholders and which remains unremedied for 120 days
after the giving of written notice of such failure, (c) any limitation,
suspension or termination by the Secretary of the Master Servicer's or any
Subservicer's eligibility to service Student Loans which materially and
adversely affects its ability to service the Student Loans in the related Trust
or (d) an Insolvency Event with respect to the Master Servicer occurs.
"Insolvency Event" means, with respect to any Person, any of the following
events or actions: certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with respect to
such Person and certain actions by such Person indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations.
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Rights Upon Servicer Default
Unless otherwise specified in the related Prospectus Supplement, as long
as a Servicer Default under a Master Servicing Agreement remains unremedied, the
related Indenture Trustee or holders of Notes of the related series evidencing
not less than 75% in principal amount of such then outstanding Notes may
terminate all the rights and obligations of the Master Servicer under such
Master Servicing Agreement, whereupon a successor servicer appointed by the
related Indenture Trustee or such Indenture Trustee will succeed to all the
responsibilities, duties and liabilities of the Master Servicer under such
Master Servicing Agreement, and will be entitled to similar compensation
arrangements. If, however, a bankruptcy trustee or similar official has been
appointed for the Master Servicer, and no Servicer Default other than such
appointment has occurred, such trustee or official may have the power to prevent
such Indenture Trustee or such Noteholders from effecting such a transfer. In
the event that such Indenture Trustee is unwilling or unable to so act, it may
appoint, or petition a court of competent jurisdiction for the appointment of, a
successor whose regular business includes the servicing of student loans. Such
Indenture Trustee may make such arrangements for compensation to be paid, which
in no event may be greater than the servicing compensation to the Master
Servicer under such Master Servicing Agreement, unless such compensation
arrangements will not result in a downgrading of such Notes and Certificates by
any Rating Agency. In the event a Servicer Default occurs and is continuing,
such Indenture Trustee or such Noteholders, as described above, may remove the
Master Servicer, without the consent of the related Eligible Lender Trustee or
any of the Certificateholders of the related series. Moreover, only the
Indenture Trustee or the Noteholders, and not the Eligible Lender Trustee or the
Certificateholders, have the ability to remove the Master Servicer if a Servicer
Default occurs and is continuing.
Waiver of Past Defaults
With respect to each Trust, unless otherwise specified in the related
Prospectus Supplement, the holders of Notes evidencing at least a majority in
principal amount of the then outstanding Notes (or the holders of Certificates
evidencing not less than a majority of the outstanding Certificate Balance, in
the case of any Servicer Default which does not adversely affect the Indenture
Trustee or the Noteholders) of the related series may, on behalf of all such
Noteholders and Certificateholders, waive any default by the Master Servicer in
the performance of its obligations under the related Master Servicing Agreement
and its consequences, except a default in making any required deposits to or
payments from any of the Trust Accounts in accordance with such Master Servicing
Agreement. Therefore, such Noteholders have the ability, except as noted above,
to waive defaults by the Master Servicer which could materially adversely affect
such Certificateholders. No such waiver will impair such Noteholders' or
Certificateholders' rights with respect to subsequent defaults.
Amendment
Unless otherwise provided in the related Prospectus Supplement, each of
the Transfer and Servicing Agreements may be amended by the parties thereto,
without the consent of the related Noteholders or Certificateholders, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of such Transfer and Servicing Agreements, of modifying in any
manner the rights of such Noteholders or Certificateholders or in connection
with a permitted specified merger or other transaction involving the Seller, the
Master Servicer or the Administrator, provided that such action will not, in the
opinion of counsel satisfactory to the related Indenture Trustee and Eligible
Lender Trustee, materially and adversely affect the interest of any such
Noteholder or Certificateholder or in the circumstances described under the
heading "Assumption of Signet's Obligations" herein. Unless otherwise provided
in the related Prospectus Supplement, each of the Transfer and Servicing
Agreements may also be amended by the Seller, the Administrator, the Master
Servicer, the related Eligible Lender Trustee and the related Indenture Trustee,
as applicable, with the consent of the holders of Notes of the related series
evidencing at least a majority in principal amount of such then outstanding
Notes and the holders of Certificates of the related series evidencing at least
a majority of the Certificate Balance for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of such
Transfer and Servicing Agreements or of modifying in any manner the rights of
such 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
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of payments (including any Guarantee Payments) with respect to the Student Loans
or distributions that are required to be made for the benefit of such
Noteholders or Certificateholders or (ii) reduce the aforesaid percentage of
such Notes or Certificates which are required to consent to any such amendment,
without the consent of the holders of all such outstanding Notes and
Certificates.
Payment of Notes
Upon the payment in full of all outstanding Notes of a given series and
the satisfaction and discharge of the related Indenture, the Eligible Lender
Trustee will succeed to all the rights of the Indenture Trustee, and the
Certificateholders of such series will succeed to all the rights of the
Noteholders of such series, under the related Master Servicing Agreement, except
as otherwise provided therein.
Termination
With respect to each Trust, the obligations of the Seller, the Master
Servicer, the Administrator, the related Eligible Lender Trustee and the related
Indenture Trustee pursuant to the related Transfer and Servicing Agreements will
terminate upon (i) the maturity or other liquidation of the last related Student
Loan and the disposition of any amount received upon liquidation of any such
remaining Student Loans and (ii) the payment to the Noteholders and the
Certificateholders of the related series of all amounts required to be paid to
them pursuant to such Transfer and Servicing Agreements.
Optional Redemption. Unless otherwise provided in the related Prospectus
Supplement, in order to avoid excessive administrative expense, the Seller will
be permitted at its option to repurchase from the related Eligible Lender
Trustee, as of the end of any Collection Period immediately preceding a
Distribution Date, if the then outstanding Pool Balance is 10% or less of the
Initial Pool Balance (as defined in the related Prospectus Supplement, the
"Initial Pool Balance"), all remaining related 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 related Notes and Certificates
concurrently therewith. Upon termination of a Trust, as more fully described in
the related Prospectus Supplement, all right, title and interest in the Student
Loans and other funds of such Trust, after giving effect to any final
distributions to Noteholders and Certificateholders of the related series
therefrom, will be conveyed and transferred to the Seller.
Auction of Student Loans. If so provided in the related Prospectus
Supplement, all remaining Student Loans held by a Trust will be offered for sale
by the Indenture Trustee on any Distribution Date occurring on or after a date
specified in such Prospectus Supplement. The Seller and unrelated third parties
may offer bids for such Student Loans. 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 Purchase Amount of such 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 each
class of Notes and Certificates then outstanding on such Distribution Date to
zero and to pay all amounts representing accrued interest on the Notes and the
Certificates (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 for such Student Loans, the Indenture Trustee will not consummate such
sale. The proceeds of any such sale will be used to redeem any outstanding Notes
and to retire any outstanding Certificates 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 such
Student Loans on future Distribution Dates upon terms similar to those described
above. No assurance can be given as to whether the Trustee will be successful in
soliciting acceptable bids to purchase the Student Loans.
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Administration Agreement
The Administrator will enter into an agreement (as amended and
supplemented from time to time, an "Administration Agreement") with each Trust
and the related Indenture Trustee pursuant to which the Administrator will
agree, to the extent provided therein, to provide the notices and to perform
other administrative obligations required by the related Indenture, the related
Trust Agreement, the related Loan Sale Agreement and the related Master
Servicing Agreement. Unless otherwise specified in the related Prospectus
Supplement with respect to any Trust, as compensation for the performance of the
Administrator's obligations under the applicable Administration Agreement and as
reimbursement for its expenses related thereto, the Administrator will be
entitled to an administration fee as specified in the related Prospectus
Supplement (the "Administration Fee").
Except as otherwise provided in the related Prospectus Supplement, an
"Administrator Default" will occur under an Administration Agreement in the
event of (a) a failure by the Administrator to direct the Indenture Trustee to
make any required distributions from any of the Trust Accounts, which failure
continues unremedied for five business days after written notice from the
Indenture Trustee or the Eligible Lender Trustee of such failure, (b) any
failure by the Administrator to observe or perform in any material respect any
other covenant or agreement of the Administrator in the Administration Agreement
which failure materially and adversely affects the rights of the Noteholders or
Certificateholders and which remains unremedied for 120 days after the giving of
written notice of such failure or (c) an Insolvency Event with respect to the
Administrator occurs.
