<PAGE>
As filed with the Securities and Exchange Commission on July 26, 1996
Registration No. 333-________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________
UNION FINANCIAL SERVICES-1, INC.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 86-0817755
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6991 East Camelback Road, Suite B290, Scottsdale, Arizona 85251, (602) 947-7703
- --------------------------------------------------------------------------------
(Address, including ZIP code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
Stephen F. Butterfield, President
Union Financial Services-1, Inc.
6991 East Camelback Road, Suite B290, Scottsdale, Arizona 85251, (602) 947-7703
- -------------------------------------------------------------------------------
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
____________________
COPIES TO:
Robert J. Ahrenholz, Esq.
Brian V. Caid, Esq.
Anne M. Gish, Esq.
Kutak Rock
717 Seventeenth Street, Suite 2900
Denver, Colorado 80202
(303) 297-2400
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the
following box./ /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TITLE OF
EACH PROPOSED
CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO AMOUNT TO MAXIMUM OFFERING AGGREGATE REGISTRATION
BE REGISTERED BE REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) FEE
- --------------------------------------------------------------------------------
Notes $1,000,000 100% $1,000,000 $344.83
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
<TABLE>
<CAPTION>
CROSS-REFERENCE SHEET
Caption in
Item and Caption Caption in Prospectus
in Form S-3 Prospectus Supplements
---------------- ---------- -----------
<S> <C> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus Outside Front Cover Outside Front Cover
2. Inside Front and Outside Back Inside Front Cover; Inside Front Cover;
Cover Pages of Prospectus Outside Back Cover Outside Back Cover
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges Special Considerations *
4. Use of Proceeds Use of Proceeds Use of Proceeds
5. Determination of Offering Price * Outside Front Cover;
Underwriting
6. Dilution * *
7. Selling Security Holders * *
8. Plan of Distribution Plan of Distribution Plan of Distribution
9. Description of Securities to Description of the Description of the
be Registered Notes Notes
10. Interests of Named Experts and
Counsel * *
11. Material Changes * *
12. Incorporation of Certain Incorporation of Certain *
Information by Reference Information by Reference
13. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities *
</TABLE>
- -----------------------
*Omitted since item is not applicable or answer is negative.
<PAGE>
SUBJECT TO COMPLETION, Dated __________, 199__
PROSPECTUS SUPPLEMENT
(To Prospectus dated __________, 1996)
$_______________
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES
SERIES 199__-__
[NOTE CLASSES]
Union Financial Services-1, Inc. (the "Issuer") is offering
$__________________ aggregate principal amount of its Taxable Student Loan
Asset-Backed Notes, Series 199__-__. The Series 199__-__ Notes are to be issued
in ______________ Classes designated as Senior [Auction] [Index] Rate Class A-__
Notes, Senior [Auction] [Index] Rate Class A-__ Notes] and Subordinate [Auction]
[Index] Rate Class B-__ Notes [and Junior-Subordinate [Auction] [Index] Rate
Class C-____ Notes] (collectively, the "Series 199__-__ Notes"). The Class A-__
Notes and the Class A-__Notes are each senior [Auction] [Index] Rate Notes. The
Class A-__ Notes and the Class A-__ Notes are sometimes referred to herein as
the "[Auction] [Index] Rate Notes" or the "Class A Notes." [The Class B-___
Notes are sometimes referred to herein as the "[Auction] [Index] Rate Notes" or
the "Class B Notes"] [and the Class C-___ Notes are sometimes referred to herein
as the "[Index] Rate Notes" or the "Class C Notes."] [The Class C Notes are not
being offered hereby.] See "Terms of the Offering" herein. [The Class A-__
Notes, the Class A-__ Notes and the Class B-__ Notes [and the Class C Notes]
will be issued in the initial principal amounts of $__________, $__________ and
$___________ [and $__________], respectively.] Among other things, the Series
199__-__ Notes will be collateralized by: (i) a revolving portfolio of student
loans evidenced by promissory notes meeting certain requirements described
herein (the "Financed Eligible Loans") and moneys due or paid thereunder after
the applicable date of acquisition; [(ii) funds on deposit in certain trust
accounts including the Reserve Fund]; and (iii) certain related rights and
property held in trust for the benefit of the Registered Owners (as defined in
the attached Prospectus) (collectively, the "Trust Estate"). The Financed
Eligible Loans are expected to be acquired by the Issuer from
___________________________ (the "Seller") pursuant to a Student Loan Purchase
Agreement (as defined herein). The Issuer has contracted with
___________________________ to act as Servicer and ___________________________
to act as Subservicer of the Financed Eligible Loans to be funded from the
proceeds of the offering of the Series 199__-__ Notes.
[Interest on the Class ___ Auction Rate Notes will accrue at the initial
rate of ____% per annum through __________ __, 199__. Interest on the Class ___
Auction Rate Notes will accrue at the initial rate of ____% per annum through
__________, 199__. Thereafter, interest on the Auction Rate Notes of any Class
will accrue at the Auction Rate determined from time to time pursuant to the
Auction Procedures described herein. Interest on the Auction Rate Notes will be
paid on the first Business Day following the expiration of each respective
Auction Period (each, an "Interest Payment Date"). [Auction Rate Notes]]
[Interest on the Class ___ Index Rate Notes [and the Class ___ Index Rate
Notes] is payable monthly on the ____ day of each month, or if any such day is
not a Business Day, on the first Business Day thereafter, commencing __________,
199__, until maturity or earlier redemption or payment at the Applicable Rate
with respect thereto. The Applicable Rate (as defined herein) with respect to
the Class ___ Index Rate Notes [and the Class ___ Index Rate Notes] will be
determined from time to time as described herein by reference to the rate of
interest described as the [LIBOR] [Index]-Based Rate. [Index Rate Notes]]
[The Accrual Notes will be issued at a ____% discount from their scheduled
principal balance at Stated Maturity. That discount [together with interest
being paid currently beginning ______________, 19__] results in a yield to
stated Maturity of ___% per annum, computed on a [designate accrual frequency]
compounding basis from the Date of Issuance. [Interest on the Accrual Notes
[will] [may] be paid prior to Stated Maturity beginning [_____________, 19__]
[upon the occurrence of events described under "Terms of the Offering--Accrual
Notes" herein]].]
The Issuer has previously issued $__________ of its Taxable Student Loan
Asset-Backed Notes (collectively, the "Prior Notes"). Certain of the Prior
Notes were designated as Class A (the "Prior Class A Notes") [and][,] as Class B
(the "Prior Class B Notes") [and as Class C (the "Prior Class C Notes)]. The
Stated Maturity for [each Class] [designate Class] of Series 199__-__ Notes is
__________ 1, 20___. THE SERIES 199__-__ NOTES ARE SUBJECT TO OPTIONAL,
MANDATORY AND EXTRAORDINARY OPTIONAL REDEMPTION AS MORE FULLY DESCRIBED HEREIN.
SEE "TERMS OF THE OFFERING" HEREIN. The Indenture authorizes the issuance of
other Additional Notes in the future, which Additional Notes may be issued on a
parity with, or subordinate to, the Class A Notes and the Prior Class A Notes,
and may be senior to, on a parity with or subordinate to, the Class B-__ Notes
and the Prior Class B Notes. The Class A Notes, the Prior Class A Notes, the
Class B-__ Notes, the Prior Class B Notes[, the Class C Notes][, the Prior
Class C Notes] and any Additional Notes are collectively referred to herein as
the "Notes."
PROSPECTIVE INVESTORS IN THE OFFERED NOTES SHOULD CONSIDER THE DISCUSSION
OF CERTAIN MATERIAL FACTORS SET FORTH UNDER "RISK FACTORS" ON PAGE 1 OF THE
PROSPECTUS.
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 ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SERIES 199__-__ NOTES REPRESENT OBLIGATIONS SOLELY OF THE ISSUER, AND
ARE NOT INSURED OR GUARANTEED BY ANY GOVERNMENT AGENCY OR INSTRUMENTALITY, BY
ANY AFFILIATE OF THE ISSUER, BY ANY INSURANCE COMPANY OR BY ANY OTHER PERSON OR
ENTITY. THE REGISTERED OWNERS GENERALLY WILL NOT HAVE RECOURSE TO THE ISSUER
AND THE ISSUER WILL HAVE NO SIGNIFICANT ASSETS AVAILABLE TO MAKE PAYMENT ON THE
SERIES 199__-__ NOTES OTHER THAN THOSE PLEDGED AS COLLATERAL FOR THE NOTES UNDER
THE INDENTURE.
Underwriting Proceeds
Price to Public Discount(1) to Issuer(2)
--------------- -------- ---------
Class A-__ Notes ___% ___% ___%
Class A-__ Notes ___% ___% ___%
Class B-__ Notes ___% ___% ___%
[Class C Notes] [___%] [___%] [___%]
Total $___________ $___________ $___________
<PAGE>
(1) The Issuer has agreed to indemnify the [Underwriter] [Placement Agent]
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended.
(2) Before deducting expenses payable by the Issuer, estimated to be
$____________.
The Series 199_-_ Notes are offered by __________ (the "[Underwriter]
[Placement Agent]") subject to prior sale, when, as and if [issued to] [offered
by] the [Underwriter] [Placement Agent], subject to approval of certain legal
matters by counsel for the [Underwriter] [Placement Agent]. The [Underwriter]
[Placement Agent] reserves the right to withdraw, cancel or modify such offer
and to reject orders in whole or in part. It is expected that delivery of the
Series 199_-_ Notes [other than [designate Classes]] will be made in book-entry
form through the Same Day Funds Settlement System of The Depository Trust
Company [and the [designate Classes] Notes will be delivered at the offices of
__________, in each case] on or about __________, 199_.
[NAME OF [UNDERWRITER] [PLACEMENT AGENT]]
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS , 199__.
<PAGE>
UNTIL 90 DAYS AFTER THE DATE HEREOF, ALL DEALERS EFFECTING TRANSACTIONS IN
THE SERIES 199__-__ NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER THE PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
THE PROSPECTUS THAT ACCOMPANIES THIS PROSPECTUS SUPPLEMENT CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING THAT IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL TO OBTAIN MATERIAL INFORMATION CONCERNING THE OFFERED NOTES.
SALES OF THE OFFERED NOTES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS
RECEIVED BOTH THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT.
[IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE OFFERED NOTES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.]
[DELETE IF A PLACEMENT]
S-1
<PAGE>
TERMS OF THE OFFERING
The terms of the offering of the Series 199_-_ Notes described below are
qualified in their entirety by reference to the detailed information appearing
elsewhere herein and in the Prospectus. Capitalized terms used herein and not
defined shall have the respective meanings assigned them in the Prospectus or in
"Appendices II, III and V" thereto.
SECURITIES OFFERED The Taxable Student Loan Asset-Backed Notes, Series
199__-__ consist of Classes, designated as
[Class A-__ Notes (the "Class A-__ Notes"), Class A-__
Notes (the "Class A-__ Notes") [and][,] Class B-__
Notes (the "Class B-__ Notes") [and Class C-___ Notes
(the "Class C Notes"]] with an initial aggregate stated
principal balance of $ . The [Class A-__
Notes, the Class A-__ Notes [and][,] the Class B-__
Notes] [and the Class C Notes] are referred to
collectively as the "Series 199__-__ Notes," and the
[Class A-__ Notes and the Class A-__ Notes] are
sometimes referred to collectively as the "[Auction]
[Index] Rate Notes" or the "Class A Notes." The
Class B-____ Notes are sometimes also referred to
herein as the "[Auction] [Index] Rate Notes" [and the
Class C Notes are sometimes also referred to herein as
the "[Auction] [Index] Rate Notes]." [The Class C
Notes are not being offered pursuant to this Prospectus
Supplement.] The original stated principal amount of
the Class A-__ Notes and the Class A-__ Notes shall be
$ and $ , respectively, and the
original stated principal amount of the Class B-__
Notes [and the Class C Notes] shall be $ [and
$__________, respectively]. The Series 199__-__ Notes
shall be secured by a revolving pool of Financed
Eligible Loans and certain other property held in trust
for the benefit of the Registered Owners. The
Class B-__ Notes and the Prior Class B Notes are
subordinated in certain respects to the Class A Notes
and the Prior Class A Notes[, and the Class C-___ Notes
are subordinated in certain respects to the Class B-___
Notes and the Prior Class B Notes], as more fully
described herein and in the Prospectus. The Series
199__-__ Notes will be issued pursuant to the Indenture
as hereinafter described.
AUCTION NOTE RATES [The Class ___ Auction Rate Notes will bear interest at
an initial rate of ____% per annum through ,
199__, the first Auction Date for such Class [and the
Class ___ Auction Rate Notes will bear interest at an
initial rate of ____% per annum through ,
199__, the first Auction Date for such Class].
Payments will be made to holders of record of the
Auction Rate Notes as of the date (the "Record Date")
which is the Business Day next preceding the respective
Auction Date. After the
S-2
<PAGE>
Initial Period for the Auction Rate Notes, each
Interest Period, with respect to the Class ___ Auction
Rate Notes [and the Class ___ Auction Rate Notes] will
initially consist of [Specify Auction Period] days as
set forth in the Auction Procedures described in
Appendix III to the Prospectus and Annex C hereto. The
interest rates for the Class ___ Auction Rate Notes
[and the Class ___ Auction Rate Notes] will be reset at
the Auction Rate with respect to each such Class
pursuant to the Auction Procedures described in
Appendix III to the Prospectus and Annex C hereto (but
in no event exceeding the Maximum Rate per annum).
Interest on the Auction Rate Notes will be payable on
the first Business Day following the expiration of each
respective Auction Period for such Class of Auction
Rate Notes.]
INDEX NOTE RATES The Class ___ Index Rate Notes will bear interest at an
initial rate of _____% per annum through _________,
199__ and will be paid [monthly] [quarterly] beginning
__________ 1, 199__ [and on each __________ 1,
__________ 1,__________ 1, and __________ 1,
thereafter] (or, if any such date is not a Business
Day, on the next succeeding Business Day (each, an
"Interest Payment Date")), until maturity or earlier
redemption or payment to the holders of record of the
Index Rate Notes on the Business Day immediately
preceding the Interest Payment Date. The Applicable
Rate (as defined herein) with respect to the Class ___
Index Rate Notes will be determined from time to time
as described herein by reference to the rate of
interest described as the [Describe Index]-Based Rate.
After the initial Interest Period for the Class ___
Index Rate Notes, the Applicable Rate for the Class ___
Index Rate Notes will be reset to equal [describe
index], but in no event exceeding [describe applicable
cap]. [See Appendix V to the Prospectus and Annex D
hereto with respect to the determination of and certain
procedures with respect to LIBOR-Based Notes and
certain definitions relating thereto.] [LIBOR or other
Index-Based Notes]
[Describe determination of interest rate and procedures
relating thereto for non-LIBOR Index Rate Notes.]
[ACCRUAL NOTES] [The Accrual Notes will be issued at a ___% discount
from their scheduled principal balance at Stated
Maturity. That discount [together with interest being
paid currently as described below] results in a yield
to Stated Maturity of ___% per annum computed on a
[designate accrual frequency] compounding basis from
the Date of Issuance. The Accrual Notes will accrue
interest [designate frequency] (with respect to
S-3
<PAGE>
such Notes, an "Interest Payment Date") which will be
capitalized and added to the principal balance thereof
on each such date. [Beginning [___________, 19__]
[upon the occurrence of [describe event]], the Accrued
Notes will be entitled to receive payments of interest
on each Interest Payment Date.] The Accrued Notes
shall be designated as [Senior] [Subordinate] [Junior-
Subordinate] Notes under the Indenture.]
STATED MATURITY DATE The Stated Maturity for [each Class] [designate Class]
of Series 199__-__ Notes is 1, 20__.
DATE OF ISSUANCE OF _________, 199__.
SERIES 199__-__ NOTES
DENOMINATIONS The Class ___ [Auction] [Index] Rate Notes will be
issued in minimum denominations of [$__________] [or
any integral multiple thereof] [and in $__________
increments above such amount] [and the Class ___
[Auction] [Index] Rate Notes will be issued in minimum
denominations of [$ ] [or any integral multiple
thereof] [and in $__________ increments above such
amount].
POOL CHARACTERISTICS A description of the outstanding portfolio of Financed
Eligible Loans and the portfolio expected to be
acquired by the Issuer with the proceeds of the
Series 199__-__ Notes and pledged to the Trustee (with
such changes as noted therein) on or about _________,
199__ is attached hereto as Annex A. Each Student Loan
Purchase Agreement includes portfolio characteristic
requirements applicable to all Eligible Loans acquired
thereunder at the respective dates of acquisition. See
"Seller Representations and Warranties" in the
Prospectus.
CUTOFF DATE With respect to the portfolio of Financed Eligible
Loans to be acquired with the proceeds of the
Series 199__-__ Notes, the close of business on the
Business Day preceding __________, 199__, and with
respect to Financed Eligible Loans acquired during the
recycling period, their respective dates of
acquisition.
USE OF PROCEEDS The Issuer estimates that the net proceeds from the
sale of the Series 199_-__ Notes will be applied as
follows:
Deposit to Series 1996_-__ Loan Account of $
Student Loan Fund
Deposit to Reserve Fund
Deposit to Revenue Fund
Deposit to Operating Fund
Deposit to Cost of Issuance Fund $_________
Total $_________
S-4
<PAGE>
[SERVICER AND [__________________________ shall act as Servicer (in
SUBSERVICER] such capacity, the "Servicer") and
__________________________, shall act as Subservicer
[and Custodian] of the Financed Eligible Loans to be
funded from the proceeds of the offering of the Series
__-__ Notes. See "Certain Relationships Among
Financing Participants" in the Prospectus.]
[THE SELLER] [_____________________ (the "Seller") has entered into
a Student Loan Purchase Agreement with the Issuer
requiring the Seller to [make Eligible Loans available
to be acquired by the Issuer][sell Eligible Loans to
the Issuer]. See "Seller Representations and
Warranties--The Sellers" in the Prospectus.]
INDENTURE The Series 199__-__ Notes are being issued pursuant to
a Second Amended and Restated Indenture of Trust
between the Issuer and the Trustee dated as of July __,
1996, as amended and supplemented from time to time, and
a related Series 199__-__ Supplemental Indenture of
Trust (collectively, the "Indenture") and are payable
solely from the funds and assets held thereunder. The
Issuer has previously issued and intends to issue Notes
of other Series which also are or will be secured by the
Financed Eligible Loans.
The Class A Notes and the Prior Class A Notes
constitute "Senior Notes" under the Indenture, secured
on a basis which is senior to the Class B-__ Notes and
the Prior Class B Notes and to any Additional Notes
secured on a parity with or subordinate to the
Class B-__ Notes and the Prior Class B Notes. The
Class B-__ Notes and the Prior Class B Notes constitute
"Subordinate Notes" under the Indenture, secured on a
basis which is subordinate to the Class A Notes and the
Prior Class A Notes. [The Class C-__ Notes [and the
Prior Class C Notes] constitute "Junior-Subordinate
Notes" under the Indenture, secured on a basis which is
subordinate to the Class B Notes and the Prior Class B
Notes.] Additional Notes secured on a parity with or
on a basis subordinate to the Class A Notes and the
Prior Class A Notes may be issued under the Indenture.
Such Additional Notes may be secured on a basis which
is senior to, on a parity with or on a basis which is
subordinate to the Class B-__ Notes and the Prior Class
B Notes. If subordinate to the Class B-__ Notes and
the Prior Class B Notes, such Additional Notes would
constitute "Junior-Subordinate Notes" under the
Indenture.
S-5
<PAGE>
[MANDATORY REDEMPTION] [The Class A-__ and Class A-__ Notes are subject to
mandatory redemption, in whole or in part, on any
Interest Payment Date, at a redemption price equal to
the principal amount thereof to be redeemed plus
accrued and unpaid interest to the date of redemption:
(i) from moneys remaining in the Senior Note Redemption
Account including moneys deposited therein from excess
revenues in the Revenue Fund and from payments on
Financed Eligible Loans which represent principal; and
(ii) on the Interest Payment Date next succeeding
__________ 1, 199__ from moneys remaining in the Series
199__-__ Loan Account of the Student Loan Fund unless
the Issuer provides to the Trustee a Cash Flow
Certificate and an opinion of Note Counsel as described
in "Description of the Notes--Mandatory Redemption" in
the Prospectus.]
[The Class B-__ Notes are subject to mandatory
redemption, in whole or in part, on any Interest
Payment Date on or after _________ 1, 19__ at a
redemption price equal to the principal amount thereof
to be redeemed plus accrued and unpaid interest to the
date of redemption: (i) from moneys remaining in the
Subordinate Note Redemption Account, including moneys
deposited in the Subordinate Note Redemption Account
from excess revenues in the Revenue Fund and from
payments on Financed Eligible Loans which represent
principal; and (ii) from moneys remaining in the Series
199__-__ Loan Account of the Student Loan Fund unless
the Issuer provides to the Trustee a Cash Flow
Certificate and an opinion of Note Counsel as described
in "Description of the Notes--Mandatory Redemption" in
the Prospectus.]
[The Class C-__ Notes are subject to mandatory
redemption, in whole or in part, on any Interest
Payment Date on or after _________ 1, 19__ at a
redemption price equal to the principal amount thereof
to be redeemed plus accrued and unpaid interest to the
date of redemption: (i) from moneys remaining in the
Junior-Subordinate Note Redemption Account, including
moneys deposited in the Junior-Subordinate Note
Redemption Account from excess revenues in the Revenue
Fund and from payments on Financed Eligible Loans which
represent principal; and (ii) from moneys remaining in
the Series 199_-__ Loan Account of the Student Loan
Fund unless the Issuer provides to the Trustee a Cash
Flow Certificate and an opinion of Note Counsel as
described in "Description of the Notes--Mandatory
Redemption" in the Prospectus.]