Unless otherwise specified in the related Prospectus Supplement, the
procedures for terminating the rights and obligations of the Administrator and
appointing a successor Administrator following the occurrence of an
Administrator Default under the Administration Agreement and for waiving
defaults by the Administrator under the Administration Agreement will be
identical to those for replacing the Master Servicer and appointing a successor
Master Servicer following the occurrence of a Servicer Default under the Master
Servicing Agreement and for waiving defaults by the Master Servicer under the
Master Servicing Agreement, except that such procedures will apply to the
Administrator and the Administration Agreement rather than the Master Servicer
and the Master Servicing Agreement.
CERTAIN LEGAL ASPECTS OF THE STUDENT LOANS
Transfer of Student Loans
The Seller intends that the transfer of the Student Loans by it to the
related Eligible Lender Trustee on behalf of each Trust will constitute a valid
sale and assignment of such Student Loans. Notwithstanding the foregoing, if the
transfer of the Student Loans is deemed to be an assignment of collateral as
security for the benefit of a Trust, a security interest in the Federal Student
Loans created on behalf of the Eligible Lender Trustee may, pursuant to the
provisions of 20 U.S.C. (S)1087-2(d)(3), be perfected either through the taking
of possession of such loans or 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 security interests in accounts. A financing statement
or statements covering the Student Loans will be filed under the UCC to protect
the interest of the Eligible Lender Trustee in the event the transfer by the
Seller is deemed to be subject to the UCC.
If the transfer of the Student Loans is deemed to be an assignment as
security for the benefit of a Trust, there are certain limited circumstances
under the UCC in which prior or subsequent transferees of Student Loans coming
into existence after the Closing Date could have an interest in such Student
Loans with priority over the related Eligible Lender Trustee's interest. A tax
or other government lien on property of the Seller arising prior to the time a
Student Loan comes into existence may also have priority over the interest of
the related Eligible Lender Trustee in such Student Loan. Under the related Loan
Sale Agreement, however, the Seller will warrant that it has caused the Student
Loans to be transferred to the related Eligible Lender Trustee on behalf of a
Trust free and clear of the lien of any third-party. In addition, the Seller
will covenant that it will not sell, pledge, assign, transfer or grant any
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lien on any Student Loan (or any interest therein) other than to the related
Eligible Lender Trustee on behalf of a Trust, except as provided below.
Pursuant to each Master Servicing Agreement, the Master Servicer as
custodian on behalf of the related Trust will have custody of the promissory
notes evidencing the Student Loans following the sale of the Student Loans to
the related Eligible Lender Trustee. Although the accounts and computer records
of the Seller and Master Servicer will be marked to indicate the sale and
although the Seller will cause UCC financing statements to be filed with the
appropriate authorities, the Student Loans will not be physically segregated,
stamped or otherwise marked to indicate that such Student Loans have been sold
to such Eligible Lender Trustee. If, through inadvertence or otherwise, any of
the 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 Student Loans in the ordinary course of its business and took
possession of such Student Loans, then the purchaser (or secured party) might
acquire an interest in the Student Loans superior to the interest of the
Eligible Lender Trustee if the purchaser (or secured party) acquired (or took a
security interest in) the Student Loans for new value and without actual
knowledge of the related Eligible Lender Trustee's interest. See "Description of
the Transfer and Servicing Agreements -- Sale of Student Loans; Representations
and Warranties".
With respect to each Trust, in the event of a Servicer Default resulting
solely from certain events of insolvency or bankruptcy that may occur with
respect to the Seller or the Master Servicer, a court, conservator, receiver or
liquidator may have the power to prevent either the related Indenture Trustee or
Noteholders of the related series from appointing a successor Servicer. See
"Description of the Transfer and Servicing Agreements -- Rights Upon Servicer
Default".
Certain Matters Relating to Receivership
The Seller will warrant to each Trust in the related Loan Sale Agreement
that the sale of the Student Loans to such Trust is a valid sale of the Student
Loans by the Seller to such Trust. Notwithstanding the foregoing, in the event
of an insolvency of the Seller, it is possible that a conservator or receiver
for, or a creditor of, the Seller may argue that each transaction between the
Seller and a Trust was a pledge of the related Student Loans in connection with
a borrowing by the Seller rather than a true sale. Such an attempt, even if
unsuccessful, could result in delays in distributions on the Securities.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") significantly expanded the powers of the Federal Deposit Insurance
Corporation ("FDIC") as a conservator or receiver of insolvent banks. To the
extent that the Seller has granted a first priority perfected security interest
in the Student Loans to each Trust, and the interest is validly perfected and
was not taken in contemplation of insolvency or with the intent to hinder, delay
or defraud the Seller's creditors, that security interest should not be subject
to avoidance by the FDIC as conservator or receiver of the Seller. If, however,
the FDIC were to take a contrary position, such as by requiring the Indenture
Trustee or Eligible Lender Trustee with respect to each Trust to establish its
rights in the related Student Loans by submitting to and complying with the
administrative claims procedure established under FIRREA, delays in payments on
the Securities and possible reductions in the amounts of those payments could
occur. In addition, under FIRREA, the FDIC may disaffirm or repudiate any
contract to which an insolvent bank is a party, the performance of which is
determined to be burdensome, and the disaffirmance of which is determined to
promote the orderly administration of such bank's affairs. If the FDIC were to
contend successfully that the Securities of any series evidence a secured
borrowing and that it has the power to repudiate such Securities, the effect of
such repudiation should be to accelerate the maturities of such Securities. In
the event of such acceleration, the amount paid on such Securities would depend,
among other things, on the amount which could be realized from the sale or other
disposition of the related Student Loans at such time. Although each Master
Servicing Agreement will provide for the replacement of the Seller as Master
Servicer in the event of the appointment of a conservator or receiver of the
Seller, the FDIC as conservator or receiver may enforce most types of contracts,
including a Master Servicing Agreement, pursuant to their terms, notwithstanding
any such provision. The FDIC, as conservator or receiver, may also transfer to a
new obligor an insolvent bank's assets and liabilities (including, in the event
that the Securities of any series were deemed to evidence a secured borrowing,
the related Student Loans and the liability evidenced by such Securities)
without the approval
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of the bank's creditors (including, in the event such Securities were deemed to
evidence a secured borrowing, holders of such Securities).
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, a Trust may be liable for certain
violations of consumer protection laws that apply to the Student Loans, either
as assignee or as the party directly responsible for obligations arising after
the transfer. For a discussion of a Trust's rights if the Student Loans were not
originated or serviced in compliance in all material respects with applicable
laws, see "Description of the Transfer and Servicing Agreements -- Sale of
Student Loans; Representations and Warranties" and "-- Servicer Covenants".
Loan Origination and Servicing Procedures Applicable to Student Loans
The Act, including the implementing regulations thereunder (in the case
of Federal Student Loans) and the private guarantee programs (in the case of
Private Student Loans) impose specified requirements, guidelines and procedures
with respect to originating and servicing student loans such as the 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 Federal Student Loans and the performance of a creditworthiness
evaluation in the case of Private Student 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 related Master Servicing Agreement to
perform collection and servicing procedures on behalf of the related Trust.
However, failure to follow these procedures or failure of the originator of the
loan to follow procedures relating to the origination of any Federal Student
Loans could result in adverse consequences. In the case of the Federal Student
Loans, any such failure could result in the Department's refusal to make
reinsurance payments to the Federal Guarantors or to make Interest Subsidy
Payments and Special Allowance Payments to the Eligible Lender Trustee with
respect to such Federal Student Loans or in the Federal Guarantors' refusal to
honor their Guarantee Agreements with the Eligible Lender Trustee with respect
to such Federal Student Loans. Failure of the Federal Guarantors to receive
reinsurance payments from the Department could adversely affect the Federal
Guarantors' ability or legal obligation to make Guarantee Payments to the
related Eligible Lender Trustee with respect to such Federal Student Loans. In
the case of the Private Student Loans, failure to make or service properly such
Private Student Loans in accordance with such procedures could adversely affect
the related Eligible Lender Trustee's ability to obtain Guarantee Payments from
the Private Guarantors.
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 related Trust's ability to pay principal and
interest on the Notes of the related series and to make distributions in respect
of the Certificates of the related series. Under certain circumstances, the
related Trust has the right, pursuant to the related Loan Sale Agreement and
Master Servicing Agreement, to cause the Seller to repurchase any Student Loan,
or to cause the Master Servicer to arrange for the purchase of any Student Loan,
if a breach of the representations, warranties or covenants of the Seller or the
Servicer, as the case may be, with respect to such 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. See "Description of the Transfer and
Servicing Agreements -- Sale of Student Loans; Representations and Warranties"
and "-- Servicer Covenants". The failure of the Seller to so purchase, or of the
Servicer to arrange for the purchase of, a Student Loan would constitute a
breach of the related Loan Sale agreement and Master Servicing Agreement,
enforceable by the related
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Eligible Lender Trustee on behalf of the related Trust or by the related
Indenture Trustee on behalf of the Noteholders of the related series, but would
not constitute an Event of Default under the Indenture.