[OPTIONAL REDEMPTION] [The Class A-__ and Class A-__ Notes are subject to
optional redemption, in whole or in part, on any
Interest Payment Date, at a redemption price equal to
the principal amount thereof to
S-6
<PAGE>
be redeemed, plus interest accrued, if any, to the date
of redemption.]
[The Class B-__ Notes are subject to optional
redemption, in whole or in part, on any Interest
Payment Date on or after _________, 19__ at a
redemption price equal to the principal amount thereof
to be redeemed, plus interest accrued, if any, to the
date of redemption.]
[The Class C-__ Notes are subject to optional
redemption, in whole or in part, on any Interest
Payment Date on or after _________, 19__ at a
redemption price equal to the principal amount thereof
to be redeemed, plus interest accrued, if any, to the
date of redemption.]
[EXTRAORDINARY OPTIONAL [The Series 199__-__ Notes shall also be subject to
REDEMPTION] extraordinary optional redemption, in whole or in part,
on any Interest Payment Date at a redemption price
equal to the principal amount of the Series 199__-__
Notes being redeemed, plus accrued interest, if any, to
the date of redemption, if the Issuer reasonably
determines that it is unable to acquire Financed
Eligible Loans, that the rate or return on Financed
Eligible Loans has materially decreased, or that the
costs of administering the Trust Estate have placed
unreasonable burdens upon the ability of the Issuer to
perform its obligations under the Indenture and deliver
a Cash Flow Certificate to the Trustee.]
STUDENT LOAN FUND The sum of $_________ will be deposited in the Series
199__-__ Loan Account of the Student Loan Fund on the
Date of Issuance of the Series 199__-__ Notes [to be
used to acquire Eligible Loans [described in Annex A
hereto] on [or prior to __________ 1, ____] [the Date
of Issuance]] [or such later date as may be agreed to
by the Rating Agencies]. In addition, except upon the
occurrence of an Event of Default, there shall be
deposited into the Series 199__-__ Recycling Account of
the Student Loan Fund principal payments received with
respect to the Financed Eligible Loans up to _________
1, ____ [or such later date as may be agreed to by the
Rating Agencies]. Funds on deposit in the Series
199__-__ Loan Account and the Series 199__-__ Recycling
Account shall be used prior to _________ 1, ____ [or
such later date as may be agreed to by the Rating
Agencies] solely to acquire additional Eligible Loans.
[If on any Transfer Date, moneys have remained in the
Series 199__-__ Recycling Account for more than
[specify period], said moneys shall be transferred on
such date to the Note Redemption Fund unless (a) the
Aggregate Market Value of the Trust Estate is greater
than the aggregate principal amount of
S-7
<PAGE>
Notes Outstanding, or (b) the Aggregate Market Value of
the Trust Estate is less than the aggregate principal
amount of the Notes Outstanding and the Issuer delivers
a Cash Flow Certificate and an opinion of Note Counsel,
in which case said moneys shall remain in the Series
199__-__ Recycling Account for a period of up to one
additional year.]
[Under certain circumstances, if moneys in the Revenue
Fund are insufficient to make certain payments or
distributions therefrom, the remaining insufficiency
may be funded from transfers from the Student Loan Fund
after application of amounts available to be
transferred therefor from the Note Redemption Fund, the
Student Loan Holding Fund and the Reserve Fund. On
_________ 1, ____, all moneys remaining in the Series
199__-__ Loan Account of the Student Loan Fund shall be
transferred to the Note Redemption Fund.]
[RESERVE FUND] [The sum of $_________ will be deposited into the
Reserve Fund on the Date of Issuance of the
Series 199__-__ Notes. At any time thereafter, the
amount required to be deposited in the Reserve Fund
(the "Reserve Fund Requirement") with respect to the
Series 199__-__ Notes and all Series previous
outstanding shall be the greater of an amount equal to
[__% of the aggregate principal amount of all
Series then Outstanding or $_________].]
[CREDIT ENHANCEMENT] [Describe additional credit enhancement. See
"Description of Credit Enhancement" in the Prospectus
and "Credit Enhancement" herein.]
[DEFINITIVE NOTES] The [designate Classes] Notes will be evidenced by
definitive Notes registered in the name or names of the
holders thereof or their nominee.
CERTAIN FEDERAL INCOME The [Series 199__-__ Notes] [designate Classes of
TAX CONSEQUENCES Notes] will be treated as debt of the Issuer rather
than as an interest in the Financed Eligible Loans, for
federal income tax purposes. As such, the owners of
the [Series 199__-__ Notes] [designate Classes of
Notes] will be required to include in income interest
on such [Series 199__-__ Notes] [designate Classes of
Notes] as paid or accrued, in accordance with their
respective accounting methods and the provisions of the
Code, including, if applicable, provisions regulating
original issue discount. See "Certain Federal Income
Tax Consequences" in the Prospectus.
ERISA CONSIDERATIONS Assuming that the [Series 199__-__ Notes] [designate
Classes of Notes] should be treated as indebtedness
without substantial equity features under the Plan
Asset Regulations issued by the
S-8
<PAGE>
Department of Labor, the Series 199__-__ Notes are
eligible for purchase by or on behalf of employee
benefit plans, retirement arrangements, individual
retirement accounts and Keogh Plans, subject to certain
considerations discussed under "ERISA Considerations"
in the Prospectus.
RATINGS It is a condition to the issuance of the Series
199__-__ Notes that the [Class A-__ Notes and
Class A-__ Notes] each be rated no less than "___" and
"___" by [rating agency] and [rating agency],
respectively, and that the Class B-__ Notes be rated no
less than "__" by [rating agency] [and that the
Class C-___ Notes be rated no less than "__" by [rating
agency]]. [rating agency] and [rating agency] are
collectively referred to herein as the "Rating Agency."
See "Rating" in the Prospectus.
S-9
<PAGE>
PREVIOUSLY ISSUED NOTES
Set forth below is certain information concerning each outstanding Series
and Class of Notes issued previously by the Issuer and outstanding as of the
Cutoff Date. The Financed Eligible Loans and other assets pledged to the
Trustee will serve as collateral for such outstanding Notes and any Additional
Notes, as well as the Series 199__-__ Notes being offered by means of this
Prospectus Supplement and the attached Prospectus.
Original Outstanding Final
Principal Principal Amount Maturity
Series Class Date Issued Amount (As of __________, Date
- ------ ----- ----------- ------- ----------------- ----
199__)
------
[CREDIT ENHANCEMENT]
[Describe any additional Credit Enhancement as specified under "Description
of Credit Enhancement" in the Prospectus.]
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the
[Underwriting][Placement] Agreement for the sale of the [Series 199__-__ Notes]
[designate Classes of Notes], dated __________, 199_, [and a related Terms
Agreement dated __________, 199__ (collectively, the "Underwriting
Agreement")][the "Placement Agreement")], the Issuer has agreed to sell and the
[Underwriter][Placement Agent] has agreed to [purchase][offer] all the
[Series 199__-__ Notes] [designate Classes of Notes]. [The [Series 199__-__
Notes] [designate Classes of Notes] will be offered by the Underwriter to the
public in negotiated transactions. After the Notes are released for sale to the
public, the offering price and other selling terms may be varied by the
Underwriter. The Underwriter and any dealers that participate with the
Underwriter in the distribution of the [Series 199__-__ Notes] [designate
Classes of Notes] may be deemed to be underwriters and any commissions received
by them and any profit on the resale of the [Series 199__-__ Notes] [Class __
Notes] may be deemed to be underwriting discounts and commissions under the
Securities Act of 1933, as amended.] [The Placement Agent has agreed to offer
the [Series __-____ Notes] [designate Classes of Notes] on a "best-efforts-all
or none" basis.]
The Issuer has agreed to indemnify the [Underwriter][Placement Agent]
against certain liabilities including liabilities under the Securities Act of
1933, as amended.
S-10
<PAGE>
[LEGAL MATTERS]
[Certain legal matters, including certain income tax matters, will be
passed upon for the Issuer by Kutak Rock, Denver, Colorado. Certain legal
matters relating to the validity of the issuance of the Series 199_-__ Notes
will be passed upon for the [Underwriter[ [Placement Agent] by
___________________________, _______________, __________________.]
[OTHER INFORMATION]
[Describe any applicable update to the description in the Prospectus of the
Higher Education Act, the programs under which the Financed Eligible Loans are
originated and the Issuer.]
S-11
<PAGE>
ANNEX A
CERTAIN CHARACTERISTICS OF THE
FINANCED ELIGIBLE LOANS*
COMPOSITION OF THE FINANCED ELIGIBLE LOANS AS OF THE CUTOFF DATE
Aggregate Outstanding Principal Balance. . . . . . . . . . . . . . .$
Number of Borrowers
Average Outstanding Principal Balance Per Borrower . . . . . . . . .$
Number of Loans
Average Outstanding Principal Balance Per Loan . . . . . . . . . . .$
Weighted Average Annual Interest Rate. . . . . . . . . . . . . . . .%
Weighted Average Annual Effective Rate . . . . . . . . . . . . . . .%
DISTRIBUTION OF THE FINANCED ELIGIBLE LOANS BY LOAN TYPE
Percent of Loans
Number of Number of Outstanding by Outstanding
Loan Types Loans Borrowers Balance Balance
---------- ----- --------- ------- -------
- ------------
*Includes all Financed Eligible Loans pledged to the Trustee on the Cutoff Date
as well the additional Financed Eligible Loans expected to be pledged to the
Trustee on the Date of Issuance of the Series 199__-__ Notes.
A-1
<PAGE>
COMPOSITION OF THE FINANCED ELIGIBLE LOANS AS OF THE CUTOFF DATE
DISTRIBUTION OF THE FINANCED ELIGIBLE LOANS BY INTEREST RATE
Percent of Loans
Number of Number of Outstanding by Outstanding
Interest Rate Loans Borrowers Balance Balance
------------- ----- --------- ------- -------
DISTRIBUTION OF THE FINANCED ELIGIBLE LOANS BY OUTSTANDING BALANCE
Percent of Loans
Outstanding Number of Number of Outstanding by Outstanding
Balance Loans Borrowers Balance Balance
------- ----- --------- ------- -------
A-2
<PAGE>
COMPOSITION OF THE FINANCED ELIGIBLE LOANS AS OF THE CUTOFF DATE
DISTRIBUTION OF THE FINANCED ELIGIBLE LOANS BY BORROWER PAYMENT STATUS
Percent of Loans
Borrower Number of Number of Outstanding by Outstanding
Payment Status Loans Borrowers Balance Balance
-------------- ----- --------- ------- -------
Deferment
Forbearance
Grace
In-School
Repayment
Total
A-3
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE FINANCED ELIGIBLE LOANS
Percent of Loans
Number of Number of Outstanding by Outstanding
Location(1) Loans Borrowers Balance Balance
-------- ----- --------- ------- -------
AK
AL
AR
AZ
CA
CO
CT
DC
DE
FL
Foreign
GA
Guam
HI
ID
IL
IN
IA
KS
KY
LA
ME
MD
MA
MI
MN
MS
MO
MT
NE
NV
NH
NJ
NM
NY
NC
ND
OH
OK
OR
PA
PR
RI
SC
SD
TN
TX
UT
VT
V. Island
VA
WA
WV
WI
WY
Other
Total
- ---------------
(1) Based on the permanent billing addresses of the borrowers of the Financed
Eligible Loans shown on the Servicer's records.
A-4
<PAGE>
COMPOSITION OF THE FINANCED ELIGIBLE LOANS AS OF THE CUTOFF DATE
DISTRIBUTION OF THE FINANCED ELIGIBLE LOANS BY DATE OF DISBURSEMENT
Percent of Loans
Disbursement Number of Number of Outstanding by Outstanding
Date Loans Borrowers Balance Balance
---- ----- --------- ------- -------
DISTRIBUTION OF THE FINANCED ELIGIBLE LOANS BY GUARANTOR
Percent
of Loans by
Number of Number of Outstanding Outstanding
Guarantors Loans Borrowers Balance Balance
---------- ----- --------- ------- -------
[specify guarantors]
A-5
<PAGE>
COMPOSITION OF THE FINANCED ELIGIBLE LOANS AS OF THE CUTOFF DATE
DISTRIBUTION OF THE FINANCED ELIGIBLE LOANS BY YEARS TO REPAYMENT
Percent
of Loans by
Number of Number of Outstanding Outstanding
Years Loans Borrowers Balance Balance
----- ----- --------- ------- -------
The expected weighted average remaining term to maturity from the Cutoff
Date is ___ months. The expected weighted average remaining term to maturity
after the commencement of repayment is ___ months.
A-6
<PAGE>
ANNEX B
CERTAIN INFORMATION RELATING
TO THE GUARANTORS
GUARANTORS FOR THE FEDERAL LOANS
Set forth below is certain historical information with respect to each
Guarantor of Federal Loans listed in Annex A above that is expected to guaranty
2% or more of the Financed Eligible Loans as of _________, 199__ (the "Federal
Guarantors"). Except as otherwise indicated below, the information regarding
each Federal Guarantor has been obtained from the Department of Education's
Guaranteed Student Loan Programs Data Book for Federal Fiscal Years 19__ and
199__, and the Department of Education's Federal Fiscal Year 199__ Loan Programs
Data Books (each, a "DOE Data Book"). No independent verification has been or
will be made by the Issuer of such information.
GUARANTEE VOLUME. For the Federal Fiscal Year ending September 30, 199__,
of all the guarantors of student loans in the United States, ____, ____, ____,
____, ____, ____, ____ and ____ ranked ____, ____, ____, ____, ____, ____, ____
and ____, respectively, as measured by volume of Federal Loans. The following
table sets forth the approximate aggregate principal amount of federally
reinsured education loans (excluding refinanced PLUS and SLS Loans) that have
first become committed to be guaranteed by each of the Federal Guarantors and by
all guarantors of Federal Loans in each of the five Federal Fiscal Year 19__
through 199__.*
<TABLE>
<CAPTION>
STAFFORD, UNSUBSIDIZED STAFFORD, SLS, PLUS AND CONSOLIDATED LOANS GUARANTEED
-----------------------------------------------------------------------------------------------
DOLLARS IN MILLIONS
Federal
Fiscal [specify All
Year Guarantors] Guarantors
---- ----------- ----- ----- ----- ----- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
RESERVE RATIO. Each Federal Guarantor's reserve ratio is determined by
dividing its cumulative cash reserves by the original principal amount of the
outstanding loans its has agreed to guarantee. The term "cumulative cash
reserves" refers to cash reserves plus (a) sources of funds (including insurance
premiums, state appropriations, federal advances, federal reinsurance payments,
administrative costs allowances, collections on claims paid and investment
earnings)
- --------------
* The information set forth in the table above has been obtained from the
Federal Fiscal Years ____, ____ and ____ DOE Data Books.
B-1
<PAGE>
minus (b) 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
Federal Guarantor minus (i) the original principal amount of loans canceled,
claims paid, loans paid in full and loan guarantees transferred from such
Federal Guarantor to other guarantors, plus (ii) the original principal amount
of loan guarantees transferred to such Federal Guarantor to other guarantors.
The following table set forth each Federal Guarantor's cumulative cash reserves
and their corresponding reserve ratios and the national average reserve ratio
for all guarantors for the five Federal Fiscal Years 19__ through 199__:*
<TABLE>
<CAPTION>
[Guarantor] [Guarantor] [Guarantor]
----------------------- ----------------------- ----------------------- National
Federal Cumulative Cumulative Cumulative Average
Fiscal Cash Reserve Cash Reserve Cash Reserve Reserve
Year Reserves** Ratio Reserves** Ratio Reserves** Ratio Ratio
---- ---------- ----- ---------- ----- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
_______________
*The information set forth in the table above has been obtained from the Federal
Fiscal Years 1991, 1992 and 1993 DOE Data Books. The cash reserves and the
reserve ratio increased substantially between Federal Fiscal Years 1991 and
1992. As described in the Federal Fiscal Year 1992 DOE Data Book, this
difference was caused, in part, because (a) approximately $300 million in
reinsurance claims pending during September 1991 (Federal Fiscal Year 1991) were
not paid by the Department until October 1991 (Federal Fiscal Year 1992) due to
the Department's computer systems modifications and (b) default costs were
decreasing, while insurance premiums, administrative costs allowances and
investment income were increasing. The cash reserves and the reserve ratio also
increased substantially between Federal Fiscal Years 1992 and 1993. As
described in the Federal Fiscal Year 1993 DOE Data Book, this difference was
caused, in part, because default costs were decreasing, while insurance
premiums, administrative costs allowances and investment income were increasing.
According to the Department, available cash reserves may not always be an
accurate barometer of a guarantor's financial health.
**Dollars in millions.
RECOVERY RATES. A Federal 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 Federal Guarantor by the
aggregate amount of default claims paid by such Federal Guarantor during the
applicable Federal Fiscal Year with respect to borrowers. The table below set
forth the recovery rates for each Federal Guarantor and the national average
recovery rates for all guarantors with respect to Stafford Loans (the only type
of Student Loan for which the DOE Data Book discloses recovery rates) for the
five Federal Fiscal Years 1989 through 1993:*
<TABLE>
<CAPTION>
Recovery Rate
---------------------------------------------------------------------------------------------
Federal
Fiscal [specify National
Year Guarantors] Average
---- ----------- ----- ----- ----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
B-2
<PAGE>
- ---------------
* The information set forth in the table above has been obtained from the
Federal Fiscal Year 1990 DOE Data Book (with respect to Federal Fiscal Years
1989 and 1990) and from the Department (with respect to Fiscal Years 1991, 1992
and 1993).
** Data nat available.
LOAN LOSS RESERVE. The DOE Data Book does not disclose whether any Federal
Guarantor has established a segregated loan loss reserve with respect to its
student loan guarantee obligations. Accordingly, to the extent that a Federal
Guarantor has not established such a segregated loan loss reserve, in the event
that a Federal Guarantor receives less than full reimbursement of its guarantee
obligations from the Department, the Federal Guarantor would be forced to look
to its existing assets to satisfy any such guarantee obligations not so
reimbursed.
CLAIMS RATE. For at least one of the five Federal Fiscal Years 19__
through 199__, ____, ____, ____ and ____ experienced a claims rate in excess of
5%. For each Federal Fiscal Year that such Federal Guarantors' claims rate
exceeded 5%, the claims of such Federal Guarantors were not fully reimbursed by
the Department. Non assurance can be made that any of the Federal Guarantors
will receive full reimbursement for reinsurance claims (or the full 98% maximum
reimbursement for loans first disbursed on or after October 1, 1993). The
following table set forth the claims rate of each Federal Guarantor and the
national average for all guarantors of Federal Loans for the last five Federal
Fiscal Years 19__ through 199__:*
<TABLE>
<CAPTION>
Claims Rate
---------------------------------------------------------------------------------------------
Federal
Fiscal [specify National
Year Guarantors] Average
---- ----------- ----- ----- ----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
- ---------------
* The information set forth in the table above has been obtained from the
Department.
** Data not available.
Each Federal Guarantor has agreed that it will provide a copy of its most
recent financial statements to Noteholders, upon receipt of a written request,
directed: if to ____, to [address]; if to ____, to [address]; if to ____, to
[address].
B-3
<PAGE>
[ANNEX C]
CERTAIN INFORMATION RELATING
TO SERIES 199_-__ AUCTION RATE NOTES
The following definitions [and procedures] with respect to each Class of
Series 199_-__ Auction Rate Notes should be read in conjunction with
Appendix III to the Prospectus.
A. CLASS __ AUCTION RATE NOTES
1. Auction Date:
2. Auction Period:
3. Initial Rate:
4. Initial Rate Adjustment Date:
B. CLASS __ AUCTION RATE NOTES
1. Auction Date:
2. Auction Period:
3. Initial Rate:
4. Initial Rate Adjustment Date:
[C. PROCEDURES]
[Describe any additional auction procedures.]
C-1
<PAGE>
[ANNEX D]
CERTAIN INFORMATION RELATING
TO SERIES 199_-__ [LIBOR] [INDEX] RATE NOTES
The following definitions [and procedures] with respect to each Class of
Series 199_-__ [LIBOR] [Index] Rate Notes should be read in conjunction with
Appendix V to the Prospectus.
A. CLASS __ [LIBOR] [INDEX] RATE NOTES
1. Applicable Rate:
2. Initial Interest Payment Date:
3. Initial Interest Period:
4. Initial Period Interest:
5. Initial Payment Date:
6. [LIBOR] [Index]-Based Rate:
B. CLASS __ [LIBOR] [INDEX] RATE NOTES
1. Applicable Rate:
2. Initial Interest Payment Date:
3. Initial Interest Period:
4. Initial Period Interest:
5. Initial Payment Date:
6. [LIBOR] [Index]-Based Rate:
[C. PROCEDURES]
[Describe any additional [Index] procedures.]
D-1
<PAGE>
Subject to Completion, Dated ______________, 1996
PROSPECTUS
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES
(ISSUABLE IN SERIES)
UNION FINANCIAL SERVICES, INC.
SPONSOR
This Prospectus relates to Union Financial Services-1, Inc. (the "Issuer")
Taxable Student Loan Asset-Backed Notes (the "Offered Notes") to be issued in
one or more series (each, a "Series") and one or more classes (each, a "Class")
on terms determined at the time of sale and described in the related prospectus
supplement (each, a "Prospectus Supplement"). The Issuer has issued previously
$249,900,000 aggregate principal amount of Taxable Student Loan Asset-Backed
Notes (the "Private Notes") in transactions exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act").
Notes issued by the Issuer in the future under the Indenture (as defined herein)
(including the Offered Notes) are referred to herein as "Additional Notes." The
Additional Notes and the Private Notes are hereinafter referred to collectively
as the "Notes." The Private Notes are not being offered hereby and any
information relating thereto is provided solely because of its potential
relevance to a prospective investor of the Offered Notes. The Notes will be
secured primarily by a pool of student loans purchased and to be purchased by
the Issuer, from Union Bank and Trust Company ("Union Bank") and other Eligible
Lenders (as defined herein) (each, a "Seller" and collectively, the "Sellers")
(such loans, together with any additional student loans purchased from the
Sellers from time to time by the Issuer and pledged to the Trustee, the
"Financed Eligible Loans"), collections and other payments with respect to the
Financed Eligible Loans and moneys on deposit in certain trust accounts to be
established for the benefit of the Noteholders. Each Series of Notes will be
collateralized by the Trust Estate pledged to the Trustee. Funds on deposit in
the Student Loan Fund will be used from time to time as described herein and in
the related Prospectus Supplement with respect to any Series to purchase
additional Financed Eligible Loans.
The per annum rate of interest for a Class of Notes for each Interest
Period will, subject to certain limitations described herein or in the
applicable Prospectus Supplement, equal the rate determined from time to time
for such Class pursuant to (a) the auction procedures described herein (such
Notes being referred to herein as "Auction Rate Notes"), (b) the London
interbank offered rate for one-month U.S. dollar deposits ("LIBOR") plus the
amount set forth in the related Prospectus Supplement (such Notes being referred
to herein as "LIBOR Rate Notes") or (c) such other established index and
procedures as may be described in the applicable Prospectus Supplement. The
LIBOR Rate Notes and any other Notes whose interest rate is determined with
respect to an established index are collectively referred to herein as "Index
Rate Notes." Except
<PAGE>
as otherwise set forth in a Prospectus Supplement, interest on each Class of
Offered Notes that are Auction Rate Notes will be payable on the first Business
Day following the expiration of the respective Auction Period for such Class,
commencing on the date set forth in the related Prospectus Supplement. Interest
on each Class of Index Rate Notes will be payable quarterly, monthly or weekly
on the first Business Day following the expiration of each related Interest
Period as specified in the related Prospectus Supplement. However, if specified
with respect to a Series in the related Prospectus Supplement, interest accrued
on a Class of Notes of such Series may, instead of being paid currently, be
capitalized and added to the outstanding principal balance thereof until the
date or event specified in such Prospectus Supplement (such Notes are referred
to herein as "Accrual Notes"). The date on which a Class of Notes is entitled
to receive a payment (or, for Accrual Notes, have accrued interest added to
principal) is referred to as the "Interest Payment Date" for such Class.
The unpaid principal balance of each Class of Notes is payable upon Stated
Maturity. Principal payments with respect to any Class of Notes of any Series
will be made in the order of priority with respect to each Class of Notes of any
other Series as specified in the related Prospectus Supplement. Under the
circumstances described herein and in the related Prospectus Supplement with
respect to a Series, the Notes may be subject to optional, mandatory and
extraordinary optional redemption.
After the respective initial Interest Period, each Interest Period for each
Class of Auction Rate Notes will consist of between 7 and 91 days, or such other
period as described herein or in the related Prospectus Supplement. Except as
otherwise specified with respect to a Series, each Interest Period for each
Class of Index Rate Notes will consist of the period beginning on the first day
of each month and ending on the last day of the such month, or if interest is
payable quarterly beginning on the first day of a month and ending on the last
day of the second succeeding month. Each Interest Period for each Class of
Notes for which the interest rate is determined in some other manner will be as
set forth in the related Prospectus Supplement.
The Stated Maturity for each Class of Notes of any Series will be the
Interest Payment Date specified in the related Prospectus Supplement. However,
payment in full of the Notes could occur earlier than such dates as described
herein or in the related Prospectus Supplement. In addition, the Notes will be
repaid on any Interest Payment Date on which the Issuer exercises its option to
purchase the Financed Eligible Loans, exercisable when the aggregate principal
balance of the Notes is reduced to 10% or less of the principal balance of the
Notes on their respective Dates of Issuance.
By purchasing a Class of Auction Rate Notes, whether in an Auction or
otherwise, each prospective purchaser will be deemed to have agreed: (i) to
participate in Auctions on the terms described herein; and (ii) so long as the
beneficial ownership of the Auction Rate Notes is maintained in book-entry form
to sell, transfer or otherwise dispose of the Auction Rate Notes only pursuant
to a Bid or a Sell Order in an Auction, or to or through a Broker-Dealer (as
defined herein), provided that in the case of all transfers other than those
pursuant to an Auction, the owner of the Auction Rate Notes so transferred, its
Participant or Broker-Dealer advises the Auction Agent of such transfer.
<PAGE>
All Financed Eligible Loans are, and it is expected that all Financed
Student Loans to be acquired in the future will be, guaranteed by private,
non-profit corporations or state agencies (each a "Guarantor"), and are and will
be reinsured by the United States Department of Education (the "Department")
subject to the limitations described herein or in the related Prospectus
Supplement (such Financed Eligible Loans, the "Federal Loans"). This obligation
of the Department is, subject to compliance with the Higher Education Act of
1965, as amended, supported by the full faith and credit of the United States.
SEE "RISK FACTORS" HEREIN BEGINNING ON PAGE 1 FOR A DESCRIPTION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
IN ADDITION, SEE "RISK FACTORS" FOR CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
EVALUATING THE FINANCED ELIGIBLE LOANS AS TO THE LIKELIHOOD OF REALIZED LOSSES.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES DO NOT REPRESENT AN OBLIGATION OF OR AN INTEREST IN THE
TRUSTEE OR THE SELLERS OR ANY OF THEIR RESPECTIVE AFFILIATES, OTHER THAN THE
ISSUER, AND THE SECURITIES ARE NOT INSURED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR ANY OTHER PERSON OR ENTITY, INCLUDING THE SELLERS, THE
TRUSTEE OR ANY AFFILIATE OF ANY OF THE FOREGOING.
Offers of the Offered Notes may be made through one or more different
methods, including offerings through underwriters, as more fully described under
"Plan of Distribution" herein and in the related Prospectus Supplement. The
intention of any underwriter to make a secondary market in the Offered Notes
will be set forth in the related Prospectus Supplement. There can be no
assurance that a secondary market for the Offered Notes will develop, or if it
does develop, that it will continue. This Prospectus may not be used to
consummate sales of a Series of Offered Notes unless accompanied by a Prospectus
Supplement.
-------------------------------
The date of this Prospectus is ______________, 1996.
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES COVERED BY SUCH PROSPECTUS SUPPLEMENT,
WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO
DELIVER SUCH PROSPECTUS
<PAGE>
SUPPLEMENT AND THIS PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS AND PROSPECTUS SUPPLEMENT WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Offered Notes to be
offered hereunder, among other things, will set forth with respect to such
Series of Offered Notes: (a) the aggregate principal amount, interest rate or
rates or other applicable rate or rates (or the manner of determining such rate
or rates) and authorized denominations of each Class of such Offered Notes; (b)
certain information concerning the Financed Eligible Loans; (c) the original
principal amount and current principal amount of each previously issued Class of
Notes, along with the applicable Stated Maturity, and (d) additional information
with respect to the plan of sale of such Offered Notes.
AVAILABLE INFORMATION
The Issuer has filed a Registration Statement under the Securities Act of
1933, as amended (the "1933 Act"), with the Securities an Exchange Commission
(the "Commission") with respect to the Offered Notes. The Registration
Statement and amendments thereof and to the exhibits thereto, as well as such
reports and other information, are available for inspection without charge at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549; 7 World Trade Center, 13th Floor, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of the Registration Statement
and amendments thereof and exhibits thereto may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Offered Notes
offered hereby and thereby nor an offer of the Offered Notes to any person in
any state or other jurisdiction in which such offer would be unlawful. The
delivery of this Prospectus at any time does not imply that information herein
is correct as of any time subsequent to its date.
REPORTS TO NOTEHOLDERS
Periodic and annual reports concerning the Securities and the Issuer will
be provided to the Noteholders. Unless otherwise set forth in the related
Prospectus Supplement, each Series of Offered Notes will be issued in book-entry
form and registered in the name of Cede & Co., the nominee of The Depository
Trust Company. All reports will be provided to Cede, which in turn will
provide such reports to its Participants and Indirect Participants (as defined
herein). Such Participants and Indirect Participants will then forward such
reports to the beneficial owners of Offered Notes. See "Book Entry
Registration" herein.
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by or on behalf of the Issuer with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), subsequent to the date of this Prospectus
and prior to the termination of the offering of the Offered Notes issued by the
Issuer shall be deemed to be incorporated by reference in this Prospectus and to
be a part of this Prospectus from the date of the filling of such documents.
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 the accompanying Prospectus Supplement) or in any other subsequently
filed document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute part of this Prospectus. The Issuer will provide without charge to
each person to whom a copy of the Prospectus is delivered, on the written or
oral request of any such person, a copy of any or all of the documents
incorporated herein by reference, except the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to Union Financial Services-1, Inc.,
3015 South Parker Road, Suite 400, Aurora, Colorado 80014, Attention: Ronald W.
Page, Telephone: (303) 696-5664.
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<PAGE>
SUMMARY OF THE OFFERING
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement with respect to the offering of a series of Offered Notes (each, a
"Prospectus Supplement"). Capitalized terms used herein and not defined shall
have the respective meanings assigned them in this Prospectus or in "Appendices
II, III and V" hereto.
SECURITIES OFFERED The Taxable Student Loan Asset-Backed Notes
being offered with respect to a Prospectus
Supplement (the "Offered Notes") are issuable
in one or more series (each, a "Series") and
one or more classes (each, a "Class") within
such Series. The Offered Notes shall be
secured by a revolving pool of Financed
Eligible Loans and certain other property held
in trust for the benefit of the Registered
Owners. The Offered Notes that are designated
as Class B Notes (the "Class B Notes") and the
Private Notes designated as Class B Notes are
subordinated in certain respects to the Offered
Notes that are designated as Class A Notes and
the Private Notes designated as Class A Notes,
and the Notes of any Series that are designated
as Class C Notes (the "Class C Notes") are
subordinated in certain respects to the Offered
Notes that are designated as Class B Notes, as
more fully described herein. The Offered Notes
will be issued pursuant to the Indenture as
hereinafter described. Notes issued by the
Issuer in the future under the Indenture
(including the Offered Notes) are referred to
herein as "Additional Notes." The Additional
Notes and the Private Notes are sometimes
collectively referred to herein as the "Notes."
ISSUER Union Financial Services-1, Inc., a Nevada
corporation. The Issuer is affiliated with
Union Bank and Trust Company. See "Risk
Factors" and "Certain Relationships Among
Financing Participants" herein.
PRIVATE NOTES The Issuer has previously issued Taxable
Student Loan Asset-Backed Notes, Series 1996A
and Series 1996B in the original principal
amount of $107,700,000 and $142,200,000,
respectively, in transactions exempt from the
registration requirements of the Securities Act
of 1933, as amended (the "Securities Act").
The Private Notes are not being offered hereby
and information relating thereto in this
Prospectus or any
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<PAGE>
Prospectus Supplement is provided solely as
information to a prospective investor in the
Offered Notes.
SELLERS Union Bank and Trust Company ("Union Bank" and
in this capacity, the "Seller"), a Nebraska
state bank, has in connection with the Private
Notes entered into Student Loan Purchase
Agreements with the Issuer requiring the Seller
to make Eligible Loans available to be acquired
by the Issuer. The Issuer will only acquire
Financed Eligible Loans from Union Bank or from
other Eligible Lenders (each, a "Seller" and
collectively, the "Sellers") which other
Eligible Lenders will be specified with respect
to a Series in the related Prospectus
Supplement. See "Risk Factors--The Financed
Eligible Loans and the Student Loan Fund,"
"Certain Relationships Among Financing
Participants" and "Seller Representations and
Warranties--The Sellers" herein.
SERVICER AND
SUBSERVICER Union Bank shall act as Servicer (in such
capacity, the "Servicer") and UNIPAC Service
Corporation, a Nebraska corporation ("UNIPAC"),
shall act as Subservicer and Custodian of the
Financed Eligible Loans. The Issuer may
appoint other entities to act as Servicer or
Subservicer if approved by the Rating Agencies,
which entities, if any, will be specified with
respect to a Series in the related Prospectus
Supplement. See "Certain Relationships Among
Financing Participants."
TRUSTEE Norwest Bank Minnesota, National Association,
or such other entity as may be specified in a
Prospectus Supplement.
DENOMINATIONS The Notes of each Class of any Series will be
issued in minimum denominations of $100,000 or
any integral multiple thereof except as
specified in the related Prospectus Supplement.
INTEREST RATE OF
AUCTION RATE NOTES Each Class of Auction Rate Notes will bear
interest at an initial rate of interest per
annum through the first Auction Date for such
Class specified in the related Prospectus
Supplement. After the Initial Period for the
Auction Rate Notes, each Interest Period with
respect to a Class of Auction Rate Notes will
initially consist of the Auction Period set
forth in the related Prospectus Supplement,
subject to adjustment as set forth in the
Auction Procedures described in Appendix III
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<PAGE>
attached hereto. The interest rates for the
Auction Rate Notes will be reset at the Auction
Rate with respect to each such Class pursuant
to the Auction Procedures described in Appendix
III hereto (but in no event exceeding the
Maximum Rate per annum).
The date on which a Class of Auction Rate Notes
is entitled to receive an interest payment is
referred to as the "Interest Payment Date" for
such Class. Payments will be made to holders
of record of the Auction Rate Notes as of the
date (the "Record Date") which is the Business
Day next preceding the respective Auction Date.
See "Description of the Notes--Auction Rate
Notes" herein. Interest on the Auction Rate
Notes will be payable on the first Business Day
following the expiration of each respective
Auction Period for such Class of Auction Rate
Notes.
INTEREST RATE OF
INDEX RATE NOTES The Notes of any Class of a Series whose
interest rate is determined with respect to the
London interbank offered rate ("LIBOR Rate
Notes") and with respect to any other
established index (collectively, with LIBOR
Rate Notes, the "Index Rate Notes") will bear
interest at an initial rate of interest per
annum through the date specified in the related
Prospectus Supplement and will be paid (or,
with respect to Accrual Notes, have accrued
interest added to principal) at the intervals
specified in, and beginning on the date
specified in, the related Prospectus Supplement
(or, if any such date is not a Business Day, on
the next succeeding Business Day (each with
respect to such Class, an "Interest Payment
Date")), until maturity or earlier redemption
or payment. The Applicable Rate (as defined
herein and in the related Prospectus
Supplement) with respect to the LIBOR Rate
Notes will be determined from time to time as
described herein in Appendix V hereto by
reference to the rate of interest described as
the LIBOR-Based Rate. The Applicable Rate with
respect to any other Index Rate Notes will be
determined as specified in the related
Prospectus Supplement. If specified with
respect to a Series in the related Prospectus
Supplement, the Notes thereof may consist of
one or more Classes of Accrual Notes, which
Accrual Notes will not be entitled to receive
payments of interest during the related accrual
period and, instead, interest accrued on such
Accrual Notes will be capitalized and added to
the principal balance thereof.
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<PAGE>
PRINCIPAL PAYMENTS Unless otherwise specified with respect to a
Series in the related Prospectus Supplement,
the principal balance of the Notes of each
Series will be payable upon Stated Maturity
unless earlier redeemed or repaid as described
herein or in the related Prospectus Supplement.
STATED MATURITY DATE The Stated Maturity for each Class of Offered
Notes will be specified in the related
Prospectus Supplement.
DATE OF
ISSUANCE OF NOTES The date specified in the related Prospectus
Supplement with respect to any Series of
Offered Notes.
POOL CHARACTERISTICS A description of the outstanding portfolio of
Financed Eligible Loans and the portfolio
expected to be acquired by the Issuer with the
proceeds of the Notes of any Series and pledged
to the Trustee (with such changes as noted
therein) will be described in an Annex to the
Prospectus Supplement of such Series. The
Student Loan Purchase Agreement with respect to
each Seller includes portfolio characteristic
requirements applicable to all Eligible Loans
acquired thereunder at the respective dates of
acquisition. See "Seller Representations and
Warranties."
CUTOFF DATE With respect to the portfolio of Financed
Eligible Loans to be acquired with the proceeds
of the Notes of any Series, the close of
business on the date specified in the related
Prospectus Supplement and such other respective
dates of acquisition.
INDENTURE The Private Notes and the Offered Notes are
being or will be issued pursuant to a Second
Amended and Restated Indenture of Trust between
the Issuer and the Trustee dated as of July __,
1996, as amended and supplemented from time to
time, and are payable solely from the funds and
assets held thereunder. Each Series of Offered
Notes will be issued pursuant to a Supplemental
Indenture of Trust applicable to such Series
and the Second Amended and Restated Indenture
of Trust together with such Supplemental
Indenture are referred to herein with respect
to a Series as the "Indenture." The Issuer has
previously issued its Taxable Student Loan
Asset-Backed Notes, Series 1996A (the "Series
1996A Notes"),including $48,300,000 of its
Senior Auction Rate Class A-1 Notes (the "Class
A-1 Notes") and $48,300,000 of its Senior
Auction Rate Class A-2 Notes (the "Class A-2
Notes") and
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<PAGE>
$11,100,000 of its Subordinate LIBOR Rate Class
B Notes (the "Class B Notes"), and its Taxable
Student Loan Asset-Backed Notes, Series 1996B
(the "Series 1996B Notes"), including
$73,700,000 of its Senior Auction Rate Class
A-3 Notes (the "Class A-3 Notes") and
$54,300,000 of its Senior Auction Rate Class
A-4 Notes (the "Class A-4 Notes") and
$14,200,000 of its Subordinate LIBOR Rate Class
B-2 Notes (the "Class B-2 Notes"). The Class
A-1, Class A-2, Class A-3 and Class A-4 Notes,
together with any Notes previously issued with
respect to a Series of Offered Notes which are
designated as Class A Notes are collectively
referred to herein as the "Prior Class A
Notes," and the Class B and Class B-2 Notes
together with any Notes previously issued with
respect to a Series of Offered Notes which are
designated as Class B Notes are collectively
referred to herein as the "Prior Class B
Notes."
The Prior Class A Notes constitute "Senior
Notes" under the Indenture, secured on a basis
which is senior to the Prior Class B Notes and
to any Offered Notes secured on a parity with
or subordinate to the Prior Class B Notes. The
Prior Class B Notes constitute "Subordinate
Notes" under the Indenture, secured on a basis
which is subordinate to the Prior Class A
Notes. Offered Notes secured on a parity with
or on a basis subordinate to the Prior Class A
Notes may be issued under the Indenture. Such
Offered Notes may be secured on a basis which
is senior to, on a parity with or on a basis
which is subordinate to the Prior Class B
Notes. If subordinate to the Prior Class B
Notes, such Offered Notes would constitute
"Junior-Subordinate Notes" under the Indenture
and, unless otherwise specified with respect to
a Series, will be designated as Class C Notes.
The Offered Notes may be offered by the Issuer
to the extent provided in the Indenture and
without the approval of the Registered Owners
of any Outstanding Notes; provided, among other
things, that written confirmation from each
Rating Agency is required to be received
stating that the issuance of any such
Additional Notes will not result in any Rating
Agency reducing or withdrawing its existing
ratings on the Outstanding Notes. See
"Additional Notes" herein.
MANDATORY REDEMPTION Except as may otherwise be specified with
respect to a Series in the related Prospectus
Supplement, the Offered Notes that are Senior
Notes, are subject to mandatory redemption, in
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<PAGE>
whole or in part, on any Interest Payment Date,
at a redemption price equal to the principal
amount thereof to be redeemed plus accrued and
unpaid interest to the date of redemption: (i)
from moneys remaining in the Senior Note
Redemption Account including moneys deposited
therein from excess revenues in the Revenue
Fund and from payments on Financed Eligible
Loans which represent principal; and (ii) on
the Interest Payment Date as specified with
respect to a Series in the related Prospectus
Supplement from moneys remaining in the Loan
Account designated with respect to a Series of
the Student Loan Fund unless the Issuer
provides to the Trustee a Cash Flow Certificate
and an opinion of Note Counsel as described in
"Description of the Notes--Mandatory
Redemption" herein.
Except as may otherwise be specified with
respect to a Series in the related Prospectus
Supplement, the Offered Notes that are
Subordinate Notes are subject to mandatory
redemption, in whole or in part, on any
Interest Payment Date as specified with respect
to a Series in the related Prospectus
Supplement at a redemption price equal to the
principal amount thereof to be redeemed plus
accrued and unpaid interest to the date of
redemption: (i) from moneys remaining in the
Subordinate Note Redemption Account, including
moneys deposited in the Subordinate Note
Redemption Account from excess revenues in the
Revenue Fund and from payments on Financed
Eligible Loans which represent principal; and
(ii) from moneys remaining in the Loan Account
designated with respect to a Series of the
Student Loan Fund unless the Issuer provides to
the Trustee a Cash Flow Certificate and an
opinion of Note Counsel as described in
"Description of the Notes--Mandatory
Redemption" herein.