Student Loans Generally Not Subject to Discharge In Bankruptcy
Student Loans are generally not dischargeable by a borrower in
bankruptcy pursuant to the U.S. Bankruptcy Code, unless (a) such Student Loan
first became due before seven years (exclusive of any applicable suspension of
the repayment period) before the date of the bankruptcy or (b) excepting such
debt from discharge will impose an undue hardship on the debtor and the debtor's
dependents.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. The summary does not purport to deal with federal income tax
consequences applicable to all categories of holders, some of which may be
subject to special rules. For example, it does not discuss the tax treatment of
Noteholders or Certificateholders that are insurance companies, regulated
investment companies or dealers in securities. Moreover, there are no cases or
Internal Revenue Service ("IRS") rulings on similar transactions involving both
debt and equity interests issued by a trust with terms similar to those of the
Notes and the Certificates. As a result, the IRS may disagree with all or a part
of the discussion below. Prospective investors are urged to consult their own
tax advisors in determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the Notes and
the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be provided
with an opinion of Federal Tax Counsel regarding certain federal income tax
matters discussed below. An opinion of Federal Tax Counsel, however, is not
binding on the IRS or the courts. No ruling on any of the issues discussed below
will be sought from the IRS. For purposes of the following summary, references
to the Trust, the Notes, the Certificates and related terms, parties and
documents shall be deemed to refer, unless otherwise specified herein, to each
Trust and the Notes, Certificates and related terms, parties and documents
applicable to such Trust.
Tax Characterization of the Trust
Federal Tax Counsel will deliver its opinion that each Trust will not be
an association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes. This opinion will be based on the assumption that
the terms of the related Trust Agreement and related documents will be complied
with, and on counsel's conclusions that (1) such Trust will not have certain
characteristics necessary for a business trust to be classified as an
association taxable as a corporation and (2) the nature of the income of such
Trust will exempt it from the rule that certain publicly traded partnerships are
taxable as corporations.
If a Trust were taxable as a corporation for federal income tax
purposes, such Trust would be subject to corporate income tax on its taxable
income. Such Trust's taxable income would include all of its income on the
Student Loans, and would be reduced by its expenses, including the interest
expense on the Notes. Any such corporate income tax could materially reduce cash
available to make payments on the Notes and distributions on the Certificates,
and Certificateholders could be liable for any such tax that is unpaid by such
Trust.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The Seller will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal, state and local income and franchise tax purposes. Federal Tax
Counsel will, except as otherwise provided in the related Prospectus Supplement,
deliver an opinion to the Trust
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that the Notes will be classified as debt for federal income tax purposes. The
discussion below assumes this characterization of the Notes is correct.
Original Issue Discount. The discussion below assumes that all payments
on the Notes are denominated in U.S. dollars, that the interest formula for the
Notes meets the requirements for "qualified stated interest" under Treasury
regulations (the "OID Regulations") relating to original issue discount ("OID"),
and that any OID on the Notes (i.e., any excess of the stated redemption price
at maturity of the Notes, generally the principal amount of the Notes, over
their issue price) does not exceed a de minimis amount (i.e., 1/4% of their
principal amount multiplied by the number of full years included in their term),
all within the meaning of the OID Regulations. If these conditions are not
satisfied with respect to any given series of Notes, additional tax
considerations with respect to such Notes will be disclosed in the related
Prospectus Supplement. The OID Regulations do not address their application to
debt instruments such as the Notes that are subject to prepayment based on the
prepayment of other debt instruments. The legislative history of the OID
provisions of the Code provides, however, that the calculation and accrual of
OID should be based on the prepayment assumption used by the parties in pricing
the transaction. In the event that any of the Notes are issued with OID, the
prepayment assumption will be set forth in the related Prospectus Supplement.
Furthermore, although premium amortization and accrued market discount on debt
instruments such as the Notes, which are subject to prepayment based on the
payments on other debt instruments, is to be determined under regulations yet to
be issued, the legislative history of these Code provisions provides that the
same prepayment assumption used to calculate OID, whether or not the debt
instrument is issued with OID, should be used. The OID Regulations are effective
for debt instruments, such as the Notes, issued on or after April 4, 1994.
Interest Income on the Notes. Based on the above assumptions, except as
discussed below or in the related Prospectus Supplement the Notes will not be
considered issued with OID. The stated interest thereon will be taxable to a
Noteholder as ordinary interest income when received or accrued in accordance
with such Noteholder's method of tax accounting. Under the OID Regulations, a
holder of a Note that was issued with a de minimis amount of OID must include
such OID in income, on a pro rata basis, as principal payments are made on the
Note. Alternatively, a Noteholder may elect to accrue all interest and discount
(including de minimis market discount or OID), as adjusted by any premium, in
income as interest, based on a constant yield method. If such an election were
made with respect to a Note with market discount, the Noteholder would be deemed
to have made an election to include in income currently market discount with
respect to all debt instruments having market discount that such Noteholder
acquires during the year of the election and thereafter. Similarly, a Noteholder
that makes this election for a Note that is acquired at a premium will be deemed
to have made an election to amortize bond premium with respect to all debt
instruments having amortizable bond premium that such Noteholder owns or
acquires. The election to accrue interest, discount and premium under a constant
yield method with respect to a Note is irrevocable without the consent of the
IRS. A purchaser who buys a Note for more or less than its principal amount
generally will be subject, respectively, to the premium amortization or market
discount rules of the Code.
"Qualified Stated Interest", which is taxable in accordance with the
holder's method of accounting, is interest that is unconditionally payable
(i.e., late payments are penalized) at least annually at a single fixed rate.
The Company intends to treat the interest paid on the Notes as Qualified Stated
Interest.
A holder of a Note that has a fixed maturity date of not more than one
year from the issue date of such Note (a "Short-Term Note") may be subject to
special rules. An accrual basis holder of a Short-Term Note (and certain cash
method holders, including regulated investment companies, banks and securities
dealers, as set forth in Section 1281 of the Code) generally will be required to
report interest income as interest accrues on a ratable basis over the term of
each interest period or, at the election of the holder, on a constant yield
basis (i.e., treating the instrument as accruing interest at a single rate).
Cash basis holders of a Short-Term Note will, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1282 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the
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taxpayer would include interest on the Short-Term Note in income as it accrues,
but would not be subject to the interest expense deferral rule referred to in
the preceding sentence. Certain special rules apply if a Short-Term Note is
purchased for more or less than its principal amount.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, acquisition discount, OID
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. Any such gain or loss will be capital gain or loss if
the Note was held as a capital asset, except for gain representing accrued
interest and accrued market discount not previously included in income. Capital
losses generally may be used only to offset capital gains.
Foreign Holders. Interest paid (or accrued) to a Noteholder who is for
United States federal income tax purposes a nonresident alien, foreign
corporation, foreign estate or trust, foreign partnership or other non-United
States person (a "foreign person") generally will be considered "portfolio
interest", and generally will not be subject to United States federal income tax
and withholding tax, provided, that (i) the interest is not effectively
connected with the conduct of a trade or business within the United States by
the foreign person, (ii) the foreign person is neither actually or
constructively a "10 percent shareholder" of the Trust, the Seller or the
Company (including a holder of 10% of the outstanding Certificates) nor a
"controlled foreign corporation" with respect to which the Trust, the Seller or
the Company is a "related person" within the meaning of the Code and (iii) the
foreign person provides the Trustee or other person who is otherwise required to
withhold U.S. tax with respect to the Notes with an appropriate statement (on
Form W-8 or a similar form), 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 a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide the relevant signed statement to the withholding agent;
in that case, however, the signed statement must be accompanied by 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 generally will be exempt from
United States federal income and withholding tax, provided that (i) such 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 person is not present in the United States for 183 days or
more in the taxable year.
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).
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate setting forth the holder's
name, address, correct federal taxpayer identification number and a statement
that the holder is not subject to backup withholding. Should a nonexempt
Noteholder fail to provide the required certification, the Trust will be
required to withhold 31% of the amount otherwise payable to the holder, and
remit the withheld amount to the IRS as a credit against the holder's federal
income tax liability.