Except as may otherwise be specified with
respect to a Series in the related Prospectus
Supplement, the Offered Notes that are Junior-
Subordinate Notes are subject to mandatory
redemption, in whole or in part, on any
Interest Payment Date as specified with respect
to a Series in the related Prospectus
Supplement at a redemption price equal to the
principal amount thereof to be redeemed plus
accrued and unpaid interest to the date of
redemption: (i) from moneys remaining in the
Junior-Subordinate Note Redemption Account,
including moneys deposited in the Junior-
Subordinate Note Redemption Account from excess
revenues in the Revenue Fund and from payments
on Financed Eligible Loans which represent
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<PAGE>
principal; and (ii) from moneys remaining in
the Loan Account established with respect to a
Series of the Student Loan Fund unless the
Issuer provides to the Trustee a Cash Flow
Certificate and an opinion of Note Counsel as
described in "Description of the Notes--
Mandatory Redemption" herein.
OPTIONAL REDEMPTION To the extent described in the related
Prospectus Supplement, the Offered Notes will
be subject to optional redemption, in whole or
in part, on any Interest Payment Date, at a
redemption price equal to the principal amount
thereof to be redeemed, plus interest accrued,
if any, to the date of redemption. See
"Description of the Notes--Optional Redemption"
herein.
EXTRAORDINARY
OPTIONAL REDEMPTION The Notes of any Series shall, unless otherwise
specified in the related Prospectus Supplement,
be subject to extraordinary optional
redemption, in whole or in part, on any
Interest Payment Date at a redemption price
equal to the principal amount of the Notes of
any Series being redeemed, plus accrued
interest, if any, to the date of redemption, if
the Issuer reasonably determines that it is
unable to acquire Financed Eligible Loans, that
the rate or return on Financed Eligible Loans
has materially decreased, or that the costs of
administering the Trust Estate have placed
unreasonable burdens upon the ability of the
Issuer to perform its obligations under the
Indenture and deliver a Cash Flow Certificate
to the Trustee. See "Description of the Notes-
-Extraordinary Optional Redemption" herein.
OPTIONAL PURCHASE The Issuer may purchase or cause to be
purchased all of the Notes on any Interest
Payment Date on which the aggregate current
principal balance of the Notes shall be less
than or equal to 10% of the initial aggregate
principal balance of the Notes on their
respective Date of Issuance, at a purchase
price equal to the aggregate current principal
balance of such Notes, plus accrued interest on
the Notes through the day preceding the
Interest Payment Date on which the purchase
occurs. See "Description of the Notes--
Optional Purchase" herein.
PARTIAL REDEMPTION If less than all of the Notes of any Series are
to be redeemed or purchased pursuant to a
mandatory redemption, an optional redemption or
an extraordinary optional redemption, the
Classes of Notes to be redeemed shall be
determined as directed in an Issuer Order;
provided, however, that the
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<PAGE>
Class B Notes may only be redeemed prior to the
Class A Notes of any Series and, the Prior
Class A Notes and the Prior Class B Notes may
only be redeemed prior to the Class A Notes of
any Series, as described in "Description of the
Notes--Notice and Partial Redemption of Notes"
herein and in the related Prospectus
Supplement.
SUBORDINATED NOTES The rights of the Registered Owners of the
Subordinate Notes, including the Class B Notes
of each Series, to receive payments with
respect to principal and interest shall be
subordinated to such rights of the Registered
Owners of the Senior Notes, including the Class
A Notes of each Series and the Prior Class A
Notes, to the extent described herein or in the
related Prospectus Supplement. In addition,
the rights of the Registered Owners of the
Junior-Subordinate Notes of any Series to
receive payments with respect to principal and
interest shall be subordinated to such rights
of the Registered Owners of the Subordinate
Notes to the extent described herein or in the
related Prospectus Supplement. This
subordination is intended to enhance the
likelihood of regular receipt by the more
senior Registered Owners of the full amount of
scheduled payments of principal and interest
due them and to protect such Registered Owners
against losses. The protection afforded to the
more senior Registered Owners from the
subordination feature will be effected by the
preferential right of such Registered Owners to
receive on any Interest Payment Date, at Stated
Maturity or upon acceleration, before any
payments to subordinate Registered Owners,
current payments of principal and interest then
due. The Indenture provides that a failure to
pay principal or interest to the Registered
Owners of the Subordinate Notes as due while
any Senior Notes remain Outstanding shall not
constitute an Event of Default while any Senior
Notes remain Outstanding. See "Security and
Sources of Payment for the Notes" and "Appendix
II--Glossary of Certain Terms and Summary of
Certain Provisions of the Indenture" herein.
ADDITIONAL PARITY NOTES
AND SWAP AGREEMENTS The Issuer may, upon complying with the
provisions of the Indenture, authenticate and
deliver from time to time Additional Notes
secured by the Trust Estate on a parity with or
subordinate to the Class A Notes of any Series
offered with respect to the related Prospectus
Supplement and the Prior Class A Notes or the
Class B Notes of any Series offered with
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<PAGE>
respect to the related Prospectus Supplement
and the Prior Class B Notes and the Class C
Notes of any Series. In addition, the Issuer
may enter into any Swap Agreements it deems
necessary or desirable with respect to and on a
parity with any or all of such Additional
Notes. Any Swap Counterparty identified in the
related Swap Agreement shall have the same
right to payment of principal and interest and
the same capacity to direct or to consent to
actions under the Indenture as the Registered
Owners of the Class of Notes to which the
applicable Swap Agreement relates. See
"Appendix II--Glossary of Certain Terms and
Summary of Certain Provisions of the Indenture"
herein.
TRUST ESTATE The Trust Estate will consist of: (i) a
revolving pool of Financed Eligible Loans, as
described below, and moneys payable with
respect thereto after their respective
applicable dates of acquisition; (ii) funds in
accounts held by the Trustee under the
Indenture, including an account to acquire
additional Financed Eligible Loans from
recycling principal payments and repayments
including reimbursements for defaulted Financed
Eligible Loans under certain circumstances
prior to April 1, 1999 with respect to the
Private Notes and the date specified in the
related Prospectus Supplement with respect to
the Offered Notes (the "Student Loan Fund") and
the Reserve Fund; (iii) rights of the Issuer in
and to any Swap Agreement and any Swap
Counterparty Guarantee; (iv) rights of the
Issuer in and to the Servicing Agreement, the
Student Loan Purchase Agreement and the
Guarantee Agreements as the same relate to
Financed Eligible Loans and in and to the
Auction Agent Agreement and the Custodian
Agreement; and (v) certain related rights and
property held in trust for the benefit of the
Registered Owners. In addition, the Trust
Estate with respect to any Series may also
consist of certain rights regarding credit
enhancement as described in the related
Prospectus Supplement.
THE FINANCED
ELIGIBLE LOANS "Financed Eligible Loans" will consist of
Eligible Loans originated pursuant to the
Federal Family Education Loan Program to
students enrolled in accredited institutions of
higher education and will include rights to
receive payments made with respect to such
Financed Eligible Loans and the proceeds
thereof. See "Appendix I--Description of the
Federal Family Education Loan Program" herein.
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Certain of the Financed Eligible Loans will
have been originated by the respective Seller
and the remainder of the Financed Eligible
Loans will have been originated by independent
third parties and subsequently sold to the
respective Seller. The Financed Eligible Loans
constituting the assets of the Trust Estate
will vary from time to time and are required to
be Eligible Loans. An "Eligible Loan" shall
mean a Student Loan which: (a) has been or will
be made to an Eligible Borrower; (b) is Insured
or is Guaranteed by a Guarantee Agency which
then has a Guarantee Agreement with the
Trustee; (c) unless it is an Unsubsidized
Stafford Loan, a PLUS Loan or an SLS Loan or a
Consolidation Loan, is an "eligible loan" under
the Act for purposes of receiving Interest
Benefit Payments; (d) bears interest at not
less than the maximum applicable rate of
interest permitted by the Act at the time
originated; (e) is not delinquent more than 180
days and has not been tendered at any time to
either the Secretary or any guarantee agency,
including without limitation, the Guarantee
Agency, for payment unless the situation giving
rise to such tender has been cured; and (f) is
eligible for Special Allowance Payments as
provided in Section 438 of the Act. The
Financed Eligible Loans will be selected by
each Seller from Eligible Loans originated and
purchased by such Seller based on the criteria
specified in the Student Loan Purchase
Agreement and described herein or in the
related Prospectus Supplement. See "Seller
Representations and Warranties" herein.
The payment of principal and interest on all
Eligible Loans will be guaranteed by private,
nonprofit corporations or state agencies and
will be reinsured by the United States
Department of Education (the "Department") to
the extent provided pursuant to the Act. The
federal guarantee of Eligible Loans and the
amount thereof is contingent upon compliance
with a variety of due diligence and other
regulations, as further described herein. See
"Appendix I--Summary of the Federal Family
Education Loan Program--Federal Insurance and
Reimbursement of Guarantors" herein. Each
entity guaranteeing payment of principal and
interest on a Financed Eligible Loan is
referred to herein as a "Guarantee Agency." In
connection with the offering of each Series of
Notes, the Guarantee Agencies that are expected
to guarantee 2% or more of the Financed
Eligible Loans in the Student Loan Portfolio
will be identified in the related Prospectus
Supplement. Guarantee Agencies
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<PAGE>
which guarantee Financed Eligible Loans as
selected by the Issuer are required to be
approved by each Rating Agency. See "Guarantee
Agencies" herein.
With respect to substantially all of the
Eligible Loans, except for PLUS Loans, during
the period in which the related borrower is in
school and for certain authorized periods as
described in the Act (the "Deferral Phase"),
the borrower is not required to make payments
on his or her Financed Eligible Loan. With
respect to Eligible Loans constituting
Subsidized Stafford Loans, the Department will
make all interest payments during the related
Deferral Phase. For all other Eligible Loans,
interest will be paid during the related
Deferral Phase or, at the option of the
borrower, will be capitalized and added to the
principal balance of such Financed Eligible
Loan. It is expected that the Trust Estate
will consist of Financed Eligible Loans that
are in the Deferral Phase as well as Financed
Eligible Loans for which the related borrower
is required to make payments of principal and
interest (the "Repayment Phase"). The
proportions of such Financed Eligible Loans
will vary through the period that the Notes are
Outstanding.
The pool of Financed Eligible Loans included in
the Trust Estate from time to time is referred
to herein as the "Student Loan Portfolio."
Financed Eligible Loans may be sold and certain
events will occur with respect to individual
Financed Eligible Loans; consequently, the
Student Loan Portfolio characteristics are
expected to change during the period that the
Notes are Outstanding. See "Risk Factors--
Prepayment Considerations," "Seller
Representations and Warranties," "Appendix I--
Description of the Federal Family Education
Loan Program" and "Appendix II--Glossary of
Certain Terms and Summary of Certain Provisions
of the Indenture--Sale of Financed Eligible
Loans" herein and "Annex A--Description of the
Student Loan Portfolio" in the Prospectus
Supplement.
SALES AND REPURCHASES OF
CERTAIN ELIGIBLE LOANS Under certain circumstances, the Financed
Eligible Loans may be sold by the Issuer.
Pursuant to each Student Loan Purchase
Agreement, the respective Seller will be
obligated to repurchase any Financed Eligible
Loan if: (i) any representation or warranty
made or furnished by such Seller in or pursuant
to the Student Loan Purchase Agreement shall
prove to have been materially incorrect as to
such Financed
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Eligible Loan; (ii) the Secretary or a
Guarantee Agency, as the case may be, refuses
to honor all or part of a claim filed with
respect to a Financed Eligible Loan (including
any claim for interest subsidy, Special
Allowance Payments, Insurance, reinsurance or
Guarantee payments) on account of any
circumstance or event that occurred prior to
the sale of such Financed Eligible Loan to the
Issuer; or (iii) on account of any wrongful or
negligent act or omission of such Seller or its
servicing agent that occurred prior to the sale
of a Financed Eligible Loan to the Issuer, a
valid defense that makes the Financed Eligible
Loan unenforceable is asserted by a maker (or
endorser, if any) of the Financed Eligible Loan
with respect to his or her obligation to pay
all or any part of the Financed Eligible Loan.
In addition, each existing Student Loan
Purchase Agreement with respect to Union Bank
provides and it is expected that any Student
Loan Purchase Agreement executed in the future
with respect to Union Bank will provide that
such Seller has the option to repurchase any
Financed Eligible Loan which the Issuer
proposes to remove from the Servicing
Agreement. See "The Issuer's Student Loan
Purchase Program--The Issuer's Student Loan
Purchase Agreements" herein.
Pursuant to the Servicing Agreement, Union Bank
has the right to require the Issuer to sell any
of its Financed Eligible Loans acquired from
Union Bank to an eligible lender or holder
which maintains a servicing agreement with the
Subservicer, in the event the Issuer decides to
sell such Financed Eligible Loans to an
eligible lender or holder which does not
maintain a servicing agreement with the
Subservicer. See "The Issuer's Student Loan
Purchase Program--The Servicing Agreements"
herein.
STUDENT LOAN FUND An amount will be deposited into the Loan
Account designated with respect to a Series of
the Student Loan Fund on the Date of Issuance
of a Series as specified in the related
Prospectus Supplement. In addition, except
upon the occurrence of an Event of Default or
as otherwise specified with respect to a Series
in the related Prospectus Supplement, there
shall be deposited into the Recycling Account
designated with respect to a Series of the
Student Loan Fund principal payments received
with respect to the Financed Eligible Loans up
to the date specified with respect to a Series
in the related Prospectus Supplement. Funds on
deposit in the Loan Account
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designated with respect to a Series and the
Recycling Account designated with respect to a
Series shall be used prior to the date
specified with respect to a Series in the
related Prospectus Supplement solely to acquire
additional Eligible Loans. If on any Transfer
Date, moneys have remained in the Recycling
Account designated with respect to a Series for
more than one year, said moneys shall be
transferred on such date to the Note Redemption
Fund unless (a) the Aggregate Market Value of
the Trust Estate is greater than the aggregate
principal amount of Notes Outstanding, or (b)
the Aggregate Market Value of the Trust Estate
is less than the aggregate principal amount of
the Notes Outstanding and the Issuer delivers a
Cash Flow Certificate and an opinion of Note
Counsel, in which case said moneys shall remain
in the Recycling Account designated with
respect to a Series for a period of up to one
additional year.
Under certain circumstances, if moneys in the
Revenue Fund are insufficient to make certain
payments or distributions therefrom, the
remaining insufficiency may be funded from
transfers from the Student Loan Fund after
application of amounts available to be
transferred therefor from the Note Redemption
Fund, the Student Loan Holding Fund and the
Reserve Fund. Except as may otherwise be
specified with respect to a Series in the
related Prospectus Supplement, on the date
specified with respect to a Series in the
related Prospectus Supplement, all moneys
remaining in the Loan Account designated with
respect to a Series of the Student Loan Fund
shall be transferred to the Note Redemption
Fund.
OPERATING FUND AND
COST OF ISSUANCE FUND Amounts will be deposited into the Operating
Fund and the Cost of Issuance Fund on the Date
of Issuance with respect to any Series as
specified in the related Prospectus Supplement.
Such amounts will be applied as described under
the heading "Description of the Notes" herein.
RESERVE FUND An amount will be deposited into the Reserve
Fund on the Date of Issuance with respect to
any Series as specified in the related
Prospectus Supplement. At any time thereafter,
the amount required to be deposited in the
Reserve Fund (the "Reserve Fund Requirement")
with respect to the Notes shall be, unless
otherwise specified with respect to a Series in
the related Prospectus Supplement, the greater
of an amount equal
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to 2% of the aggregate principal amount of the
Notes then Outstanding or $750,000.
Moneys in the Reserve Fund shall be used (a) on
any Interest Payment Date for the payment of
any interest or Issuer Swap Payment
insufficiency, first, with respect to the
Senior Notes, and second, with respect to the
Subordinate Notes, and (b) at Stated Maturity
to pay principal, if funds in the Note
Redemption Fund are insufficient, first, with
respect to the Senior Notes, and second, with
respect to the Subordinate Notes. See
"Security and Sources of Payment for the Notes"
herein.
CREDIT ENHANCEMENT To the extent specified in the related
Prospectus Supplement, credit enhancement, such
as, but not limited to, insurance policies or
bonds, subordination of certain Classes or
subclasses, one or more reserve funds, equity,
letters of credit, guarantees or other
arrangements acceptable to each Rating Agency
rating the Offered Notes may be used to provide
for coverage of certain risks of defaults or
losses. Such other credit enhancement, if any,
will be described in the related Prospectus
Supplement. See "Description of the Credit
Enhancement" herein.
REGISTRATION OF NOTES The Notes of each Class of any Series initially
will, unless specified in the related
Prospectus Supplement, be represented by a
single certificate registered in the name of
Cede & Co. ("Cede"), as a nominee of The
Deposit Trust Corporation ("DTC"). No person
acquiring an interest in such Notes will be
entitled to a definitive certificate
representing such person's interest, except in
the event that definitive securities are issued
under the limited circumstances described
herein. See "Book Entry Registration" herein.
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES The Notes of each Class of any Series will,
unless specified in the related Prospectus
Supplement, be treated as debt of the Issuer
rather than as an interest in the Financed
Eligible Loans, for federal income tax
purposes. As such, the owners of such Notes
will be required to include in income interest
on such Notes as paid or accrued, in accordance
with their respective accounting methods and
the provisions of the Code, including, if
applicable, provisions regulating original
issue discount. See "Certain Federal Income
Tax Consequences" herein.
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<PAGE>
ERISA CONSIDERATIONS Assuming that the Notes of any Class should be
treated as indebtedness without substantial
equity features under the Plan Asset
Regulations issued by the Department of Labor,
such Notes are eligible for purchase by or on
behalf of employee benefit plans, retirement
arrangements, individual retirement accounts
and Keogh Plans, subject to certain
considerations discussed under "ERISA
Considerations" herein or as otherwise
described in the related Prospectus Supplement.
RATINGS It is a condition to the issuance of the
Offered Notes that each Class being publicly
offered be rated no less than investment grade
by at least one nationally recognized
statistical rating organization at the time of
issuance. Any such rating agency or agencies
are referred to herein as a "Rating Agency" or
collectively, as the "Rating Agencies." See
"Rating" herein.
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<PAGE>
RISK FACTORS
In connection with the Notes offered hereby, prospective investors should
consider, among other things, the following factors regarding the purchase of
the Notes.
NATURE OF THE NOTES
The Issuer is a special purpose corporation and the Notes represent
obligations solely of the Issuer. The Notes are not insured or guaranteed by
any government agency or instrumentality, by any affiliate of the Issuer, by any
insurance company or by any other person or entity. The Issuer will have no
significant assets other than its interest in the Financed Eligible Loans and
the other property granted to the Trustee for the benefit of the Registered
Owners. Payments on the Notes will depend solely on the amount and timing of
payments and collections in respect of the Financed Eligible Loans, interest
paid or earnings on the various accounts established pursuant to the Indenture,
the payment priority of Notes previously issued and any Additional Notes to be
issued in the future, and amounts on deposit in the Reserve Fund and other Funds
and Accounts and any other form of credit enhancement described in the related
Prospectus Supplement. There will be no additional recourse to the Issuer or
any other Person if such proceeds are insufficient. As a result, except as may
be specified with respect to a Series in the related Prospectus Supplement,
Registered Owners must depend on the cash flow with respect to the Financed
Eligible Loans and funds on deposit in the Reserve Fund and other Funds and
Accounts for payment of principal of and interest on the Notes.
Generally, after each required payment of Trustee fees and expenses,
servicing fees and expenses and interest on the Notes, and other required fees,
expenses, taxes and indemnities, including any required deposits to the Reserve
Fund have been made in full, any balance remaining from payments with respect to
the Financed Eligible Loans generally will be: (i) prior to the date specified
in the related Prospectus Supplement, applied to acquire Financed Eligible
Loans, (ii) on and after such date specified in the related Prospectus
Supplement, applied to the amortization of the Notes, until the aggregate
outstanding principal amount of Financed Eligible Loans exceeds the aggregate
Outstanding principal balance of the Notes; and (iii) thereafter, remitted to
the Issuer. If the payments with respect to the Financed Eligible Loans and
amounts on deposit in the Reserve Fund and other Funds and Accounts (including
any applicable credit enhancement) are insufficient to make payments on the
Subordinate Notes, other assets of the Issuer will not be available for payment
of any such deficiency.
SUBORDINATION; LIMITED ASSETS
Payments of interest and principal on the Subordinate Notes are
subordinated in priority of payment to payments of interest and principal due on
the Senior Notes and payments of interest and principal on the
Junior-Subordinate Notes are subordinated in priority of payments of interest
and principal due on the Subordinate Notes. Under certain redemption
situations, as set forth herein and as may be set forth in the related
Prospectus Supplement with respect to any Series, principal on certain Class of
the Subordinate Notes may be redeemed while the Senior Notes and certain Notes
remain Outstanding and the principal on the Subordinate Notes may be
<PAGE>
redeemed while the Senior Notes and certain of the Subordinate Notes remain
Outstanding. See "Description of the Notes--Notice and Partial Redemption of
Notes." The Subordinate Notes are also subordinated to the Senior Notes and the
Junior-Subordinate Notes are also subordinate to the Subordinate Notes as to the
direction of remedies upon an Event of Default. The Trust Estate will not have,
nor is it permitted or expected to have, any significant assets or sources of
funds other than from payments with respect to the Financed Eligible Loans, the
Reserve Fund and other Funds and Accounts.
FAILURE TO COMPLY WITH LOAN ORIGINATION
AND SERVICING PROCEDURES FOR ELIGIBLE LOANS
The Higher Education Act of 1965, as amended (the "Act"), including the
respective implementing regulations thereunder, require lenders and their
assignees making and servicing Eligible Loans and guarantors guaranteeing
Eligible Loans to follow specified procedures, including due diligence
procedures, to ensure that the Eligible 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 "Issuer's Student Loan Purchase Program" and "Appendix I--Summary
of Certain Provisions of the Federal Family Education Loan Program" herein.
Generally, those procedures require that completed loan applications be
processed, a determination of whether an applicant is an eligible borrower
attending an eligible institution 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. If a
borrower becomes delinquent in repaying a loan, a lender must perform certain
collection procedures (primarily telephone calls and demand letters) which vary
depending upon the length of time a loan is delinquent.
THE SERVICER HAS AGREED PURSUANT TO THE SERVICING AGREEMENT TO PERFORM (OR
PROVIDE FOR THIRD PARTY SERVICER TO PERFORM) SERVICING AND COLLECTION PROCEDURES
ON BEHALF OF THE ISSUER. HOWEVER, FAILURE TO FOLLOW THESE PROCEDURES OR FAILURE
OF ANY SELLER OR ANY OTHER ORIGINATOR OF THE FINANCED ELIGIBLE LOANS TO FOLLOW
PROCEDURES RELATING TO THE ORIGINATION OF ANY ELIGIBLE LOANS MAY RESULT IN THE
DEPARTMENT'S REFUSAL TO MAKE REINSURANCE PAYMENTS TO THE GUARANTEE AGENCIES OR
TO MAKE SPECIAL ALLOWANCE PAYMENTS TO THE TRUSTEE WITH RESPECT TO SUCH ELIGIBLE
LOANS OR IN THE GUARANTEE AGENCIES' REFUSAL TO HONOR THEIR GUARANTEE AGREEMENTS
WITH THE TRUSTEE WITH RESPECT TO SUCH ELIGIBLE LOANS. FAILURE OF THE GUARANTEE
AGENCIES TO RECEIVE REINSURANCE PAYMENTS FROM THE DEPARTMENT COULD ADVERSELY
AFFECT THE GUARANTEE AGENCIES' ABILITY OR LEGAL OBLIGATION TO MAKE PAYMENTS
UNDER THE GUARANTEE AGREEMENTS ("GUARANTEE PAYMENTS") TO THE TRUSTEE. LOSS OF
ANY SUCH GUARANTEE PAYMENTS, SPECIAL ALLOWANCE PAYMENTS OR FEDERAL INTEREST
SUBSIDY PAYMENTS WITH RESPECT TO ELIGIBLE LOANS, COULD ADVERSELY AFFECT THE
AMOUNT OF REVENUES AND THE ISSUER'S ABILITY TO PAY PRINCIPAL AND INTEREST ON THE
NOTES.
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<PAGE>
RELIANCE UPON SELLERS
The Issuer expects to acquire additional Financed Eligible Loans from the
Sellers from time to time, all pursuant to the Student Loan Purchase Agreement
under which each Seller has agreed to sell to the Issuer Eligible Loans which
comply with certain representations and warranties with respect to each Financed
Eligible Loan and certain overall portfolio characteristics in connection with
such acquisitions. Each Student Loan Purchase Agreement further provides that
the related Seller shall be obligated to repurchase Financed Eligible Loans
under certain circumstances and that such Seller shall have the right to
repurchase Financed Eligible Loans in the event that the Issuer removes such
Financed Eligible Loans from the UNIPAC servicing system. No assurance can be
given that the Issuer would be able to acquire Eligible Loans in an equivalent
amount, with similar characteristics or at comparable prices from sources other
than the Sellers in the event that the Sellers were unable to sell additional
Eligible Loans to the Issuer or in the event that any Seller was required to
repurchase Financed Eligible Loans. See "Risk Factors--Certain Legal Aspects,"
"--Failure to Comply with Loan Origination and Servicing Procedures for Eligible
Loans" and "Seller Representations and Warranties" herein.
PERFECTION OF SECURITY
INTEREST IN FINANCED ELIGIBLE LOANS
As required by the Uniform Commercial Code, the perfection of the security
interest in the Financed Eligible Loans granted by the Issuer to the Trustee is
to be accomplished by possession of the promissory notes evidencing the Financed
Eligible Loans by the Trustee and by the filing of financing statements. Under
the Uniform Commercial Code, possession may be either by the secured party or by
an agent on the secured party's behalf. With respect to the Indenture,
possession by the Trustee, as secured party, is to be accomplished by delivery
of such promissory notes to UNIPAC, acting as custodial agent for the Trustee.
UNIPAC is an affiliate of Union Bank. In the event UNIPAC acted contrary to its
obligations under the Custodian Agreement, by reason of such affiliate
relationship or otherwise, and relinquished possession of the promissory notes
to any party other than the Trustee or the Trustee's agent, the security
interest of the Trustee in the Financed Eligible Loans released may become
unperfected. In addition, while the Issuer has received an opinion of counsel,
subject to the assumptions and limitations set forth therein, that the Trustee
has a first priority perfected security interest in the Financed Eligible Loans,
because of the affiliation between UNIPAC and Union Bank, the perfection of the
Trustee's security interest in the Financed Eligible Loans by UNIPAC taking
possession is not entirely free from doubt and such perfection may be challenged
by a receiver or other creditor of Union Bank in the event of Union Bank's
insolvency or otherwise. See "Certain Relationships Among Financing
Participants" herein.
CHANGING ASSETS OF THE TRUST ESTATE
During the period beginning on the Date of Issuance and ending no later
than the date set forth with respect to a Series in the related Prospectus
Supplement, the Issuer intends to purchase Financed Eligible Loans from the
Sellers. Each Financed Eligible Loan must meet
3
<PAGE>
certain characteristics and each portfolio of Financed Eligible Loans added to
the Financed Eligible Loans portfolio in accordance with the terms of the
Student Loan Purchase Agreement and the Indenture must, as of the applicable
Cutoff Date, together with each portfolio previously added to the Financed
Eligible Loans portfolio, as of their respective Cutoff Dates, meet certain pool
characteristics set forth in the Student Loan Purchase Agreement. However, the
actual characteristics of the Financed Eligible Loans portfolio will change from
time to time due to factors such as adjustments made in the normal course of
business, changes in the classifications of Eligible Loans, sale or purchase of
Eligible Loans by the Issuer, scheduled amortization, prepayment or the
occurrence of delinquencies or defaults. See "Annex A--Description of the
Student Loan Portfolio" in the Prospectus Supplement.
VARIABILITY OF REVENUES
Amounts received with respect to the Financed Eligible Loans for a
particular period may vary in both timing and amount from the payments actually
due on the Financed Eligible Loans for a variety of economic, social and other
factors, including both individual factors, such as additional periods of
deferral or forbearance prior to or after a borrower's commencement of
repayment, and general factors, such as a general economic downturn which could
increase the amount of defaulted Financed Eligible Loans. Failures by borrowers
to pay timely the principal and interest on the Financed Eligible Loans will
affect the amount of Revenues, which may reduce the amount of principal and
interest available to be paid to the Registered Owners. In addition, failures
by borrowers of student loans generally to pay timely the principal and interest
due on such student loans could obligate the Guarantee Agencies to make payments
thereon, which could adversely affect the solvency of the Guarantee Agencies and
their ability to meet their guarantee obligations (including with respect to the
Financed Eligible Loans). The inability of any Guarantee Agency to meet its
guarantee obligations could reduce the amount of principal and interest paid to
the Registered Owners. The effect of such factors, including the effect on a
Guarantee Agency's ability to meet its guarantee obligations with respect to the
Financed Eligible Loans or the Issuer's ability to pay principal and interest
with respect to the Notes, is not possible to predict. Pursuant to the 1992
amendments under Section 432(o) of the Act, if the Department has determined
that a Guarantee Agency of an Eligible Loan is unable to meet its insurance
obligations, the loan holder may submit claims directly to the Department and
the Department is required to pay the full Guarantee payment due with respect
thereto in accordance with guarantee claim processing standards no more
stringent than those applied by a Guarantee Agency of Eligible Loans. However,
the Department's obligation to pay guarantee claims directly in this fashion is
contingent upon the Department making the determination referred to above.
There can be no assurance that the Department would ever make such a
determination with respect to a Guarantee Agency 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 Indenture, subject to certain
conditions, the Trustee is authorized, without the consent of the Registered
Owners, to sell the Financed Eligible Loans. There can be no assurance,
however, that the Trustee will be able to find a purchaser for the Financed
Eligible Loans in a timely manner or that the market value of such
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<PAGE>
Financed Eligible Loans would, at any time, be equal to the aggregate
outstanding principal amount of the Notes then Outstanding and accrued interest
thereon. If the net proceeds of any such sale, together with amounts then on
deposit in the Reserve Account and other Funds and Accounts, do not exceed the
aggregate outstanding principal amount of Notes then Outstanding and accrued
interest thereon, Registered Owners of any Class of Notes not paid in full will
likely be unable to recover the full amount of their investment. In addition,
the amount of principal required to be paid to Registered Owners under the
Indenture is generally limited to amounts available to be so paid. Therefore,
the failure to pay principal on any Class or Series of Notes may not result in
the occurrence of an Event of Default until the Stated Maturity date of such
Class or Series of Notes.
PREPAYMENT CONSIDERATIONS
Principal prepayments with respect to the Notes may be influenced by a
variety of economic, geographic, social and other factors. The Financed
Eligible Loans may be prepaid at any time without penalty. The Issuer believes
that in a fluctuating interest rate environment a factor affecting the
prepayment rate on a large pool of loans similar to the Financed Eligible Loans
is the difference between the interest rates on the loans (giving consideration
to the cost of any refinancing) and prevailing interest rates generally. In
general, if interest rates fall below the interest rates on the Financed
Eligible Loans, the rate of prepayment would be expected to increase.
Conversely, if interest rates rise above the interest rates on the Financed
Eligible Loans, the rate of prepayment would be expected to decrease. The
Issuer does not have available sufficient prepayment information on Financed
Eligible Loans similar to those to be included in the Trust Estate to estimate
the rate of prepayment with respect to the Financed Eligible Loans in the
Financed Eligible Loans portfolio. Other factors affecting prepayment of loans
include changes in the borrower's job, transfers, unemployment and servicing
decisions, and refinancing opportunities which may provide more favorable
repayment terms such as those offered under various consolidation loan programs,
including the federal direct consolidation loan programs. In addition, the rate
of the payments of principal on the Notes will be directly related to the actual
amortization schedule of the Financed Eligible Loans. See "Risk Factors--
Changes in Legislation" herein.
UNSECURED NATURE OF FINANCED ELIGIBLE LOANS;
FINANCIAL STATUS OF GUARANTEE AGENCIES
The Act requires all Financed Eligible Loans to be unsecured. As a result,
the only security for payment of the Financed Eligible Loans are the Guarantee
Agreements between the Trustee and each Guarantee Agency. A deterioration in
the financial status of the Guarantee Agencies and their ability to honor
guarantee claims with respect to the Financed Eligible Loans could result in a
delay in making or a failure to make Guarantee Payments to the Trustee. One of
the primary causes of a possible deterioration in a Guarantee Agency's financial
status is directly related to the amount and percentage of defaulting Financed
Eligible Loans guaranteed by a Guarantee Agency. Moreover, with respect to
Eligible Loans, to the extent that the Department pays reimbursement claims
submitted by a Guarantee Agency for any fiscal year exceeding certain specified
levels, the Department's obligation to reimburse the Guarantee
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<PAGE>
Agency for losses will be reduced on a sliding scale from a maximum of 98% to a
minimum of 78% of Guarantee Agency payments. Under Section 432(o) of the Act,
if the Department has determined that a Guarantee Agency is unable to meet its
guarantee obligations, the loan holder may submit claims directly to the
Department and the Department is required to pay the full guaranty claim amount
due with respect thereto in accordance with guaranty claim processing standards
no more stringent than those of the Guarantee Agency. See "Appendix I--
Description of the Federal Family Education Loan Program" herein.
CHANGES IN LEGISLATION
There can be no assurance 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 matter that will adversely impact the
programs described herein and the loans made thereunder, including the Financed
Eligible Loans, or the Guarantee Agencies. In addition, existing legislation
and future measures to reduce the federal budget deficit may adversely affect
the amount and nature of federal financial assistance available with respect to
these programs. In recent years, federal budget legislation has provided for
the recovery of certain funds held by guarantee agencies in order to achieve
reductions in federal spending. There can be no assurance that future federal
budget legislation or administrative actions will not adversely effect
expenditures by the Department, the Secretary or the financial condition of the
Guarantee Agencies.
Under the Omnibus Budget Conciliation Act of 1993, Congress made a number
of changes that may adversely affect the financial condition of the Guarantee
Agencies, including reducing to 98% the maximum percentage of Guarantee payments
the Department will reimburse for loans first disbursed on or after October 1,
1993, reducing substantially the premiums and default collections that Guarantee
Agencies are entitled to receive and/or retain and giving the Department broad
powers over Guarantee Agencies and their reserves. These powers include the
authority to require a Guarantee Agency to return all reserve funds to the
Department if the Department determines such action is necessary to ensure an
orderly termination of such Guarantee Agency, to serve the best interests of the
federal programs or to ensure the proper maintenance of such Guarantee Agency's
funds or assets. The Department is also now authorized to direct a Guarantee
Agency to return a portion of its reserve funds which the Department determines
is unnecessary to pay the program expenses and contingent liabilities of such
Guarantee Agency and/or to cease any activities involving the use of such
Guarantee Agency's reserve funds or assets which the Department determines is a
misapplication or otherwise improper. The Department may also terminate the
reinsurance agreement of a Guarantee Agency 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
Guarantee Agency as described herein in "Appendix I--Description of the Federal
Family Education Loan Program" herein. These various changes create a
significant risk that the resources available to the Guarantee Agencies to meet
their guarantee obligations will be significantly reduced. IN ADDITION, THIS
LEGISLATION GREATLY EXPANDS THE FEDERAL DIRECT STUDENT LOAN PROGRAM VOLUME TO A
TARGET OF APPROXIMATELY 60% OF STUDENT LOAN DEMAND IN ACADEMIC
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<PAGE>
YEAR 1998-1999, WHICH COULD RESULT IN INCREASING REDUCTIONS IN THE VOLUME OF
LOANS MADE UNDER THE FEDERAL PROGRAM. AS THE FEDERAL DIRECT STUDENT LOAN
PROGRAM EXPANDS, THE SERVICER MAY EXPERIENCE INCREASED COSTS DUE TO REDUCED
ECONOMIES OF SCALE TO THE EXTENT THE VOLUME OF NEW LOANS SERVICED BY THE
SERVICER IS REDUCED. SUCH COST INCREASES COULD AFFECT THE ABILITY OF THE
SERVICER TO SATISFY ITS OBLIGATIONS TO SERVICE THE FINANCED ELIGIBLE LOANS OR TO
PURCHASE FINANCED ELIGIBLE LOANS IN THE EVENT OF CERTAIN BREACHES OF COVENANTS.
SEE "RISK FACTORS--RELIANCE UPON SELLERS" AND "--THE FINANCED ELIGIBLE LOANS AND
THE STUDENT LOAN FUND" HEREIN. Such volume reductions could further reduce
revenues received by the Guarantee Agencies available to pay claims on defaulted
Eligible Loans. Finally, the level of competition currently in existence in the
secondary market for loans made under the federal programs could be reduced,
resulting in fewer potential buyers of the Eligible Loans and lower prices
available in the secondary market for those loans. Further, the Department is
implementing a direct consolidation loan program, which program may further
reduce the volume of loans made under the federal programs. See "Appendix I--
Description of The Federal Family Education Loan Program" herein.
THE FINANCED ELIGIBLE LOANS
AND THE STUDENT LOAN FUND
The Issuer has previously acquired or will acquire Financed Eligible Loans
with the funds on deposit in the Student Loan Fund. Any conveyance of
additional Eligible Loans is subject to the following conditions, among others:
(a) each such additional Eligible Loan must satisfy the eligibility criteria
specified in the applicable Student Loan Purchase Agreement, and (b) with
respect to Financed Eligible Loans acquired on the Scheduled Sale Date and other
dates of acquisition, the additional Financed Eligible Loans, as of the
applicable Cutoff Date, together with the Financed Eligible Loans previously
added to the portfolio, as of the respective Cutoff Date, must meet certain pool
characteristics set forth in the Student Loan Purchase Agreement. See "Seller
Representations and Warranties--Representations and Warranties--Portfolio
Characteristics" and "--Representations and Warranties--Eligible Loans" herein.
Unless otherwise specified with respect to a Series in the related
Prospectus Supplement, to the extent that amounts on deposit in the Loan Account
designated with respect to a Series of the Student Loan Fund have not been fully
applied to the acquisition of additional Eligible Loans by the date specified in
the related Prospectus Supplement, the Registered Owners of such Notes will
receive as a prepayment of principal, in the priorities described herein or in
the related Prospectus Supplement, an amount equal to the amount remaining in
the Loan Account designated with respect to a Series of the Student Loan Fund on
the respective Interest Payment Dates on or next succeeding the date specified
in the related Prospectus Supplement, with respect to the Senior Notes of such
Series, and the date specified in the related Prospectus Supplement with respect
to the Subordinate Notes and the Junior-Subordinate Notes of such Series, after
all such Senior Notes have been redeemed. The Issuer expects that the amount of
the additional Eligible Loans to be acquired with respect to any Series will
approximate 100% of the amount deposited in the Loan Account designated with
respect to a Series of the Student Loan Fund in the related Prospectus
Supplement.
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ISSUANCE OF ADDITIONAL NOTES
The Issuer may, pursuant to the provisions of the Indenture, authenticate
and deliver from time to time Additional Notes secured by the Trust Estate on a
parity with or subordinate to any of the Senior Notes and senior to, on a parity
with or subordinate to the Subordinate Notes, as determined by the Issuer;
provided, however, that any such Additional Notes shall be issued pursuant to a
Supplemental Indenture, without the consent or approval of the Registered Owners
of any Notes then Outstanding, but with, among other things, written evidence
from each Rating Agency then rating any Outstanding Notes that such rating or
ratings will not be reduced or withdrawn as a result of the issuance of the
proposed Additional Notes. See "Additional Notes" herein.
MATURITY AND PREPAYMENT ASSUMPTIONS
Financed Eligible Loans may be prepaid by the borrowers at any time. (For
this purpose the term "prepayments" includes prepayments in full or in part
(including pursuant to Consolidation Loans) and liquidations due to default
(including receipt of Guarantee payments).) In addition, under certain
circumstances, a Seller will be obligated to repurchase, or the Servicer will be
obligated to purchase, Financed Eligible Loans from the Trust Estate pursuant to
the respective Student Loan Purchase Agreement as a result of breaches of their
respective representations, warranties or covenants. Moreover, to the extent
borrowers of Financed Eligible Loans elect to borrow money through Consolidation
Loans with respect to such Financed Eligible Loans from a Seller or from another
lender, Registered Owners of the Notes will collectively receive as a prepayment
of principal the aggregate principal amount of such Financed Eligible Loans.
There can be no assurance that borrowers with respect to the Financed Eligible
Loans will not seek to obtain Consolidation Loans with respect to such Financed
Eligible Loans. See "Risk Factors--Changes in Legislation" herein.
Scheduled payments with respect to, and maturities of, the Financed
Eligible Loans may be extended, including pursuant to the applicable Deferral
Phase and certain other grace periods authorized by the Act ("Grace Periods")
and, under certain circumstances, periods of forbearance ("Forbearance Periods")
or as a result of refinancings through Consolidation Loans having longer
maturities, which may lengthen the remaining term of the Financed Eligible Loans
and the average life of each Class of Notes. Any reinvestment risks resulting
from a faster or slower incidence of prepayment of Financed Eligible Loans will
be borne entirely by the Registered Owners.
BASIS RISK
The interest rate with respect to the Notes of various Classes may
fluctuate from one interest period to another in response to changes in LIBOR or
any other established interest index (the "Index Rates") described in a
Prospectus Supplement. The Issuer can make no representation as to what the
Index Rates may be in the future. In addition, the Financed Eligible Loans bear
interest at the rates (the "Loan Rates") described in Appendix I hereto. To
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the extent that the Loan Rates decrease or do not increase as fast as the Index
Rates, the interest rates with respect to certain Senior Notes, Subordinate
Notes or Junior-Subordinate Notes may be limited to the weighted average rate
received on the Financed Eligible Loans or may be deferred to future periods.
Further, if there is a decline in the Loan Rates, the amount of funds
representing interest deposited into the Trust Estate may be reduced and, even
if there is a similar reduction in the variable Index Rates applicable to any
Series, there may not necessarily be a similar reduction in the other amounts
required to be funded out of such funds (such as certain administrative
expenses), causing such amounts to be deferred to future periods. There can be
no assurances given that sufficient funds will be available in future periods to
make up for any shortfalls in the current payments of Index Rates or expenses of
the Trust Estate.