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Possible Alternative Treatments of the Notes. If, contrary to the
opinion of Federal Tax Counsel, the IRS successfully asserted that one or more
of the Notes did not represent debt for federal income tax purposes, the Notes
would be treated as equity interests in the Trust. If so treated, the Trust
might be taxable as a corporation with the adverse consequences described above
(and the taxable corporation would not be able to reduce its taxable income by
deductions for interest expense on Notes recharacterized as equity).
Alternatively, and most likely in the view of Federal Tax Counsel, the Trust
would be treated as a publicly traded partnership that would not be taxable as a
corporation because it would meet certain qualifying income tests. Nonetheless,
treatment of the Notes as equity interests in such a publicly traded partnership
could have adverse tax consequences to certain holders. For example, income to
foreign holders might be subject to U.S. tax and U.S. tax return filing and
withholding requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of Trust expenses.
Tax Consequences to Holders of the Certificates
The following discussion assumes that all payments on the Certificates
are denominated in U.S. dollars, that a series of Securities includes a single
class of Certificates and that any such Certificates are sold to persons other
than the Seller. If these conditions are not satisfied with respect to any given
series of Certificates, any additional tax considerations with respect to such
Certificates will be disclosed in the applicable Prospectus Supplement.
Treatment of the Trust as a Partnership. The Seller and the Master
Servicer will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal, state
and local income tax, franchise tax and any other tax measured in whole or in
part by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders (including
the Seller in its capacity as recipient of distributions from the Reserve
Account, if any), and the Notes being debt of the partnership. However, the
proper characterization of the arrangement involving the Trust, the
Certificateholders, the Noteholders, the Seller and the Master Servicer is not
clear because there is no authority on transactions comparable to that
contemplated herein.
Under the provisions of Subchapter K of the Code, a partnership is not
considered to be a separate taxable entity. Instead, partnership income is taxed
directly to the partners and each partner generally is viewed as owning a direct
undivided interest in each partnership asset. The partnership generally is
treated as an entity, however, for purposes of computing partnership income,
determining the tax consequences of transactions between a partner and the
partnership, and characterizing the gain on the sale or exchange of a
partnership interest. The following discussion is a summary of some of the
material federal income tax consequences of classifying the Trust as a
partnership. Prospective owners of Trust Certificates should consult their own
tax advisors regarding the federal income tax consequences discussed below, as
well as any other material federal income tax consequences that may result from
applying the provisions of Subchapter K to the ownership and transfer of a Trust
Certificate.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Student Loans (including
appropriate adjustments for market discount, OID and bond premium), investment
income from investments of amounts on deposit in any related Trust Accounts and
any gain upon collection or disposition of Student Loans. The Trust's deductions
will consist primarily of interest accruing with respect to the Notes, servicing
and other fees, and losses or deductions upon collection or disposition of
Student Loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust for each Interest Period (as defined in the applicable
Prospectus Supplement, an "Interest Period") equal to the sum of (i) the
interest that accrues on the Certificates in accordance with their terms for
such Interest Period, including interest accruing at the Pass-Through Rate for
such Interest Period and interest on amounts previously due on the Certificates
but not yet distributed; (ii) any Trust income attributable to discount on the
Student Loans that corresponds to any excess of the principal amount of the
Certificates over their initial issue price; and (iii) all other amounts of
income payable to the Certificateholders
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for such Interest Period. All remaining taxable income of the Trust will be
allocated to the Seller. Based on the economic arrangement of the parties, this
approach for allocating Trust income should be permissible under applicable
Treasury regulations, although no assurance can be given that the IRS would not
require a greater amount of income to be allocated to Certificateholders.
Moreover, even under the foregoing method of allocation, Certificateholders may
be allocated income equal to the entire amount of interest accruing on the
Certificates for an Interest Period, based on the Pass-Through Rate plus the
other items described above, even though the Trust might not have sufficient
cash to make current cash distributions of such amount. Thus, cash basis holders
will in effect be required to report income from the Certificates on the accrual
basis and Certificateholders may become liable for taxes on Trust income even if
they have not received cash from the Trust to pay such taxes. In addition,
because tax allocations and tax reporting will be done on a uniform basis for
all Certificateholders but Certificateholders may be purchasing Certificates at
different times and at different prices, Certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
An individual taxpayer's share of expenses of the Trust (including fees
to the Master Servicer but not interest expenses) are miscellaneous itemized
deductions which generally are deductible to the extent they exceed two percent
of the individual's adjusted gross income. However, an individual taxpayer may
be required to reduce his or her itemized deductions further if such taxpayer's
income exceeds certain annual levels. Accordingly, such deductions might be
disallowed to the individual in whole or in part and might result in such holder
being taxed on an amount of income that exceeds the amount of cash actually
distributed to such holder over the life of the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each of the Student Loans,
the Trust might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
Computation of Income. Taxable income of the Trust will be computed at
the Trust level and then allocated pro rata to the Trust Certificateholders.
Consequently, the method of accounting for taxable income will be chosen by, and
any elections (such as those described above with respect to the market discount
rules) will be made by, the Trust rather than the Trust Certificateholders. The
Trust intends, to the extent possible, to (i) have the taxable income of the
Trust computed under the accrual method of accounting and (ii) adopt a
calendar-year taxable year for computing the taxable income of the Trust. The
tax year of the Trust, however, is generally determined by reference to the tax
years of the Certificateholders. As a result, an owner of a Trust Certificate
would be required to include its pro rata share of Trust income for a taxable
year as determined by the Trust in such Trust Certificateholder's gross income
for its taxable year in which the taxable year of the Trust ends.
Determining the Bases of Trust Assets. The Trust will become a
partnership on the first date when Trust Certificates are held by more than one
person. On that date, each of the Trust Certificateholders should be treated as
having purchased a pro rata share of the assets of the Trust (subject to the
liability for the Notes) followed immediately by a deemed contribution of such
assets to the newly formed partnership. The partnership's basis in the Trust's
assets would therefore equal the sum of the Trust Certificateholders' bases in
their respective interests in the Trust's assets immediately prior to the deemed
contribution to the partnership. To the extent that the fair market value of the
assets deemed contributed to the partnership varied from the bases of such
assets to the partnership, the allocation of taxable income to the Trust
Certificateholders would be adjusted in accordance with Code Section 704(c) to
account for such variations.
Under Code Section 708 a partnership is considered to terminate if 50%
or more of the partnership interests are sold or exchanged within a 12-month
period. If such a termination occurs, the partnership is deemed to distribute
its assets to its partners (including the transferee partner, the Seller) who
are then deemed to recontribute those assets to a new partnership. The new
partnership would have a basis in those assets equal to the basis of the
contributing partners in their partnership interests. If the Trust were
characterized as a partnership and a sale of Trust Certificates terminated the
partnership under Code Section 708, the purchaser's basis in its ownership
interest would automatically be reflected in its pro rata portion of the Trust's
assets.
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<PAGE>
Discount and Premium. To the extent that OID, if any, on the Student
Loans exceeds a de minimis amount, the Trust would have OID income. As indicated
above, a portion of such OID income may be allocated to the Certificateholders.
Moreover, the purchase price paid by the Trust for the Student Loans may
be greater or less than the remaining principal balance of the Student Loans at
the time of purchase. If so, the Student Loans will have been acquired at a
premium or discount, as the case may be. (As indicated above, the Trust will
make this calculation on an aggregate basis, but might be required to recompute
it on a loan by loan basis.)
If the Trust acquires the Student Loans at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Student Loans or to offset any such premium against
interest income on the Student Loans. As indicated above, a portion of such
market discount income or premium deduction may be allocated to
Certificateholders.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
To the extent that the Trust is characterized as a partnership, a
Certificateholder's tax basis in a Certificate will generally equal the holder's
cost increased by the holder's share of Trust income (net of deductions) and
decreased by any distributions received with respect to such Certificate. In
addition, both the tax basis in the Certificate and the amount realized on a
sale of a Certificate would include the holder's share of the Notes and other
liabilities of the Trust. A holder acquiring Certificates at different prices
may be required to maintain a single aggregate adjusted tax basis in such
Certificates, and, upon sale or other disposition of some of the Certificates,
allocate a pro rata portion of such aggregate tax basis to the Certificates sold
(rather than maintaining a separate tax basis in each Certificate for purposes
of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share
of unrecognized accrued market discount on the Student Loans generally would be
treated as ordinary income to the holder and could give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect the tax liability and tax basis of the
holder) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
laws and regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Seller is
authorized to revise the Trust's method of allocation between transferors and
transferees to conform to a method permitted by future laws, regulations or
other IRS guidance.