CERTAIN LEGAL ASPECTS
Each Seller will intend that the transfers of Financed Eligible Loans by it
to the Issuer under the respective Student Loan Purchase Agreement constitute
valid sales and assignments of such Financed Eligible Loans. In the event of
insolvency of such Seller, however, its affairs, if a bank, might become subject
to Federal Deposit Insurance Corporation ("FDIC") receivership. In such case,
the FDIC, as a receiver, or a court could treat the transfer of the Financed
Eligible Loans to the Issuer as an assignment of collateral as security for the
benefit of the Issuer as a creditor of such Seller. If the transfer of the
Financed Eligible Loans to the Issuer is deemed to create a security interest
therein, a tax or government lien on property of such Seller arising before the
Financed Eligible Loans were transferred may have priority over the Issuer's
interest in such Financed Eligible Loans. If such Seller becomes subject to
receivership, to the extent that the transfer of the Financed Eligible Loans is
deemed to create a security interest, and that such interest was validly
perfected before such Seller's insolvency and was not taken in contemplation of
insolvency or with the intent to hinder, delay or defraud such Seller or its
creditors, such security interest should not be subject to avoidance and
payments to the Issuer or its assignees with respect to the Financed Eligible
Loans should not be subject to recovery by such Seller's creditors. The Issuer
has received an opinion of counsel, subject to the assumptions and limitations
set forth therein, that the provisions of the Indenture and the Custodial
Agreement and the actions required thereunder in connection with the acquisition
of Financed Eligible Loans are sufficient to create both a perfected security
interest in favor of the Trustee against any such Seller in the Financed
Eligible Loans, if the transfer of Financed Eligible Loans by such Seller to the
Issuer is considered as an assignment of collateral as security for an
obligation, which interest is prior to that of any creditor of such Seller, as
well as a perfected security interest in favor of the Trustee against the Issuer
in the Financed Eligible Loans, which interest is prior to that of any other
creditor of the Issuer. No assurance can be given, however, that delays in
receipt of funds with respect to the Financed Eligible Loans will not occur in
such circumstances. Moreover, no assurance can be given that the FDIC would not
seek to effect the release of the Financed Eligible Loans to it, as receiver, by
accelerating such Seller's "debt" and repaying the outstanding amount thereof.
See "Risk Factors--Reliance Upon Seller" and "--Perfection of Security Interest
in Financed Eligible Loans" herein.
With respect to a Seller that is not a bank or an insurance company, the
Issuer will structure the sale of the Financed Eligible Loans of such Seller to
the Issuer as a "true sale" for
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purposes of any voluntary or involuntary petition for relief under the United
States Bankruptcy Code or any similar applicable federal or state law of such
Seller (an "Insolvency Proceeding"), such that upon the occurrence of any such
Insolvency Proceeding, such Financed Eligible Loans would not be consolidated
into the bankruptcy estate of such Seller. No assurance can be given, however,
that such a consolidation would not occur. A court might, however, treat the
sale as an assignment of collateral with respect to the Financed Eligible Loans
as security for the benefit of the Noteholders. If such sale is deemed to
create a security interest in the Financed Eligible Loans, a tax or governmental
lien on property of such Seller arising before the Financed Eligible Loans came
into existence may have priority over the Trustee's interest in such loans. If
the Seller becomes subject to an Insolvency Proceeding, to the extent that the
transfer of the Financed Eligible Loans is deemed to create a security interest
and that interest was validly perfected before such Seller's insolvency or
bankruptcy and was not taken in contemplation of insolvency or bankruptcy or
with the intent to hinder, delay or defraud such Seller or its creditors, such
security interest should not be subject to avoidance, and payments to the
Trustee with respect to the Financed Eligible Loans should not be subject to
recovery by such Seller's creditors. No assurance can be given, however, that
delays in receipt of funds with respect to the Financed Eligible Loans of such
Seller will not occur in such circumstances. See "Risk Factors--Reliance Upon
Seller" and "--Perfection of Security Interest in Financed Eligible Loans"
herein.
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 state laws are, however,
to a large part, pre-empted by the Act.
BOOK-ENTRY REGISTRATION
Unless otherwise specified with respect to a Series in the related
Prospectus Supplement, it is expected that each Class of Notes of any Series
will be initially represented by one or more certificates registered in the name
of Cede & Co., the nominee for DTC, and will not be registered in the names of
the holders of such Notes or their nominees. Because of this, unless and until
definitive securities are issued, holders of such Notes will not be recognized
by the Trustee as "Registered Owners" (as such terms are used in the Indenture).
Hence, until definitive securities are issued, holders of such Series of Notes
will only be able to exercise the rights of Registered Owners indirectly through
DTC and its participating organizations. See "Book Entry Registration" herein.
REPURCHASE OF FINANCED ELIGIBLE LOANS
Upon the occurrence of a breach of representations and warranties with
respect to a Financed Eligible Loan, the respective Seller is obligated to
repurchase the related Financed Eligible Loan from the Issuer. If such Seller
were to become insolvent or otherwise be unable to repurchase such Financed
Eligible Loan, it is unlikely that a repurchase of such Financed Eligible Loan
from the Issuer would occur. The failure of such Seller to repurchase a
Financed
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Eligible Loan would constitute a breach of the respective Student Loan Purchase
Agreement, enforceable by the Trustee on behalf of the Registered Owners, but
would not constitute an Event of Default under the Indenture or permit the
exercise of remedies thereunder. See "Risk Factors--Reliance Upon Sellers,"
"Seller Representations and Warranties" and "The Issuer's Student Loan Purchase
Program" herein.
RATINGS OF THE NOTES
It is a condition to issuance of the Notes that they be rated as indicated
under the caption "Summary of the Offering--Ratings" in the related Prospectus
Supplement. Ratings are based primarily on the credit underlying the Financed
Eligible Loans, the level of subordination, the amount of credit enhancement and
the legal structure of the transaction. The ratings are not a recommendation to
purchase, hold or sell any Class of Notes inasmuch as such ratings do not
comment as to the market price or suitability for a particular investor. There
can be no assurance as to whether any additional rating agency will rate the
Notes, or if it does, that the rating that would be assigned by any such other
rating agency would be equivalent to the initial rating described in the related
Prospectus Supplement. There is no assurance that the ratings will remain for
any given period of time or that ratings will not be lowered or withdrawn by any
Rating Agency if in such Rating Agency's judgment circumstances so warrant.
DESCRIPTION OF THE NOTES
The Notes of each Series will be authenticated and delivered pursuant to
the Indenture and related Supplemental Indenture of Trust by and between the
Issuer and the Trustee. The form of the Indenture has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part or in such
other form as may be described in the applicable Prospectus Supplement.
The following summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, the provisions of the
Indenture. When particular provisions or terms used in the Indenture are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference.
GENERAL
The Class A Notes and the Prior Class A Notes are also designated as
"Senior Notes" under the Indenture, and the Senior Notes include any Additional
Notes secured on a parity with the Class A Notes and the Prior Class A Notes.
The Class B Notes and the Prior Class B Notes are also designated as
"Subordinate Notes" under the Indenture, and the Subordinate Notes include any
Additional Notes secured on a parity with the Class B Notes. Additional Notes,
designated as "Junior-Subordinate Notes," may be issued under the Indenture
which Junior-Subordinate Notes would be subordinate to the Class A Notes, the
Prior Class A Notes, the Class B Notes and the Prior Class B Notes.
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AUCTION RATE NOTES
The Auction Rate Notes will have a Stated Maturity as set forth in the
applicable Prospectus Supplement. Such Notes will be dated their Date of
Issuance and will bear interest from such date at the rate per annum specified
in the Prospectus Supplement through the first Auction Date for such Notes.
After the Initial Period for each Class of Auction Rate Notes, the Interest
Period will initially consist of a number of days (each, an "Auction Period"),
as set forth in the Auction Procedures described in Appendix III attached hereto
and in the applicable Prospectus Supplement. The interest rate for the Auction
Rate Notes will be reset at the Auction Rate with respect to such Auction Rate
Notes pursuant to the Auction Procedures (but in no event exceeding the Maximum
Rate per annum). Interest on the Auction Rate Notes will be payable on the
first Business Day following the expiration of each respective Interest Period
for such Notes. The date on which a Class of Auction Rate Notes is entitled to
receive a payment of interest is referred to as the "Interest Payment Date" for
such Class. Payments will be made to Registered Owners of the Auction Rate
Notes as of the date (the "Record Date") which is the Business Day next
preceding the respective Auction Date. Auction Rate Notes issued upon transfer,
exchange or other replacement shall bear interest from the most recent Interest
Payment Date to which interest has been paid, or if no interest has been paid,
from the Date of Issuance.
For each Interest Period with respect to the Auction Rate Notes, the
applicable provisions relating to the Auction Date and the Auction Rate will be
determined in accordance with the Auction provisions of the Indenture. See
"Appendix III--Certain Definitions and Provisions Related to the Auction Rate
Notes and Auction Procedures," "Appendix IV--Settlement Procedures" and
"Appendix VI--Form of Master Purchaser's Letter" attached hereto.
INDEX RATE NOTES
The LIBOR Rate Notes or any other Notes whose interest rate is determined
with respect to an established index (collectively, the "Index Rate Notes") will
be dated their Date of Issuance and will have a Stated Maturity set forth in the
applicable Prospectus Supplement. Certain capitalized terms used herein with
respect to the LIBOR-Based Rate are defined in "Appendix V--Certain Definitions
and Provisions Related to the LIBOR Rate Notes" hereto. Interest on the Index
Rate Notes shall accrue for each Interest Period and shall be payable in arrears
on each Interest Payment Date. An "Interest Period" with respect to the Index
Rate Notes, means the period commencing on the Date of Issuance of the Index
Rate Notes through and including the date specified in the related Prospectus
Supplement and each period thereafter beginning on the first day of each
calendar month and ending on the last day of such calendar month or, with
respect to Index Rate Notes payable quarterly, the period commencing on the Date
of Issuance of the Index Rate Notes through and including the date specified in
the related Prospectus Supplement and each quarterly period thereafter beginning
on the first day of a month and ending on the last day of the second following
month thereafter. Except as otherwise specified with respect to a Series in the
related prospectus Supplement, an "Interest Payment Date" for the Index Rate
Notes means the first day of each calendar month, commencing on the date
specified in the related Prospectus Supplement or, with respect to an Index Note
payable quarterly, on the quarterly dates set forth in the related Prospectus
Supplement, or if any such
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date is not a Business Day, the next succeeding Business Day (but only for
interest accrued through the last day of the calendar month next preceding such
Interest Payment Date).
The amount of interest payable to Registered Owners of Index Rate Notes in
respect of the principal amount thereof for any Interest Period or part thereof
shall be calculated by applying the Applicable Rate for such Interest Period or
part thereof to the principal amount multiplying such product by the actual
number of days in the Interest Period or part thereof concerned divided by 360,
and rounding the resultant figure to the nearest one cent. Interest on the
Index Rate Notes shall be computed by the Trustee on the basis of a 360-day year
for the number of days actually elapsed. In the event an Interest Payment Date
occurs with respect to any Interest Period on a date other than the first day of
the next Interest Period, the Trustee, after confirming the calculation required
above, shall calculate the portion of the Interest Amount payable on such
Interest Payment Date and the portion payable on the next succeeding Interest
Payment Date.
The rate of interest on the Index Rate Notes for each Interest Period shall
be determined by the Calculation Agent, with respect to LIBOR Rate Notes, on the
LIBOR Determination Date and shall be the LIBOR-Based Rate, and with respect to
other Index Rate Notes, as specified in the related Prospectus Supplement. If a
Payment Default occurs, the Applicable Rate with respect to the Index Rate Notes
will be the same rate per annum calculated as if no such Payment Default had
occurred. The rate per annum at which interest is payable on the Index Rate
Notes for any Interest Period is herein referred to as the "Applicable Rate."
The Applicable Rate cannot at any time exceed the Maximum Interest Rate. See
"Appendix V--Certain Definitions and Certain Provisions Related to the Index
Rate Notes" herein.
PRINCIPAL PAYMENTS OF THE NOTES
The principal of the Notes due at Stated Maturity or redemption in whole
will be payable at the principal office of the Trustee upon presentation and
surrender of the Notes. Payment of interest and principal paid subject to a
partial redemption on any Note will be made to the Registered Owner thereof by
check or draft mailed on the Interest Payment Date by the Trustee to the
Registered Owner at his address as it last appears on the registration books
kept by the Trustee at the close of business on the Record Date for such
interest payment date, but any such interest not so timely paid or duly provided
for shall cease to be payable to the Registered Owner thereof at the close of
business on the Record Date and shall be payable to the Registered Owner thereof
at the close of business on a special record date (a "Special Record Date") for
the payment of any such defaulted interest. Such Special Record Date shall be
fixed by the Trustee whenever moneys become available for payment of the
defaulted interest, and notice of such Special Record Date will be given to the
Registered Owners of the Notes not less than 10 days prior thereto by first-
class mail to each such Registered Owner as shown on the Trustee's registration
books on the date selected by the Trustee, stating the date of the Special
Record Date and the date fixed for the payment of such defaulted interest.
Notwithstanding the foregoing, payment of principal and interest to the
Securities Depository or its nominee will, and at the written request addressed
to the Trustee of any other Registered Owner owning at least
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$1,000,000 principal amount of the Notes, payments of principal and interest
shall, be paid by wire transfer within the United States to the bank account
number filed no later than the Record Date or Special Record Date with the
Trustee for such purpose. All payments on the Notes shall be made in lawful
money of the United States of America.
MANDATORY REDEMPTION
Unless otherwise specified with respect to a Series in the related
Prospectus Supplement, the Notes of such Series are subject to mandatory
redemption by the Issuer, in whole or in part, on any Interest Payment Date with
respect to such Notes being redeemed at a redemption price equal to the
principal amount thereof plus interest accrued, if any, to the date of
redemption thereof (i) from moneys remaining in the Note Redemption Fund
available therefor including moneys deposited therein from excess revenues in
the Revenue Fund and from payments made on the Financed Eligible Loans which
represent principal on or after the date specified in the related Prospectus
Supplement, and (ii) from moneys in the Note Redemption Fund available therefor,
(A) for the Class A Notes, on the Interest Payment Date next succeeding the date
specified in the related Prospectus Supplement and (B) for the Class B Notes, on
the next Interest Payment Date thereafter, to the extent that a balance exists
in the Loan Account designated with respect to a Series of the Student Loan
Fund, such anticipated excesses to be determined by estimate as of 30 days prior
to said Interest Payment Dates; provided, however, that if (a) 30 days prior to
said Interest Payment Dates, the Issuer files with the Trustee a certificate
that such balances may be invested at a rate of return until a subsequent
Interest Payment Date which, together with other available Revenues and cash
balances, will produce sufficient cash flows to permit the timely retirement of
the Notes, which cash flows shall not assume the refunding of the Notes of such
Series, and such conclusions are approved by each Rating Agency, and (b) the
Trustee shall have received an opinion of counsel to the effect that the failure
to so redeem the Notes of such Series would not cause such Notes to fail to be
characterized as indebtedness of the Issuer for federal income tax purposes,
then such call for redemption need not be made.
In addition, unless otherwise specified with respect to any Series, the
Class A Notes of such Series are subject to mandatory redemption, in part, from
moneys deposited in the Senior Note Redemption Account as described under clause
(j) under "Security and Sources of Payment for the Notes-- Revenue Fund" herein.
See "--Notice and Partial Redemption of Notes" below for a discussion of
the order in which Notes of any Series will be redeemed.
OPTIONAL REDEMPTION
Unless otherwise specified with respect a Series in the related Prospectus
Supplement, the Class A Notes of such Series are subject to redemption at the
option of the Issuer from any source of funds, in whole or in part, on any
Interest Payment Date at a redemption price equal to the principal amount of the
Class A Notes being redeemed, plus interest accrued, if any, to
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the date of redemption. See "--Notice and Partial Redemption of Notes" below
for a discussion of the order in which Notes of any Series will be redeemed.
SUBORDINATE NOTES MAY BE REDEEMED ONLY UNDER THE CIRCUMSTANCES DISCUSSED
HEREIN, IN THE RELATED PROSPECTUS SUPPLEMENT AND IN ACCORDANCE WITH THE
PROVISIONS OF THE INDENTURE.
EXTRAORDINARY OPTIONAL REDEMPTION
Unless otherwise specified with respect to a Series in the related
Prospectus Supplement, the Notes of such Series are also subject to
extraordinary optional redemption at a redemption price equal to the principal
amount of the Notes being redeemed, plus accrued interest to the date of
redemption, without premium, in whole or in part on any Interest Payment Date,
if the Issuer reasonably determines that it is unable to acquire Financed
Eligible Loans, that the rate of return on Financed Eligible Loans has
materially decreased, or that the costs of administering the Trust Estate have
placed unreasonable burdens upon the ability of the Issuer to perform its
obligations under the Indenture and delivers a Cash Flow Certificate to the
Trustee. See "--Notice and Partial Redemption of Notes" below for a discussion
of the order in which such Notes will be redeemed.
OPTIONAL PURCHASE
Unless otherwise specified with respect to a Series in the related
Prospectus Supplement, the Issuer may purchase or cause to be purchased all of
the Notes of such Series on any Interest Payment Date on which the aggregate
current principal balance of the Notes shall be less than or equal to 10% of the
initial aggregate principal balance of the Notes on their respective Date of
Issuance, at a purchase price equal to the aggregate current principal balance
of such Notes, plus accrued interest on the Notes through the day preceding the
Interest Payment Date on which the purchase occurs. The amount deposited by the
Issuer pursuant to this paragraph shall be paid to the Registered Owners on the
related Interest Payment Date following the date of such deposit. All Notes
which are purchased pursuant to this paragraph shall be delivered by the Issuer
upon such purchase to, and be canceled by, the Trustee and be disposed of in a
manner satisfactory to the Trustee and the Issuer.
NOTICE AND PARTIAL REDEMPTION OF NOTES
The Trustee shall cause notice of any redemption or purchase to be given by
mailing a copy of the redemption or purchase notice to the Registered Owner of
any Note being redeemed or purchased, and to the Auction Agent with respect to
the Auction Rate Notes, designated for redemption or purchase in whole or in
part, at their address as the same shall last appear upon the registration
books, in each case not less than 15 days, with respect to the Auction Rate
Notes, and 15 days, with respect to Index Rate Notes, prior to the redemption or
purchase date; provided, however, that failure to give such notice, or any
defect therein, shall not affect the validity of any proceedings for the
redemption or purchase of such Notes for which no such failure or defect occurs.
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If less than all of the Notes of any Series are to be redeemed or
purchased pursuant to a mandatory redemption, an optional redemption or an
optional purchase, the Notes of each Class of such Series to be redeemed or
purchased shall be redeemed or purchased from such Class as directed in an
Issuer Order; provided, however, that the Class B Notes may only be redeemed
prior to the Class A Notes and the Prior Class A Notes and the Prior Class B
Notes may only be redeemed prior to the Class A Notes, as described in the
following sentence. NOTWITHSTANDING THE FOREGOING, CLASS B NOTES OF A SERIES
MAY BE REDEEMED PRIOR TO ANY CLASS OR SUBCLASS OF THE NOTES OF ANY OTHER
SERIES AS SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT. EXCEPT AS
OTHERWISE SPECIFIED WITH RESPECT TO A SERIES, THE ISSUER, PURSUANT TO AN
ISSUER ORDER, MAY DESIGNATE THAT A SPECIFIED AMOUNT OF MONEYS OR INVESTMENTS
TO BE TRANSFERRED TO THE NOTE REDEMPTION FUND PURSUANT TO THE TERMS AND
PROVISIONS OF THE INDENTURE BE DEPOSITED TO THE JUNIOR-SUBORDINATE NOTE
REDEMPTION ACCOUNT OF THE NOTE REDEMPTION FUND IF AFTER THE REDEMPTION OF
JUNIOR-SUBORDINATE NOTES FROM THE MONEYS AND INVESTMENTS TRANSFERRED TO THE
JUNIOR-SUBORDINATE ACCOUNT OF THE NOTE REDEMPTION FUND AND THE REDEMPTION OF
SENIOR NOTES AND SUBORDINATE NOTES, IF ANY, FROM THE MONEYS AND INVESTMENTS
TRANSFERRED TO THE SENIOR NOTE REDEMPTION ACCOUNT AND THE SUBORDINATE NOTE
REDEMPTION ACCOUNT OF THE NOTE REDEMPTION FUND, THE AGGREGATE MARKET VALUE OF
THE TRUST ESTATE WILL EQUAL AT LEAST 110% OF THE AGGREGATE PRINCIPAL AMOUNT
OF ALL SENIOR NOTES OUTSTANDING AND AT LEAST 102% OF THE AGGREGATE PRINCIPAL
AMOUNT OF ALL SENIOR AND SUBORDINATE NOTES OUTSTANDING. See "Security and
Sources of Payment for the Notes--Note Redemption Fund" herein. Additional
Notes to be redeemed in part shall be redeemed in accordance with the
provisions of the Supplemental Indenture authorizing the issuance and
delivery of such Additional Notes.