Section 754 Election. In the event that a Certificateholder sells a
Certificate at a profit (or loss), the purchasing Certificateholder will have a
higher (or lower) basis in the Certificate than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will
68
<PAGE>
not make such election. As a result, Certificateholders might be allocated a
greater or lesser amount of Trust income than would be appropriate based on
their own purchase price for Certificates.
Administrative Matters. The Eligible Lender Trustee is required to keep
or cause to be kept complete and accurate books of the Trust. Such books will be
maintained for financial reporting and tax purposes on an accrual basis and the
taxable year of the Trust will be the calendar year. The Eligible Lender Trustee
will file a partnership information return (IRS Form 1065) with the IRS for each
taxable year of the Trust and will report each Certificateholder's allocable
share of items of Trust income and expense to holders and the IRS on Schedule K-
l. The Trust will provide the Schedule K-1 information to nominees that fail to
provide the Trust with the information statement described below and such
nominees will be required to forward such information to the beneficial owners
of the Certificates. Generally, holders must file tax returns that are
consistent with the information returns filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and identification number of such person, (y)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act that holds Certificates as a nominee is
not required to furnish any such information statement to the Trust. The
information referred to above for any calendar year must be furnished to the
Trust on or before the following January 31. Nominees, brokers and financial
institutions that fail to provide the Trust with the information described above
may be subject to penalties.
The Company will be designated as the "tax matters partner" in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether
the Trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-U.S.
persons because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the Trust would be engaged in a trade or business in the United States for
such purposes, the Trust will withhold as if it were so engaged in order to
protect the Trust from possible adverse consequences of a failure to withhold.
The Trust expects to withhold on the portion of its taxable income that is
allocable to foreign Certificateholders pursuant to Section 1446 of the Code, as
if such income were effectively connected to a U.S. trade or business, at a rate
of 35% for foreign holders that are taxable as corporations and 39.6% for all
other foreign holders. These rates may be increased by proposed tax legislation.
Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust to change its withholding
procedures. In determining a holder's withholding status, the Trust may rely on
IRS Form W-8, IRS Form W-9 or the holder's certification of nonforeign status
signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including in the case of a corporation, the branch
profits tax) on its share of the Trust's income. Each foreign holder must obtain
69
<PAGE>
a taxpayer identification number from the IRS and submit that number to the
Trust on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust, taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business. However, interest payments made (or accrued) to a
Certificateholder who is a foreign person generally will be considered
guaranteed payments to the extent such payments are determined without regard to
the income of the Trust. If these interest payments are properly characterized
as guaranteed payments, then the interest will not be considered "portfolio
interest." As a result, Certificateholders will be subject to United States
federal income tax and withholding tax at a rate of 30 percent, unless reduced
or eliminated pursuant to an applicable treaty. In such case, a foreign holder
would only be entitled to claim a refund for that portion of the taxes in excess
of the taxes that should be withheld with respect to the guaranteed payments.
Proposed Tax Legislation. Recently, various bills have been introduced
before Congress that would apply special rules to "large partnerships",
generally defined as partnerships with at least 250 partners during a taxable
year. Under these bills, certain computations would be made at the partnership
level rather than the partner level. In particular, taxable income would be
calculated at the partnership level, which could have the effect of disallowing
a share of partners' deductions under certain circumstances. Moreover, large
partnerships would become subject to new audit procedures. No prediction can be
made whether such legislation will be enacted, the form in which it might be
enacted, or the ultimate effective date of such legislation. The Prospectus
Supplement will disclose any further information on these provisions.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "Backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S OR
CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
CERTAIN STATE TAX CONSEQUENCES
The loan servicing activities to be undertaken by the Master Servicer
will predominantly take place in Maryland.
Because of the variation in each state's tax laws based in whole or in
part upon income, it is impossible to predict tax consequences to holders of
Notes and Certificates in all of the state taxing jurisdictions in which they
are already subject to tax. Noteholders and Certificateholders are urged to
consult their own tax advisors with respect to state tax consequences arising
out of the purchase, ownership and disposition of Notes and Certificates.
The State of Maryland imposes an individual income tax and a corporate
income tax. This discussion is based upon present provisions of Maryland
statutes and the regulations promulgated thereunder, and applicable judicial or
ruling authority, all of which are subject to change, which change may be
retroactive. No ruling on any of the issues discussed below will be sought from
the Maryland Department of Revenue.
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<PAGE>
Tax Consequences with Respect to the Notes
It is expected that Maryland Tax Counsel will deliver an opinion to the
Trust that, assuming the Notes are treated as debt for federal income tax
purposes, the Notes will be treated as debt for Maryland individual income and
corporate income tax purposes. Accordingly, Noteholders not otherwise subject to
taxation in Maryland should not become subject to taxation in Maryland solely
because of a holder's ownership of Notes. However, a Noteholder already subject
to Maryland's individual income tax or corporate income tax could be required to
pay additional Maryland tax as a result of the holder's ownership or disposition
of Notes.
Tax Consequences with Respect to the Certificates
If the arrangement created by the Trust Agreement is treated as a
partnership, not taxable as a corporation, for federal income tax purposes,
Maryland Tax Counsel will deliver an opinion that the same treatment should also
apply for Maryland tax purposes. As a result, the partnership should not be
subject to the Maryland Corporate income tax (if such taxes were applicable,
however, they could result in reduced distributions to Certificateholders).
Moreover, Certificateholders that are not otherwise subject to tax in Maryland
should not be subject to Maryland individual income or corporate income tax with
respect to income from the partnership, unless in the unlikely event the Trust
is considered to be carrying on business in Maryland.
ERISA CONSIDERATIONS
The Notes
Unless otherwise specified in the Prospectus Supplement, the Notes of
each series may be purchased by an employee benefit plan (as defined in Section
3(3) of ERISA) that is subject to the provisions of Title I of ERISA by a plan
described in Section 4975(e)(1) of the Code, including an individual retirement
account (a "Plan"). A fiduciary of the Plan must determine that the purchase of
a Note is consistent with its fiduciary duties under ERISA and does not result
in a nonexempt prohibited transaction as defined in Section 406 of ERISA or
Section 4975 of the Code. Employee plans which are government plans (as defined
in Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33)
of ERISA) are not subject to the fiduciary responsibility or prohibited
transaction provisions of ERISA or the Code.
The Certificates
Unless otherwise specified in the Prospectus Supplement, the
Certificates of each series may not be purchased by a Plan or by any entity
whose underlying assets include plan assets by reason of a plan's investment in
the entity (each, a "Benefit Plan"). Such purchase of an equity interest in the
Trust will result in the assets of the Trust being deemed assets of a Benefit
Plan for the purposes of, ERISA and the Code, and certain transactions involving
the Trust may then be deemed to constitute prohibited transactions under Section
406 of ERISA and Section 4975 of the Code. A violation of the "prohibited
transaction" rules may result in an excise tax or other penalties and
liabilities under ERISA and the Code for such persons.
By its acceptance of a Certificate, each Certificateholder will be
deemed to have represented and warranted that it is not a Benefit Plan.
If a given series of Certificates may be acquired by a Benefit Plan
because of the application of an exception contained in a regulation issued by
the United States Department of Labor (the "Plan Assets Regulation"), such
exception will be discussed in the related Prospectus Supplement.
* * *
71
<PAGE>
A plan fiduciary considering the purchase of Securities of a given
series should consult its tax and/or legal advisors regarding whether the assets
of the related Trust would be considered plan assets the possibility of
exemptive relief from the prohibited transaction rules and other issues and
their potential consequences.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Notes of a given series and an underwriting agreement with
respect to the Certificates of such series (collectively, the "Underwriting
Agreements"), the Seller will agree to cause the related Trust to sell to the
underwriters named therein and in the related Prospectus Supplement, and each of
such underwriters will severally agree to purchase, the principal amount of each
class of Notes and Certificates, as the case may be, of the related series set
forth therein and in the related Prospectus Supplement.
In each of the Underwriting Agreements with respect to any given series
of Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all the Notes and Certificates, as the
case may be, described therein which are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may be,
are purchased.
Each Prospectus Supplement will either (i) set forth the price at which
each class of Notes and Certificates, as the case may be, being offered thereby
will be offered to the public and any concessions that may be offered to certain
dealers participating in the offering of such Notes and Certificates, as the
case may be or (ii) specify that the related Notes and Certificates, as the case
may be, are to be resold by the underwriters in negotiated transactions at
varying prices to be determined at the time of such sale. After the initial
public offering of any such Notes and Certificates, as the case may be, such
public offering prices and such concessions may be changed.
Each Underwriting Agreement will provide that the Seller will indemnify
the underwriters against certain civil liabilities, including liabilities under
the Securities Act, or contribute to payments the several underwriters may be
required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Trust
Accounts in Eligible Investments acquired from such underwriters.
Pursuant to each of the Underwriting Agreements with respect to a given
series of Securities, the closing of the sale of any class of Securities subject
to either thereof will be conditioned on the closing of the sale of all other
such classes subject to either thereof.
The place and time of delivery for the Securities in respect of which
this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
LEGAL MATTERS
Certain legal matters relating to the Securities of any series will be
passed upon for the related Trust, the Seller, the Master Servicer and the
Administrator by McGuire, Woods, Battle & Boothe, L.L.P., Richmond, Virginia,
and for the underwriters for such series by the law firm specified in the
related Prospectus Supplement. Certain federal and Maryland State income and
corporate income tax and other matters will be passed upon for each Trust by
McGuire, Woods, Battle & Boothe, L.L.P.
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<PAGE>
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>
1992 Amendments..................................................... 18
1993 Act............................................................ 10, 19
Act................................................................. 16
Add-on Consolidation Loans.......................................... 36
Additional Fundings................................................. 50
Administration Agreement............................................ 13, 59
Administration Fee.................................................. 59
Administrator....................................................... 7
Administrator Default............................................... 59
Applicable Trustee.................................................. 47
Assigned Assets..................................................... 25
Assumed Agreements.................................................. 25
Assumed Obligations................................................. 25
Assuming Entity..................................................... 25
Benefit Plan........................................................ 70
Calculation Agent................................................... 47
Cede................................................................ 23
Certificate Balance................................................. 8
Certificate Pool Factor............................................. 40
Certificates........................................................ 1
Closing Date........................................................ 9, 49
Code................................................................ 62
Collection Account.................................................. 51
Collection Period................................................... 52
Commission.......................................................... 2
Cutoff Date......................................................... 9
Deferral Period..................................................... 33
Definitive Certificates............................................. 48
Definitive Notes.................................................... 48
Definitive Securities............................................... 48
Department.......................................................... 9
Depository.......................................................... 40
Distribution Date................................................... 41
DTC's Nominee....................................................... 23
Eligible Deposit Account............................................ 51
Eligible Institution................................................ 51
Eligible Lender Trustee............................................. 1
ERISA............................................................... 15
Event of Default.................................................... 42
Existing Borrowers.................................................. 10
Family contribution................................................. 30
FDIC................................................................ 23, 60
Federal Assistance.................................................. 31
Federal Consolidation Loan.......................................... 36
Federal Consolidation Loans......................................... 28
Federal Direct Consolidation Loan Program........................... 19
Federal Guarantor................................................... 9
</TABLE>
73
<PAGE>
<TABLE>
<S> <C>
Federal Origination Fee............................................. 19
Federal PLUS Loans.................................................. 28
Federal SLS Loans................................................... 28
Federal Stafford Loans.............................................. 28
Federal Student Loans............................................... 9
Federal Supplemental Loans to Students.............................. 28
Federal Tax Counsel................................................. 14
Federal Unsubsidized Stafford Loans................................. 28
FFELP............................................................... 16
FIRREA.............................................................. 23, 60
Fixed Rate Securities............................................... 46
Floating Rate Securities............................................ 46
Forbearance Period.................................................. 34
Foreign person...................................................... 64
Funding Period...................................................... 9
Grace Period........................................................ 33
Guarantee Agreement................................................. 16
Guarantee Agreements................................................ 16
Guarantee Payments.................................................. 9
Guarantors.......................................................... 9
Indenture........................................................... 7
Indenture Trustee................................................... 1
Index Shortfall Carryover........................................... 42
Indirect Participants............................................... 47
Insolvency Event.................................................... 57
Interest Rate....................................................... 8
Interest Reset Period............................................... 46
Interest Subsidy Payments........................................... 31
Investment Earnings................................................. 51
IRS................................................................. 62
Issuer.............................................................. 7
Loan Sale Agreement................................................. 9
Loan Servicing Agreement............................................ 7, 12
Master Servicer..................................................... 7
Minimum Purchase Price.............................................. 58
Monthly Rebate Fee.................................................. 18
Note Pool Factor.................................................... 40
OID................................................................. 63
OID Regulations..................................................... 63
Participants........................................................ 41
Pass-Through Rate................................................... 8
Plan................................................................ 70
Pool Balance........................................................ 40
Pool Factor......................................................... 40
Pre-Funding Account................................................. 10
Pre-Funding Amount.................................................. 10
Private Guarantor................................................... 9
Private Student Loans............................................... 9
Prospectus Supplement............................................... 1
Purchase Amount..................................................... 50
Qualified Stated Interest........................................... 63
Qualified student................................................... 29
</TABLE>
74
<PAGE>
<TABLE>
<S> <C>
Registration Statement.............................................. 2
Related Documents................................................... 44
Reserve Account..................................................... 11, 54
Reserve Account Initial Deposit..................................... 11
Revolving Period.................................................... 10
Secretary........................................................... 22
Securities.......................................................... 1
Securities Act...................................................... 2
Seller.............................................................. 1, 7
Servicer Default.................................................... 22, 56
Servicing Fee....................................................... 13, 53
Short-Term Note..................................................... 63
Signet.............................................................. 1, 7
Special Allowance Payments.......................................... 30
Spread.............................................................. 46
Spread Multiplier................................................... 46
Student Loans....................................................... 1, 9
Subservicer......................................................... 12, 25
Subservicers........................................................ 52
Subservicing Agreement.............................................. 25
Tax Opinion......................................................... 26
Transfer and Servicing Agreements................................... 49
Trust............................................................... 1, 7
Trust Accounts...................................................... 51
Trust Agreement..................................................... 7
UCC................................................................. 50
Underwriting Agreements............................................. 71
Unmet Need.......................................................... 30
</TABLE>
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<PAGE>
No dealer, salesman or other person has been authorized to give any information
or to make any representation not contained in this Prospectus Supplement or the
accompanying Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized. This
Prospectus Supplement and the Prospectus do not constitute an offer or
solicitation by anyone in any state in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus Supplement and the
Prospectus nor any sale shall, under any circumstances, create an implication
that information herein or therein is correct as of any time subsequent to the
date of this Prospectus Supplement or Prospectus.
-----------------------
Table of Contents
Page
----
Prospectus Supplement
Prospectus
-----------------------
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Securities described in this Prospectus
Supplement, whether or not participating in the distribution, may be required to
deliver this Prospectus Supplement and the Prospectus. This is in addition to
the obligation of dealers to deliver this Prospectus Supplement and the
Prospectus when acting as underwriters and with respect to their unsold
allotment or subscriptions.
$
----------------------
SIGNET STUDENT LOAN
TRUST 1996-A
$
----------------------
Floating Rate Class A-1
Asset Backed Notes
$
----------------------
Floating Rate Class A-2
Asset Backed Notes
$
----------------------
Floating Rate
Asset Backed Certificates
Signet Bank
Seller and Master Servicer
PROSPECTUS SUPPLEMENT
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Expenses in connection with the offering of the Notes and the
Certificates being registered herein are estimated as follows:
<TABLE>
<S> <C>
SEC registration fee.....................................$
-------
Legal fees and expenses..................................
-------
Accounting fees and expenses.............................
-------
Blue Sky fees and expenses...............................
-------
Rating agency fees.......................................
-------
Eligible Lender Trustee fees and expenses................
-------
Indenture Trustee fees and expenses......................
-------
Printing expenses........................................
-------
Miscellaneous............................................
-------
Total...............................................$
-------
</TABLE>
Item 15. Indemnification of Directors and Officers.
Article 10 of the Virginia Stock Corporation Act and the Articles of
Incorporation of Signet provide for indemnification of the Banks's directors and
officers in a variety of circumstances, which may include liability under the
Securities Act of 1933. In addition, the Bank carries insurance on behalf of
directors, officers, employees or agents which may cover liabilities under the
Securities Act of 1933.
Item 16. Exhibits.