ACCELERATED MATURITY OF NOTES
If an Event of Default shall have occurred and be continuing, the Trustee
may declare, or upon the written direction (a) by the Registered Owners of at
least 51% of the collective aggregate principal amount of the Outstanding Senior
Notes and each Swap Counterparty secured on a parity with the Senior Notes, if
required by the related Swap Agreement (or if no Senior Notes or Swap Agreements
secured on a parity with the Senior Notes are Outstanding under the Indenture,
then upon the written direction of the Registered Owners of at least 51% of the
collective aggregate principal amount of the Outstanding Subordinate Notes, and
each Swap Counterparty secured on a parity with the Subordinate Notes, if
required by the related Swap Agreement) (or if no Senior Notes or Swap
Agreements secured on a parity with the Senior Notes or Subordinate Notes or
Swap Agreements secured on a parity with the Senior Notes or Subordinate Notes
or Swap Agreements secured on a parity with the Subordinate Notes are
Outstanding hereunder, then upon the written direction of the Registered Owners
of at least 51% of the collective aggregate principal amount of the Outstanding
Junior-Subordinate Notes, and each Swap Counterparty secured on a parity with
the Junior-Subordinate Notes, if required by the related Swap Agreement), shall
declare, the principal of all Notes issued under the Indenture, or any
supplement thereto, and then Outstanding, and the interest thereon, if not
previously due, immediately due and payable, anything in the Notes or in the
Indenture to the contrary notwithstanding; provided, however, that a declaration
of acceleration upon a default described in subsection (g) of "Appendix II--
Glossary of Certain Terms and Summary of Certain Provisions of the Indenture--
Events of Default" attached hereto shall require the consent of
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100% of the Registered Owners of the collective aggregate principal amount of
the appropriate Series of Notes and Swap Agreements, as described above.
BOOK ENTRY REGISTRATION
DTC, located in New York, New York, is to act as Securities Depository for
the book entry Notes of any Series. Unless otherwise specified with respect to
a Series, the Notes of each Series are to be issued as fully registered
securities registered in the name of Cede & Co. (DTC's partnership nominee).
One fully registered bond certificate is to be issued for each Class of the
Notes or any Series, as set forth in the cover page hereof, each in the
aggregate principal amount of such Class, and is to be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act. DTC holds securities that its participants ("Participants") deposit with
DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges in deposited securities, through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a number
of its direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
Purchases of the Notes under the DTC system must be made by or through
Direct Participants, which are to receive a credit for the Notes on DTC's
records. The ownership interest of each actual purchaser of each Series of
Notes ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners shall not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Notes are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners shall not
receive certificates representing their ownership interests in the Notes, except
in the event that use of the book-entry system for the Series of any Notes is
discontinued.
To facilitate subsequent transfers, all Notes deposited by Participants
with DTC are registered in the name of DTC's partnership nominee, Cede & Co.
The deposit of such Notes with DTC and their registration in the name of Cede &
Co. effect no change in beneficial ownership. DTC has no knowledge of the
actual Beneficial Owners of Notes; DTC's records
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reflect only the identity of the Direct Participants to whose accounts such
Notes are credited, which may or may not be the Beneficial Owners. The
Participants remain responsible for keeping account of their holdings on behalf
of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners are governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of a Class
of the Notes of any Series are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such Class to be
redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the Notes
of any Series. Under its usual procedures, DTC mails an omnibus proxy to the
Issuer or Trustee, as appropriate, as soon as possible after the record date.
The omnibus proxy assigns Cede & Co.'s consenting or voting rights to those
Direct Participants to whose accounts the Notes are credited on the record date
(identified in a listing attached to the omnibus proxy).
Principal and interest payments on the Notes are to be made to DTC.
Payments by Participants to Beneficial Owners are governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name," and
shall be the responsibility of such Participant and not of DTC, the Trustee or
the Issuer, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal and interest to DTC is the
responsibility of the Issuer or the Trustee, disbursement of such payments to
Direct Participants shall be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners shall be the responsibility of Direct and
Indirect Participants.
DTC may discontinue providing its services as Securities Depository with
respect to the Notes of any Series at any time by giving reasonable notice to
the Issuer or the Trustee. Under such circumstances, in the event that a
successor securities depository is not obtained, note certificates are required
to be printed and delivered.
The Issuer may decide to discontinue use of the system of book entry
transfers through DTC (or a successor securities depository). In that event,
note certificates are to be printed and delivered.
ADDITIONAL NOTES
The Issuer may, upon complying with the provisions of the Indenture,
authenticate and deliver from time to time Additional Notes with respect to a
Series secured by the Trust Estate on a parity with or subordinate to either the
Senior Notes, the Subordinate Notes or the Junior-Subordinate Notes secured
under the Indenture as shall be determined by the Issuer. In addition,
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the Issuer may enter into any Swap Agreements it deems necessary or desirable
with respect to any or all of such Additional Notes.
No Additional Notes shall be authenticated and delivered pursuant to the
Indenture until the following conditions have been satisfied:
(a) The Issuer and the Trustee have entered into a Supplemental
Indenture (which Supplemental Indenture will not require the approval of
the Registered Owners of any of the Outstanding Notes) providing the terms
and forms of the Additional Notes, including the designation of such
Additional Notes as Senior Notes, Subordinate Notes or Junior-Subordinate
Notes, the redemption provisions applicable to such Additional Notes and
the selection provisions applicable to such Additional Notes in the case of
partial redemptions not inconsistent with the Indenture, and which adopts
the applicable provisions of the Indenture.
(b) The Issuer has delivered to the Trustee within 30 days prior to
the delivery of the proposed Additional Notes a Cash Flow Certificate
which, taking into account the then-existing Trust Estate as well as the
Trust Estate after giving effect to the issuance of the proposed Additional
Notes, shows, with respect to the period covered by the Cash Flow
Certificate, which period shall extend from the date of the Cash Flow
Certificate to the latest maturity of the Notes expected to be Outstanding
after the issuance of the proposed Additional Notes, (i) all Revenue
expected to be received during such period from the Trust Estate, (ii) the
application of all such Revenue in accordance with the provisions of the
Indenture and (iii) the resulting periodic balances on each Interest
Payment Date, and shows that anticipated revenue will exceed, by a margin
of $250,000 plus any additional amount, if any, required by any
Supplemental Indenture, the amount necessary to pay the principal of and
interest on the Notes, including the proposed Additional Notes, when due
and all expenses payable under the Indenture when due, under all scenarios
included in the Cash Flows.
(c) Written evidence from each Rating Agency which has assigned a
Rating or Ratings to any Series of Notes that such Rating or Ratings will
not be reduced or withdrawn as a result of the issuance of the proposed
Additional Notes; provided however, that if any of the Notes are not then
rated by any Rating Agency, such Additional Notes may not be secured on a
parity with such unrated Notes.
(d) An opinion of Note Counsel to the effect that all of the
foregoing conditions to the issuance of the proposed Additional Notes have
been satisfied.
(e) Upon the issuance of the Additional Notes, an amount shall be
deposited to the Reserve Fund to increase the amount on deposit therein to
equal the Reserve Fund Requirement.
(f) The Trustee shall have received an opinion of Note Counsel in
form and substance acceptable to it to the effect that the issuance of the
Additional Notes, if
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consummated, would not cause the Notes to fail to be characterized as the
indebtedness of the Issuer for federal income tax purposes.
Any Additional Notes shall have Stated Maturities of July 1 of any
year or years.
The Trustee is authorized pursuant to the provisions of the Indenture
to establish any additional Funds or Accounts under the Indenture which it
deems necessary or convenient in connection with the issuance and delivery
of any Additional Notes of any Series.
SELLER REPRESENTATIONS AND WARRANTIES
THE SELLERS
Union Bank and Trust Company, a Nebraska state bank ("Union Bank" or the
"Seller"), has, subject to the terms and conditions of one or more Student Loan
Purchase Agreements, sold Eligible Loans to the Issuer having an aggregate
principal balance of $_______________ on or prior to the date hereof in
connection with the Private Notes. Except as otherwise specified in the related
Prospectus Supplement, it is expected that Union Bank also will sell additional
Eligible Loans to the Issuer in connection with the issuance of the Offered
Notes. Any such seller which is not Union Bank will be an Eligible Lender which
has been approved by each Rating Agency then rating any Notes Outstanding, which
other Eligible Lenders will be specified with respect to a Series in the related
Prospectus Supplement. Union Bank and any such other seller is referred to in
such capacity herein as a "Seller" and collectively, as the "Sellers."
Each Eligible Loan will be purchased by the Issuer at the respective
Purchase Price and will simultaneously be pledged to the Trustee to secure
payment of the Notes. Certain information with respect to the Financed Eligible
Loans expected to be included in the Portfolio as of the Date of Issuance with
respect to any Series will be included in the related Prospectus Supplement in
"Annex A--Description of the Student Loan Portfolio" attached to such Prospectus
Supplement.
REPRESENTATIONS AND WARRANTIES--
PORTFOLIO CHARACTERISTICS
Except as otherwise specified with respect to a Series in the related
Prospectus Supplement, each Seller will make the following representations and
warranties in the respective Student Loan Purchase Agreement on the date that
the Eligible Loans are to be sold to the Issuer (the "Scheduled Sale Date") and
each subsequent date of acquisition as to each Portfolio, as of the applicable
Cutoff Date, together with the Portfolios previously added to the Financed
Eligible Loans Portfolio, as of the applicable Cutoff Dates:
The Portfolios of Eligible Loans sold by each Seller to the Issuer
under the respective Student Loan Purchase Agreement shall have the
following characteristics: (i) the Eligible Loans shall, in the aggregate,
have an average borrower indebtedness
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("ABI") of at least $3,500.00; (ii) no more than 30% of the aggregate
principal balance of all of the Eligible Loans as of the date of sale may
be attributable to Eligible Loans the proceeds of which funded tuition to
private Eligible Institutions offering only non-baccalaureate degrees;
(iii) at least 70% of the aggregate principal balance of all of the
Eligible Loans as of the date of sale shall be attributable to Federal
Stafford Loans which qualify for Interest Benefit Payments, PLUS Loans, SLS
Loans or Consolidation Loans; (iv) no more than 30% of the aggregate
principal balance of all of the Eligible Loans as of the date of sale may
be attributable to Unsubsidized Stafford Loans, and (v) no more than 10% of
the aggregate principal balance of all of the Eligible Loans as of the date
of sale may be attributable to Consolidation Loans, unless otherwise agreed
by such Seller and the Issuer. An individual Portfolio of Eligible Loans
sold pursuant to a Student Loan Purchase Agreement may not have the
characteristics described in the preceding sentence if, immediately after
the consummation of the purchase of such Portfolio of Eligible Loans, the
aggregate of all Eligible Loans sold to the Issuer pursuant to such Student
Loan Purchase Agreement shall have such characteristics. If the Issuer
does not object to the characteristics of any Portfolio of Eligible Loans
sold pursuant to the Student Loan Purchase Agreement within 30 days of such
sale, the Issuer shall be deemed to have waived any objection to the
characteristics of such Portfolio.
In addition, Union Bank, as a Seller, has the right to repurchase Financed
Eligible Loans if the Issuer elects to remove any Financed Eligible Loans
purchased by it from such Seller pursuant to its respective Student Loan
Purchase Agreements from the servicing system of UNIPAC for any reason (other
than the sale of an Eligible Loan for purposes of serialization).
REPRESENTATIONS AND WARRANTIES--ELIGIBLE LOANS
Unless otherwise specified with respect to any Series in the related
Prospectus Supplement, each Seller will make the following representations,
warranties and covenants with respect to the Eligible Loans sold pursuant to its
respective Student Loan Purchase Agreement:
(a) ACCURACY OF INFORMATION. Any information furnished by such
Seller to the Issuer or its agents with respect to any Eligible Loan is
true, complete and correct.
(b) VALIDITY OF LOANS. Each Eligible Loan has been duly executed and
delivered and constitutes the legal, valid and binding obligation of the
maker (and the endorser, if any) thereof, enforceable in accordance with
its terms.
(c) NO DEFENSES AGAINST REPAYMENT OF LOANS. The amount of the unpaid
principal balance of each Eligible Loan is true and owing, and no
counterclaim, offset, defense or right to rescission exists with respect to
any Eligible Loan which can be asserted and maintained or which, with
notice, lapse of time, or the occurrence or failure to occur of any act or
event, could be asserted and maintained by the borrower against the Trustee
as assignee thereof. The rate of interest carried by each Eligible Loan is
the maximum which was allowable by law at the time the loan was made, and
no such
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Eligible Loan carries a rate of interest in excess of that permitted by the
provisions of the Act.
(d) OWNERSHIP AND LOCATION OF LOANS: EXISTENCE OF LIENS. Such Seller
is the sole owner and holder of each Eligible Loan and has full right and
authority to sell and assign the same free and clear of all liens, pledges
or encumbrances, and upon the endorsement and delivery of promissory notes
evidencing such Eligible Loan to the Issuer pursuant to the respective
Student Loan Purchase Agreement, the Issuer will acquire full right, title
and interest in the Eligible Loan free and clear of all liens, pledges or
encumbrances whatsoever. All documentation relating to the Eligible Loans,
including the original promissory note for each Eligible Loan, is in the
possession of UNIPAC or other designated custodian.
(e) GUARANTEE AND INSURANCE ON LOANS. Each Eligible Loan to be sold
under the Student Loan Purchase Agreement is either Insured or Guaranteed.
With respect to all Insured Loans being acquired, a Contract of Insurance
is in full force and effect with respect thereto, the applicable
Certificates of Insurance are valid and binding upon the parties thereto in
all respects, such Seller is not in default in the performance of any of
its covenants and agreements made in respect thereof, and such Insurance is
freely transferable as an incident to the sale of each Eligible Loan to be
sold. With respect to all Guaranteed Loans being acquired, a Guarantee
Agreement is in full force and effect with respect thereto and is valid and
binding upon the parties thereto in all material respects, such Seller is
not in default in the performance of any of its covenants and agreements
made in such Guarantee Agreement, and such Guarantee is freely transferable
as an incident to the sale of each Eligible Loan to be sold. All amounts
due and payable to the Secretary or the Guarantee Agency, as the case may
be, have been paid in full by such Seller, and none of the Eligible Loans
to be sold to the Issuer has at any time been tendered to either the
Secretary or the Guarantee Agency for payment.
(f) COMPLIANCE WITH HIGHER EDUCATION ACT. Each Eligible Loan
complies in all respects with the requirements of the Higher Education Act
and is an Eligible Loan as those terms are defined in the Student Loan
Purchase Agreement.
(g) COMPLIANCE WITH FEDERAL LAWS. Each Eligible Loan was made in
compliance with all applicable local, state and federal laws, rules and
regulations, including without limitation all applicable nondiscrimination,
truth-in-lending, consumer credit and usury laws.
(h) NO DISCRIMINATION. In making each Eligible Loan to be purchased
by the Issuer pursuant to its respective Student Loan Purchase Agreement,
such Seller has not discriminated based upon the educational institutions
attended by, or the age, sex, race, national origin, color, religion,
handicapped status, income, attendance at a particular eligible
institution, length of the Student Borrower's educational program, or the
Student Borrower's academic year in school.
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(i) SERIAL LOANS. The Eligible Loans to be purchased pursuant to the
respective Student Loan Purchase Agreement include all Eligible Loans of
any one borrower held by such Seller.
(j) DUE DILIGENCE IN SERVICING LOANS. Such Seller and any
independent servicer have each exercised and shall continue until the
Scheduled Sale Date to exercise due diligence and reasonable care in
making, administering, servicing and collecting the Eligible Loans and such
Seller has conducted a reasonable investigation of sufficient scope and
content to enable it duly to make the representations and warranties
contained in the respective Student Loan Purchase Agreement. Such Seller
has paid the costs and expenses incident to origination of the Eligible
Loans, and has no right of reimbursement therefor from the Issuer.
(k) ORIGINATION FEES. Such Seller has reported the amount of
origination fees (if any) authorized to be collected with respect to any
Eligible Loan pursuant to Section 438(c) of the Act to the Secretary for
the period in which such fee was authorized to be collected; and such
Seller has made any refund of an origination fee collected in connection
with any Eligible Loan which may be required pursuant to the Act.
(l) INSURANCE PREMIUM. For each such Seller has reported the amount
of the insurance premium authorized to be collected, and has paid said
premium to the Guarantee Agency or the Secretary with all rights therein
inuring to the Issuer.
(m) SCHEDULE OF STUDENT LOANS. The information set forth in each
Schedule of Student Loans is true and correct in all material respects as
of the opening of business on the respective Scheduled Sale Date, and no
selection procedures believed to be adverse to the Issuer have been
utilized in selecting the Student Loans for inclusion therein.
(n) TITLE. It is the intention of such Seller that the transfers and
assignments from such Seller to the Issuer contemplated in the respective
Student Loan Purchase Agreement constitute a true sale of the Student Loans
to the Issuer and that neither the interest in nor title to the Eligible
Loans shall become or be deemed property of such Seller's estate in the
event of the filing of a bankruptcy or insolvency petition by or against
such Seller under any bankruptcy or insolvency law.
(o) DOCUMENTS. Such Seller shall furnish and file, if appropriate,
any document reasonably requested by the Issuer to perfect the Issuer's
ownership interest in the Eligible Loans.
(p) NO FRAUDULENT CONVEYANCE. The transactions contemplated by the
respective Student Loan Purchase Agreement are and will be in the ordinary
course of such Seller's business and such Seller has valid business reasons
for transferring the Eligible Loans rather than obtaining a secured loan
with the Eligible Loans as collateral. Both before and immediately after
giving effect to any transfer: (i) such Seller transferred
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or will transfer the Eligible Loans to the Issuer without any intent to
hinder, delay or defraud any current or future creditor of such Seller;
(ii) such Seller was not or will not be insolvent or did not or will not
become insolvent as a result of any transfer; (iii) such Seller was not
engaged and was not about the engage, and will not engage, in any business
or transaction for which any property remaining with such Seller was or
will constitute unreasonably small capital in relation to the business of
such Seller or the transaction; and (iv) such Seller did not intend or will
not intend to incur, and did not believe or reasonably should not have
believed, or will not believe or reasonably shall not have believed, that
it would incur, debts beyond its ability to pay as they become due.
(q) SALES NOT SUBJECT TO BULK TRANSFER. Each sale, transfer,
assignment and conveyance of the Eligible Loans by such Seller pursuant to
its respective Student Loan Purchase Agreement is not subject to the bulk
transfer or any similar statutory provisions in effect in any applicable
jurisdiction.
(r) NO TRANSFER TAXES DUE. Each sale, transfer, assignment and
conveyance of the Eligible Loans (including all payments due or to become
due thereunder) by such Seller pursuant to its respective Student Loan
Purchase Agreement is not subject to and will not result in any tax, fee or
governmental charge payable by the Issuer or such Seller to any federal,
state or local government ("Transfer Taxes") except such Transfer Taxes as
are paid by such Seller at the time of transfer, assignment and conveyance
and except UCC filing fees. In the event that the Issuer receives actual
notice of any unpaid Transfer Taxes arising out of the transfer, assignment
and conveyance of the Eligible Loans, on written demand by the Issuer, or
upon such Seller otherwise being given notice thereof, it shall pay, and
otherwise indemnify and hold the Issuer and the Trustee harmless therefor.
Such Seller shall not be responsible for the Issuer's or the Trustee's
income taxes.
REPURCHASE OBLIGATION OF SELLER
At the request of the Issuer or the Trustee, each Seller shall repurchase
any Eligible Loan purchased by the Issuer from such Seller pursuant to its
respective Student Loan Purchase Agreement if:
(a) any representation or warranty made or furnished by such Seller
in or pursuant to its respective Student Loan Purchase Agreement shall
prove to have been materially incorrect as to such Eligible Loan;
(b) the Secretary or a Guarantee Agency, as the case may be, refuses
to honor all or part of a claim filed with respect to an Eligible Loan
(including any claim for interest subsidy, Special Allowance Payments,
insurance, reinsurance or Guarantee payments) on account of any
circumstance or event that occurred prior to the sale of such Eligible Loan
to the Issuer; or
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(c) on account of any wrongful or negligent act or omission of such
Seller or its servicing agent that occurred prior to the sale of an
Eligible Loan to the Issuer, a defense that make the Eligible Loan
unenforceable is asserted by a maker (or endorser, if any) of the Eligible
Loan with respect to his or her obligation to pay all or any part of the
Eligible Loan.
Upon the occurrence of any of the conditions set forth above and upon the
request of the Issuer or the Trustee, the respective Seller shall pay to the
Trustee, for deposit into the Student Loan Holding Fund Account, an amount equal
to 101.85% (or such other percentage as may be specified with respect to a
Series in the related Prospectus Supplement) of the then-outstanding principal
balance of such Eligible Loan, plus interest and Special Allowance Payments
accrued and unpaid with respect to such Eligible Loan from the Scheduled Sale
Date to and including the date of repurchase, plus any attorneys' fees, legal
expenses, court costs, servicing fees or other expenses incurred by the Issuer,
the Trustee or the appropriate successors or assigns in connection with such
Eligible Loans and arising out of the reasons for the repurchase. The foregoing
repurchase obligation of such Seller shall constitute the sole remedy to the
Issuer against such Seller with respect to any event described above. With
respect to any Eligible Loan repurchased by such Seller pursuant to the
respective Student Loan Purchase Agreement, the Issuer shall assign, without
recourse, representation or warranty, to such Seller all of the Issuer's right,
title and interest in and to such Eligible Loan, and all security and documents
relating thereto.