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement for Notes *
1.2 Form of Underwriting Agreement for Certificates *
3.1 Articles of Incorporation of Signet Bank *
3.2 Bylaws of Signet Bank *
3.3 Certificate of Incorporation of General Partner corporation *
3.4 Bylaws of General Partner corporation *
3.5 Form of Certificate of Trust for the Trusts (included as an exhibit to Exhibit 4.2) *
4.1 Form of Indenture between the Trust and the Indenture Trustee (included as an exhibit thereto a form of
Note) *
4.2 Form of Trust Agreement among the Seller, the Company and the Eligible Lender Trustee (included as an
exhibit thereto a form of Certificate) *
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
4.3 Form of Note (included as an exhibit to Exhibit 4.1) *
4.4 Form of Certificate (included as an exhibit to Exhibit 4.2) *
5.1 Opinion of McGuire, Woods, Battle & Boothe, L.L.P. with respect to legality *
8.1 Opinion of McGuire, Woods, Battle & Boothe, L.L.P. with respect to tax matters *
23.1 Consent of McGuire, Woods, Battle & Boothe, L.L.P. (included as part of Exhibit 5.1 and 8.1) *
24.1 Powers of Attorney
25.1 Statement of Eligibility under the Trust Indenture Act of 1939 of the Indenture Trustee (bound separately)*
99.1 Form of Loan Sale Agreement among the Seller, the Trust and the Eligible Lender Trustee *
99.2 Form of Master Servicing Agreement among the Master Servicer, the Trust and the Eligible Lender
Trustee*
99.3 Form of Administration Agreement among the Trust, the Indenture Trustee and Signet Bank, as
Administrator *
</TABLE>
- -------------------------------------
* To be filed by amendment.
Item 17. Undertakings.
(a) As to Rule 415:
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, 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, as amended;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the
most recent post-effective amendment hereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that the undertakings set forth in clauses (i) and (ii) above
do not apply if the information required to be included in a post-effective
amendment by those clauses is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934, as amended, that are incorporated by reference in this Registration
Statement.
(2) That, for the purposes of determining any liability under the
Securities Act of 1933, as amended, 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 bide offering thereof.
II-2
<PAGE>
(3) 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.
(b) As to documents subsequently filed that are incorporated by
reference:
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended, that is incorporated
by reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreements Notes and
Certificates in such denominations and registered in such names are required by
the Underwriter to permit prompt delivery to each purchaser.
(d) As to indemnification:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 15, 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 therefor unenforceable. In the event that a claim
for indemnification against such liabilities (other than payment by the
Registrant of expenses incurred or paid by a director, officer of controlling
person of such Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, such 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.
(e) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement or amendment to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Richmond, State of Virginia, on October 30, 1996.
SIGNET BANK, as
originator of the Trust (Registrant)
By: /s/ Wallace B. Millner, III
-------------------------------------------
Wallace B. Millner, III
Vice Chairman and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or amendment has been signed below on October 30, 1996,
by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ Robert M. Freeman * Chairman of the Board
- ------------------------------------
Robert M. Freeman
/s/ Malcolm S. McDonald * President, Chief Executive Officer
- ------------------------------------ (Principal Executive Officer) and
Malcolm S. McDonald Director
/s/ Wallace B. Millner, III Vice Chairman and Chief
- ------------------------------------ Financial Officer (Principal
Wallace B. Millner, III Financial Officer)
/s/ T. Gaylon Layfield, III * Vice Chairman, Chief Operating
- ------------------------------------ Officer and Director
T. Gaylon Layfield, III
/s/ W. H. Catlett, Jr. * Executive Vice President and
- ------------------------------------ Controller (Principal Accounting
W. H. Catlett, Jr. Officer)
/s/ J. Henry Butta * Director
- ------------------------------------
J. Henry Butta
/s/ Norwood H. Davis, Jr. * Director
- ------------------------------------
Norwood H. Davis, Jr.
/s/ William C. DeRusha * Director
- ------------------------------------
William C. DeRusha
/s/ C. Stephenson Gillispie, Jr. * Director
- ------------------------------------
C. Stephenson Gillispie, Jr.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
/s/ Bruce C. Gottwald * Director
- ------------------------------------
Bruce C. Gottwald
* Director
- ------------------------------------
William R. Harvey
/s/ Elizabeth G. Helm * Director
- ------------------------------------
Elizabeth G. Helm
/s/ Robert M. Heyssel * Director
- ------------------------------------
Robert M. Heyssel
/s/ Henry A. Rosenberg, Jr. * Director
- ------------------------------------
Henry A. Rosenberg, Jr.
/s/ Louis B. Thalheimer * Director
- ------------------------------------
Louis B. Thalheimer
</TABLE>
* By: /s/ Wallace B. Millner, III
----------------------------
Wallace B. Millner, III
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement for Notes *
1.2 Form of Underwriting Agreement for Certificates *
3.1 Certificate of Incorporation of Signet *
3.2 Bylaws of Signet Bank *
3.3 Certificate of Incorporation of General Partner corporation *
3.4 Bylaws of General Partner corporation *
3.5 Form of Certificate of Trust for the Trusts (included
as an exhibit to Exhibit 4.2) *
4.1 Form of Indenture between the Trust and the Indenture
Trustee (included as an exhibit thereto a form of Note) *
4.2 Form of Trust Agreement among the Seller, Signet and the Eligible Lender
Trustee (included as an exhibit thereto a form of Certificate) *
4.3 Form of Note (included as an exhibit to Exhibit 4.1) *
4.4 Form of Certificate (included as an exhibit to Exhibit 4.2) *
5.1 Opinion of McGuire, Woods, Battle & Boothe, L.L.P. with respect
to legality *
8.1 Opinion of McGuire, Woods, Battle & Boothe, L.L.P. with respect
to tax matters *
23.1 Consent of McGuire, Woods, Battle & Boothe, L.L.P. (included as
part of Exhibit 5.1 and 8.1) *
24.1 Powers of Attorney
25.1 Statement of Eligibility under the Trust Indenture Act of 1939 of
the Indenture Trustee (bound separately) *
99.1 Form of Loan Sale Agreement among the Seller, the Trust and the Eligible
Lender Trustee *
99.2 Form of Master Servicing Agreement among the Master Servicer, the Trust and
the Eligible Lender Trustee *
99.3 Form of Administration Agreement among the Trust, the Indenture Trustee
and Signet Bank, as Administrator *
</TABLE>
- ---------------------
* To be filed by amendment.
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Signet Bank, a Virginia banking corporation (the "Bank"),
hereby constitutes and appoints each of Wallace B. Millner, III, David L.
Brantley, Sara R. Wilson and Suzanne Bachman his or her true and lawful
attorneys-in-fact and agents, for him or her and in his or her name, place and
stead to sign and file a registration statement under the Securities Act of
1933, as amended, on the appropriate form registering asset-backed securities
of one or more trusts originated by the Bank relating to the Bank's student
loans, with power to sign and file any amendment or amendments thereto, with all
exhibits thereto and any and all other documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things necessary and appropriate to be done in
and about the premises as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 25th day of October, 1996.
/s/ Robert M. Freeman
---------------------------
Robert M. Freeman, Chairman
of the Board of Directors
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Signet Bank, a Virginia banking corporation (the "Bank"),
hereby constitutes and appoints each of Wallace B. Millner, III, David L.
Brantley, Sara R. Wilson and Suzanne Bachman his or her true and lawful
attorneys-in-fact and agents, for him or her and in his or her name, place and
stead to sign and file a registration statement under the Securities Act of
1933, as amended, on the appropriate form registering asset-backed securities
of one or more trusts originated by the Bank relating to the Bank's student
loans, with power to sign and file any amendment or amendments thereto, with all
exhibits thereto and any and all other documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things necessary and appropriate to be done in
and about the premises as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 25th day of October, 1996.
/s/ Malcolm S. McDonald
------------------------------
Malcolm S. McDonald, Director,
President and Chief Executive
Officer
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Signet Bank, a Virginia banking corporation (the "Bank"),
hereby constitutes and appoints each of Wallace B. Millner, III, David L.
Brantley, Sara R. Wilson and Suzanne Bachman his or her true and lawful
attorneys-in-fact and agents, for him or her and in his or her name, place and
stead to sign and file a registration statement under the Securities Act of
1933, as amended, on the appropriate form registering asset-backed securities
of one or more trusts originated by the Bank relating to the Bank's student
loans, with power to sign and file any amendment or amendments thereto, with all
exhibits thereto and any and all other documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things necessary and appropriate to be done in
and about the premises as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 25th day of October, 1996.
/s/ Wallace B. Millner, III
------------------------------
Wallace B. Millner, III,
Vice Chairman of the Board of
Directors and Chief Financial
Officer (Principal Financial
Officer)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Signet Bank, a Virginia banking corporation (the "Bank"),
hereby constitutes and appoints each of Wallace B. Millner, III, David L.
Brantley, Sara R. Wilson and Suzanne Bachman his or her true and lawful
attorneys-in-fact and agents, for him or her and in his or her name, place and
stead to sign and file a registration statement under the Securities Act of
1933, as amended, on the appropriate form registering asset-backed securities
of one or more trusts originated by the Bank relating to the Bank's student
loans, with power to sign and file any amendment or amendments thereto, with all
exhibits thereto and any and all other documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things necessary and appropriate to be done in
and about the premises as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 25th day of October, 1996.
/s/ W. H. Catlett, Jr.
------------------------------
W. H. Catlett, Jr., Executive
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Signet Bank, a Virginia banking corporation (the "Bank"),
hereby constitutes and appoints each of Wallace B. Millner, III, David L.
Brantley, Sara R. Wilson and Suzanne Bachman his or her true and lawful
attorneys-in-fact and agents, for him or her and in his or her name, place and
stead to sign and file a registration statement under the Securities Act of
1933, as amended, on the appropriate form registering asset-backed securities
of one or more trusts originated by the Bank relating to the Bank's student
loans, with power to sign and file any amendment or amendments thereto, with all
exhibits thereto and any and all other documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things necessary and appropriate to be done in
and about the premises as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 25th day of October, 1996.
/s/ J. Henry Butta
------------------------
J. Henry Butta, Director
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Signet Bank, a Virginia banking corporation (the "Bank"),
hereby constitutes and appoints each of Wallace B. Millner, III, David L.
Brantley, Sara R. Wilson and Suzanne Bachman his or her true and lawful
attorneys-in-fact and agents, for him or her and in his or her name, place and
stead to sign and file a registration statement under the Securities Act of
1933, as amended, on the appropriate form registering asset-backed securities
of one or more trusts originated by the Bank relating to the Bank's student
loans, with power to sign and file any amendment or amendments thereto, with all
exhibits thereto and any and all other documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things necessary and appropriate to be done in
and about the premises as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 25th day of October, 1996.
/s/ Norwood H. Davis, Jr.
-------------------------
Norwood H. Davis, Jr.,
Director
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Signet Bank, a Virginia banking corporation (the "Bank"),
hereby constitutes and appoints each of Wallace B. Millner, III, David L.
Brantley, Sara R. Wilson and Suzanne Bachman his or her true and lawful
attorneys-in-fact and agents, for him or her and in his or her name, place and
stead to sign and file a registration statement under the Securities Act of
1933, as amended, on the appropriate form registering asset-backed securities
of one or more trusts originated by the Bank relating to the Bank's student
loans, with power to sign and file any amendment or amendments thereto, with all
exhibits thereto and any and all other documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things necessary and appropriate to be done in
and about the premises as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 25th day of October, 1996.
/s/ William C. DeRusha
----------------------------
William C. DeRusha, Director
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Signet Bank, a Virginia banking corporation (the "Bank"),
hereby constitutes and appoints each of Wallace B. Millner, III, David L.
Brantley, Sara R. Wilson and Suzanne Bachman his or her true and lawful
attorneys-in-fact and agents, for him or her and in his or her name, place and
stead to sign and file a registration statement under the Securities Act of
1933, as amended, on the appropriate form registering asset-backed securities
of one or more trusts originated by the Bank relating to the Bank's student
loans, with power to sign and file any amendment or amendments thereto, with all
exhibits thereto and any and all other documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things necessary and appropriate to be done in
and about the premises as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 25th day of October, 1996.
/s/ C. Stephenson Gillispie
----------------------------
C. Stephenson Gillispie, Jr.
Director
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Signet Bank, a Virginia banking corporation (the "Bank"),
hereby constitutes and appoints each of Wallace B. Millner, III, David L.
Brantley, Sara R. Wilson and Suzanne Bachman his or her true and lawful
attorneys-in-fact and agents, for him or her and in his or her name, place and
stead to sign and file a registration statement under the Securities Act of
1933, as amended, on the appropriate form registering asset-backed securities
of one or more trusts originated by the Bank relating to the Bank's student
loans, with power to sign and file any amendment or amendments thereto, with all
exhibits thereto and any and all other documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things necessary and appropriate to be done in
and about the premises as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 25th day of October, 1996.
/s/ Elizabeth G. Helm
---------------------------
Elizabeth G. Helm, Director
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Signet Bank, a Virginia banking corporation (the "Bank"),
hereby constitutes and appoints each of Wallace B. Millner, III, David L.
Brantley, Sara R. Wilson and Suzanne Bachman his or her true and lawful
attorneys-in-fact and agents, for him or her and in his or her name, place and
stead to sign and file a registration statement under the Securities Act of
1933, as amended, on the appropriate form registering asset-backed securities
of one or more trusts originated by the Bank relating to the Bank's student
loans, with power to sign and file any amendment or amendments thereto, with all
exhibits thereto and any and all other documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things necessary and appropriate to be done in
and about the premises as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 25th day of October, 1996.
/s/ Robert M. Heyssel
---------------------------
Robert M. Heyssel, Director
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Signet Bank, a Virginia banking corporation (the "Bank"),
hereby constitutes and appoints each of Wallace B. Millner, III, David L.
Brantley, Sara R. Wilson and Suzanne Bachman his or her true and lawful
attorneys-in-fact and agents, for him or her and in his or her name, place and
stead to sign and file a registration statement under the Securities Act of
1933, as amended, on the appropriate form registering asset- backed securities
of one or more trusts originated by the Bank relating to the Bank's student
loans, with power to sign and file any amendment or amendments thereto, with all
exhibits thereto and any and all other documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things necessary and appropriate to be done in
and about the premises as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 25th day of October, 1996.
/s/ Henry A. Rosenberg, Jr.
---------------------------
Henry A. Rosenberg, Jr.,
Director
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Signet Bank, a Virginia banking corporation (the "Bank"),
hereby constitutes and appoints each of Wallace B. Millner, III, David L.
Brantley, Sara R. Wilson and Suzanne Bachman his or her true and lawful
attorneys-in-fact and agents, for him or her and in his or her name, place and
stead to sign and file a registration statement under the Securities Act of
1933, as amended, on the appropriate form registering asset- backed securities
of one or more trusts originated by the Bank relating to the Bank's student
loans, with power to sign and file any amendment or amendments thereto, with all
exhibits thereto and any and all other documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things necessary and appropriate to be done in
and about the premises as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 25th day of October, 1996.
/s/ Louis B. Thalheimer
-----------------------------
Louis B. Thalheimer, Director
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Signet Bank, a Virginia banking corporation (the "Bank"),
hereby constitutes and appoints each of Wallace B. Millner, III, David L.
Brantley, Sara R. Wilson and Suzanne Bachman his or her true and lawful
attorneys-in-fact and agents, for him or her and in his or her name, place and
stead to sign and file a registration statement under the Securities Act of
1933, as amended, on the appropriate form registering asset- backed securities
of one or more trusts originated by the Bank relating to the Bank's student
loans, with power to sign and file any amendment or amendments thereto, with all
exhibits thereto and any and all other documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things necessary and appropriate to be done in
and about the premises as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 25th day of October, 1996.
/s/ T. Gaylon Layfield, III
-----------------------------
T. Gaylon Layfield, III
Vice Chairman of the Board of
Directors and Chief Operating
Officer
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or director of Signet Bank, a Virginia banking corporation (the "Bank"),
hereby constitutes and appoints each of Wallace B. Millner, III, David L.
Brantley, Sara R. Wilson and Suzanne Bachman his or her true and lawful
attorneys-in-fact and agents, for him or her and in his or her name, place and
stead to sign and file a registration statement under the Securities Act of
1933, as amended, on the appropriate form registering asset- backed securities
of one or more trusts originated by the Bank relating to the Bank's student
loans, with power to sign and file any amendment or amendments thereto, with all
exhibits thereto and any and all other documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things necessary and appropriate to be done in
and about the premises as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 25th day of October, 1996.
/s/ Bruce C. Gottwald, Jr.
--------------------------
Bruce C. Gottwald, Jr.
Director