SECURITY AND SOURCES OF PAYMENT FOR THE NOTES
GENERAL
The Notes are limited obligations of the Issuer secured by and payable
solely from Revenues and other assets pledged under the Indenture for the
payment of the principal of and interest on the Notes (referred to in the
Indenture as the "Trust Estate"). Subject to the provisions of the Indenture
permitting the application of such assets and except as otherwise specified with
respect to a Series in the related Prospectus Supplement, the following assets
serve as security for the Notes: (a) the Revenues (defined in the Indenture as
all principal payments, proceeds, charges and other income received by the
Trustee or the Issuer on account of any Financed Eligible Loan (including, but
not limited to, scheduled, delinquent and advance payments of and any insurance
proceeds with respect to, interest, including Interest Benefit Payments, on
Financed Eligible Loans and any Special Allowance Payments received by the
Issuer or the Trustee with respect to any Financed Eligible Loan) and investment
income from all Funds and Accounts, and any proceeds from the sale of other
disposition of such Financed Eligible Loans), (b) all moneys and investments
held in the Funds, excluding the Operating Fund, the General Fund and the Cost
of Issuance Fund, and (c) Financed Eligible Loans purchased with money from the
Student Loan Fund or otherwise acquired or originated and pledged or credited to
the Student Loan Fund. In addition, the Trust Estate with respect to any Series
may also consist of certain rights regarding credit enhancement as described in
the related Prospectus Supplement.
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FUNDS AND ACCOUNTS AND FLOW OF REVENUES
There are created and established by the Indenture the following Funds to
be held and maintained by the Trustee for the benefit of the Registered Owners
and any Swap Counterparty:
(a) Student Loan Fund, including a Loan Account designated with
respect to a Series, a Note Account designated with respect to a Series,
and a Recycling Account designated with respect to a Series,
(b) Revenue Fund,
(c) Reserve Fund,
(d) Interest Fund, including a Senior Interest Account, a Subordinate
Interest Account and a Junior-Subordinate Interest Account therein,
(e) Note Redemption Fund, including a Senior Note Redemption Account,
a Subordinate Note Redemption Account and a Junior-Subordinate Note
Redemption Account therein, and
(f) Student Loan Holding Fund.
There is created and established by the Indenture the Cost of Issuance Fund
to be held and maintained by the Trustee in which neither the Issuer (except as
described under "--Cost of Issuance Fund" below), the Registered Owners and any
Swap Counterparty has any right, title or interest.
The following funds have previously been established by the Issuer, do not
constitute Funds within the meaning of the Indenture, and are held by a
depository bank of the Issuer for the benefit of the Issuer and neither the
Trustee, the Registered Owners nor any Swap Counterparty shall any right, title
or interest therein: (a) the Operating Fund; and (b) the General Fund.
The Trustee is authorized for the purpose of facilitating the
administration of the Trust Estate and for the administration of any Additional
Notes issued under the Indenture to create Accounts or subaccounts in any of the
various Funds and Accounts established under the Indenture which are deemed
necessary or desirable; provided, however, that the obligation of the Issuer to
provide such Funds and Accounts is not altered or amended.
STUDENT LOAN FUND
On the Date of Issuance with respect to any Series of Notes, there will be
deposited to the Loan Account designated with respect to a Series of the Student
Loan Fund the amount specified in the related Prospectus Supplement. In
addition, there shall be deposited from time to time into the Recycling Account
designated with respect to a Series of the Student Loan Fund,
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moneys transferred thereto from the Student Loan Holding Fund. Moneys
transferred to the Loan Account designated with respect to a Series of the
Student Loan Fund or to the Recycling Account designated with respect to a
Series of the Student Loan Fund shall be used solely to acquire Eligible Loans.
Financed Eligible Loans acquired with moneys contained in the Loan Account
designated with respect to a Series or the Recycling Account designated with
respect to a Series shall be held by the Trustee or its agent or bailee
(including the Servicer) and pledged to and accounted for as part of the Note
Account designated with respect to a Series of the Student Loan Fund.
So long as no Event of Default has occurred and is continuing, moneys held
in the Recycling Account designated with respect to a Series of the Student Loan
Fund may be used, subject to satisfying certain conditions set forth in the
Indenture, to acquire Eligible Loans, in their respective order of receipt, for
a period of up to one year from the date of deposit therein. In connection with
the purchase of any Eligible Loans, the Trustee will release to the respective
Seller the aggregate Purchase Price for such Eligible Loans. If on any Transfer
Date moneys have remained in the Recycling Account designated with respect to a
Series of the Student Loan Fund for more than one year, said moneys shall be
immediately transferred to the Note Redemption Fund unless: (i) the Aggregate
Market Value of the Trust Estate is greater than the aggregate principal amount
of Notes Outstanding, or (ii) the Aggregate Market Value of the Trust Estate is
less than the aggregate principal amount of Notes Outstanding and the Issuer
prepares a Cash Flow Certificate and the Trustee shall receive an opinion of
Note Counsel to the effect that the failure to redeem Notes of such Series would
not cause such Notes to fail to be characterized as debt for federal income tax
purposes, in which case said moneys shall remain in the Recycling Account
designated with respect to a Series of the Student Loan Fund for a period of up
to one additional year. If such Cash Flow Certificate is not delivered to the
Trustee, said moneys in the Recycling Account designated with respect to a
Series of the Student Loan Fund shall be immediately transferred to the Note
Redemption Fund.
No Eligible Loan shall be acquired, after the Date of Issuance with respect
to any Series, if, Congress has, in the judgment of the Issuer, materially
adversely changed any of the following characteristics of Eligible Loans: (A)
the Special Allowance Payments, (B) the loan interest yield formula, (C) the
guaranty obligation of the Guarantee Agency, (D) the federal interest subsidies,
or (E) federal reinsurance of Eligible Loans, or makes any other economic change
in such loans, which, in each instance, would have a materially adverse effect
on the return to the holder of such loans. The Trustee shall be entitled to
rely upon the certification of an Authorized Officer of the Issuer as to the
compliance with the provisions of this paragraph in connection with the
origination and acquisition of Eligible Loans.
Notwithstanding the foregoing and unless specified with respect to a Series
in the related Prospectus Supplement, if on the first Business Day preceding any
Interest Payment Date or Transfer Date there are not sufficient moneys on
deposit in the Revenue Fund to make the transfers described under "--Reserve
Fund" below, other than clauses (k) through (l) under "--Revenue Fund" below,
then, but only after required transfers from the Note Redemption Fund, the
Student Loan Holding Fund and the Reserve Fund, such transfers shall be made by
the Trustee upon Issuer Order, in an amount equal to any such deficiency,
directly from the
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Loan Account designated with respect to each Series of the Student Loan Fund,
then from the Recycling Account designated with respect to a Series of the
Student Loan Fund and then from the proceeds from the sale of Financed Eligible
Loans in the Note Account designated with respect to each Series of the Student
Loan Fund.
Notwithstanding anything in the Indenture to the contrary, on the Business
Day next preceding the date specified in the related Series Supplement, the
Trustee shall transfer to the Note Redemption Fund, moneys in the Loan Account
designated with respect to a Series of the Student Loan Fund specified in
"Description of the Notes--Mandatory Redemption" herein.
The Trustee shall, upon Issuer Order, transfer or liquidate Financed
Eligible Loans and credit the same to the General Fund of the Issuer, but only
to the extent that the conditions set forth under "--General Fund" below shall
have been satisfied.
Unless otherwise specified with respect to a Series in the related
Prospectus Supplement, on the date specified in the related Prospectus
Supplement, all moneys and investments remaining in the Recycling Account
designated with respect to each Series of the Student Loan Fund shall be
transferred to the Note Redemption Fund.
REVENUE FUND
The Trustee shall deposit into the Revenue Fund (a) all amounts required to
be transferred to the Revenue Fund from the Student Loan Holding Fund, (b) all
amounts deposited on the Date of Issuance, (c) all Counterparty Swap Payments
and (d) any other amounts deposited thereto upon Issuer Order.
Upon Issuer Order directing the same, moneys in the Revenue Fund shall be
used, on any date, to pay fees and expenses of the Servicer and Subservicer when
due under the Servicing or the Subservicing Agreement, as the case may be,
insofar as the same relate to the Financed Eligible Loans, to pay Trustee fees
and expenses incurred under the Indenture and the Custodian Agreement, to pay
Auction Agent fees and expenses incurred under the Auction Agent Agreement, to
pay Broker-Dealer fees and expenses incurred under any Broker-Dealer Agreement,
to pay the Calculation Agent fees and expenses incurred under the Indenture, to
pay fees and expenses of the Rating Agencies incurred under the Indenture, and
other fees, taxes, including taxes related to the Issuer's income, and expenses
with respect to the Trust Estate but not included as Maintenance and Operating
Expenses. Except as otherwise specified with respect to a Series in the related
Prospectus Supplement, payments made in satisfaction of the fees and expenses
described in the preceding sentence, other than taxes related to the Issuer's
income and fees and expenses of the Servicer, shall not exceed the estimate of
such fees and expenses described in Exhibit E-2 to the Indenture until the date
specified in the related Prospectus Supplement, unless otherwise approved by
each Rating Agency and on and after such date, an annual amount not to exceed
such estimated fees and expenses described in a Cash Flow Certificate approved
by each Rating Agency for a period approved by each Rating Agency. Moneys in
the Revenue Fund shall also be used, on any date, to pay Maintenance and
Operating Expenses in excess of the Estimated Amount, upon Issuer Order
delivered to the Trustee and each Rating Agency directing the same, but only
following delivery of a Cash Flow Certificate to the Trustee and
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each Rating Agency showing, among other things, that the payments required by
the Indenture, other than clauses (k) and (l) below, will not be impaired and
such amount has been approved by each Rating Agency.
Money in the Revenue Fund shall be kept separate and apart from all other
Funds and, except as otherwise specified with respect to a Series in the related
Prospectus Supplement, shall be used and transferred to (i) the Interest Fund on
the first Business Day preceding each Interest Payment Date (other than a
Transfer Date) as specified in (w), (x) and (y) below and (ii) the Operating
Fund on the first Business Day of each month as specified in (z) below, all in
the following order of precedence (any money not so transferred or paid to
remain in the Revenue Fund until subsequently applied pursuant to the Indenture
as described herein):
(w) to the Senior Interest Account of the Interest Fund an amount
necessary to pay interest, if any, due on any Senior Notes on such Interest
Payment Date or any Issuer Swap Payment secured on a parity with the Senior
Notes due on such Interest Payment Date, after giving effect to moneys
already on deposit therein;
(x) to the Subordinate Interest Account of the Interest Fund an
amount necessary to pay interest due on any Subordinate Notes on such
Interest Payment Date or any Issuer Swap Payment secured on a parity with
the Subordinate Notes due on such Interest Payment Date, after giving
effect to moneys already on deposit therein;
(y) if any Junior-Subordinate Securities are Outstanding, to the
Junior-Subordinate Interest Account of the Interest Fund an amount
necessary to pay interest due on any Junior-Subordinate Notes on such
Interest Payment Date or any Issuer Swap Payment secured on a parity with
the Junior-Subordinate Notes due on such Interest Payment Date, after
giving effect to moneys already on deposit therein; and
(z) An amount equal to the Estimated Amount shall be used and
transferred from the Revenue Fund to the Operating Fund on the first
Business Day of each month.
Except as otherwise specified with respect to a Series in the related
Prospectus Supplement, money in the Revenue Fund shall be used and transferred
to other funds or Persons between the fifth and first Business Day preceding
each Transfer Date as specified herein and in the following order of precedence
(any money not so transferred or paid to remain in the Revenue Fund until
subsequently applied pursuant to the provisions of the Indenture and as
described herein):
(a) if such Transfer Date is an Interest Payment Date, to the Senior
Interest Account of the Interest Fund an amount necessary to pay interest
due on any Senior Notes on such Transfer Date or any Issuer Swap Payment
secured on a parity with the Senior Notes due on such Interest Payment
Date, after giving effect to moneys already on deposit therein;
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(b) to the Senior Note Redemption Account of the Note Redemption Fund
the amount, if any, necessary to pay the principal of or premium, if any,
on any Senior Notes due on such Transfer Date (if such Transfer Date is a
Stated Maturity or mandatory sinking fund redemption date, if any, with
respect to such Senior Notes), after giving effect to moneys already on
deposit therein and required transfers from the Reserve Fund;
(c) if such Transfer Date is an Interest Payment Date, to the
Subordinate Interest Account of the Interest Fund an amount necessary to
pay interest due on any Subordinate Notes on such Transfer Date or any
Issuer Swap Payment secured on a parity with the Subordinate Notes due on
such Interest Payment Date, after giving effect to moneys already on
deposit therein;
(d) to the Subordinate Note Redemption Account of the Note Redemption
Fund the amount, if any, necessary to pay the principal of or premium, if
any, on any Subordinate Notes due on such Transfer Date (if such Transfer
Date is a Stated Maturity or mandatory sinking fund redemption date, if
any, with respect to such Subordinate Notes), after giving effect to moneys
already on deposit therein and required transfers from the Reserve Fund;
(e) if such Transfer Date is an Interest Payment Date and if any
Junior-Subordinate Notes are Outstanding, to the Junior-Subordinate
Interest Account of the Interest Fund an amount necessary to pay interest
due on any Junior-Subordinate Notes on such Transfer Date or any Issuer
Swap Payment secured on a parity with the Junior-Subordinate Notes due on
such Interest Payment Date, after giving effect to moneys already on
deposit therein;
(f) if any Junior-Subordinate Notes are Outstanding, to the Junior-
Subordinate Note Redemption Account of the Note Redemption Fund the amount,
if any, necessary to pay the principal of or premium, if any, on any
Junior-Subordinate Notes due on such Transfer Date (if such Transfer Date
is a Stated Maturity or mandatory sinking fund redemption date with respect
to the Junior-Subordinate Notes), after giving effect to moneys already on
deposit therein and required transfers from the Reserve Fund;
(g) except as otherwise specified with respect to a Series in the
related Prospectus Supplement, an amount equal to the Net Losses incurred
by the Issuer since the last Transfer Date, as reported to the Trustee by
the Issuer, if any, (i) to the Recycling Account designated with respect to
each Series of the Student Loan Fund prior to the date specified in the
related Prospectus Supplement and (ii) to the Note Redemption Fund on and
after such date;
(h) to the Reserve Fund the amount, if any, required as described
under "--Reserve Fund" below;
(i) [Reserved.];
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(j) to the Senior Note Redemption Account of the Note Redemption
Fund, all remaining moneys to reduce the principal amount of the Senior
Notes until such time as the par amount of the Financed Eligible Loans
equals the aggregate principal balance of the Notes Outstanding;
(k) except as otherwise specified with respect to a Series in the
related Prospectus Supplement, at the option of the Issuer and upon Issuer
Order, to the Note Redemption Fund or, prior to the date specified in the
related Prospectus Supplement, to the Recycling Account designated with
respect to a Series of the Student Loan Fund; and
(l) at the option of the Issuer and upon Issuer Order, to the General
Fund to the extent permitted as described under "General Fund" below.
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing, other than an Event of Default described herein in paragraph (g)
under "Appendix II--Glossary of Certain Terms and Summary of Certain Provisions
of the Indenture--Events of Default," the Revenues otherwise scheduled to be
transferred pursuant to subsections (k) and (l) above shall be transferred
instead to the Note Redemption Fund and used to redeem Notes pursuant to a
"Mandatory Redemption." In addition, if amounts were available to transfer
pursuant to (k) and (l) above, but such transfers were not made on the dates
provided above, the Trustee shall make such transfers on a subsequent date no
later than six months from the date of required transfer upon written request of
an Authorized Officer of the Issuer, provided that no Event of Default shall
exist under the provisions of the Indenture at the time of transfer. Except as
specified with respect to a Series in the related Prospectus Supplement, if the
Auction Rate on any class of Auction Rate Notes exceeds the T-Bill Rate +.80%
for 12 consecutive months, the Trustee shall not transfer the Estimated Amount
to the Operating Fund and shall reduce the Broker-Dealer fees to .13% until such
time as each Rating Agency approves a Cash Flow Certificate prepared by the
Issuer. Any such unpaid Estimated Amount and Broker-Dealer fees shall not be
paid until one year and one day after the Stated Maturity or earlier redemption
of all Notes Outstanding.
RESERVE FUND
(a) The Trustee shall deposit to the Reserve Fund the Reserve
Requirement with respect to a Series on the Date of Issuance as may be
described in the related Prospectus Supplement. The Trustee, FIRST, shall
transfer money in the Reserve Fund to the Senior Interest Account of the
Interest Fund on the first Business Day prior to each Interest Payment Date
to cure any deficiency in the Senior Interest Account of the Interest Fund
if such deficiency would cause a failure to pay or deposit accrued interest
on any Senior Notes on such Interest Payment Date or to make any Issuer
Swap Payment secured on a parity with the Senior Notes when due and payable
on such Interest Payment Date, SECOND, shall transfer money in the Reserve
Fund to the Senior Note Redemption Account of the Note Redemption Fund on
the first Business Day prior to
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such Transfer Date to pay the principal amount of any Senior Notes coming
due on such Transfer Date (if such Transfer Date is a Stated Maturity) if
the money in the Senior Note Redemption Account of the Note Redemption Fund
is insufficient to do so, THIRD, shall transfer money in the Reserve Fund
to the Subordinate Interest Account of the Interest Fund on the first
Business Day prior to each Interest Payment Date to cure any deficiency in
the Subordinate Interest Account of the Interest Fund if such deficiency
would cause a failure to pay or deposit accrued interest on any Subordinate
Notes on such Interest Payment Date or to make any Issuer Swap Payment
secured on a parity with the Subordinate Notes when due and payable on such
Interest Payment Date, FOURTH, shall transfer money in the Reserve Fund to
the Subordinate Note Redemption Account of the Note Redemption Fund on the
first Business Day prior to such Transfer Date to pay the principal amount
of any Subordinate Notes coming due on such Transfer Date (if such Transfer
Date is a Stated Maturity) if the money in the Subordinate Note Redemption
Account of the Note Redemption Fund is insufficient to do so, FIFTH, if any
Junior-Subordinate Notes are Outstanding, shall transfer money in the
Reserve Fund to the Junior-Subordinate Interest Account of the Interest
Fund on the first Business Day prior to each Interest Payment Date to cure
any deficiency in the Junior-Subordinate Interest Account of the Interest
Fund if such deficiency would cause a failure to pay or deposit accrued
interest on any Junior-Subordinate Notes on such Interest Payment Date or
to make any Issuer Swap Payment secured on a parity with the Junior-
Subordinate Notes when due and payable on such Interest Payment Date, and
SIXTH, if any Junior-Subordinate Notes are Outstanding, shall transfer
money in the Reserve Fund to the Junior-Subordinate Note Redemption Account
of the Note Redemption Fund on the first Business Day prior to such
Transfer Date to pay the principal amount of any Junior-Subordinate Notes
coming due on such Transfer Date (if such Transfer Date is a Stated
Maturity) if the money in the Junior-Subordinate Note Redemption Account of
the Note Redemption Fund is insufficient to do so.
(b) If the Reserve Fund is used for the purposes described in clause
(a) above the Trustee shall restore the Reserve Fund to the Reserve Fund
Requirement by transfers from the Revenue Fund on the next Transfer Date
pursuant to clause (h) of "--Revenue Fund" above. If the full amount
required to restore the Reserve Fund to the Reserve Fund Requirement is not
available in the Revenue Fund on such next succeeding Transfer Date, the
Trustee shall continue to transfer funds from the Revenue Fund as they
become available and in accordance with clause (h) of the "--Revenue Fund"
above until the deficiency in the Reserve Fund has been eliminated.
(c) The Reserve Fund shall not contain an amount in excess of the
Reserve Fund Requirement. On any day after a Transfer Date that the amount
in the Reserve Fund exceeds the Reserve Fund Requirement for any reason,
the Trustee shall transfer the excess to the Senior Note Redemption Account
of the Note Redemption Fund until all Senior Notes have been paid in full
and then to the Subordinate Note Redemption Account of the Note Redemption
Fund.
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(d) The Reserve Fund shall not be used to pay (i) principal on the
Notes pursuant to a redemption or (ii) Net Losses if, after giving effect
to such payments, Notes remain Outstanding and the balance in the Reserve
Fund is less than the Reserve Fund Requirement. In addition, unless
specified with respect to a Series in the related Prospectus Supplement, if
the balance in the Reserve Fund is less than $750,000, the Issuer will not
purchase Eligible Loans with proceeds in the Series 1996 Recycling Account
designated with respect to any Series of the Student Loan Fund until such
time as each Rating Agency approves a Cash Flow Certificate prepared by the
Issuer.
INTEREST FUND
On the first Business Day preceding each Interest Payment Date, the Trustee
shall transfer to the Interest Fund from the Revenue Fund an amount equal to the
interest due and payable on such Interest Payment Date on the Outstanding Notes
less any amounts already on deposit in the Interest Fund. Any moneys
transferred to the Interest Fund and not specifically required to be deposited
to any Account therein shall be deposited, FIRST, to the Senior Interest Account
of the Interest Fund to the extent required to increase the amount on deposit
therein to equal the interest due and payable on the next Interest Payment Date
for any Outstanding Senior Notes and the amount of any Issuer Swap Payment
secured on a parity with the Senior Notes due and payable on the next Interest
Payment Date, SECOND, to the Subordinate Interest Account of the Interest Fund
to the extent required to increase the amount on deposit therein to equal the
interest due and payable on the next Interest Payment Date for any Outstanding
Subordinate Notes and the amount of any Issuer Swap Payment secured on a parity
with the Subordinate Notes due and payable on the next Interest Payment Date
and, THIRD, if any Junior-Subordinate Notes are Outstanding, to the Junior-
Subordinate Interest Account of the Interest Fund to the extent required to
increase the amount on deposit therein to equal the interest due and payable on
the next Interest Payment Date for any Outstanding Junior-Subordinate Notes and
the amount of any Issuer Swap Payment secured on a parity with the Junior-
Subordinate Notes due and payable on the next Interest Payment Date.
If money sufficient to pay all interest due on the Senior Notes and any
Issuer Swap Payments secured on a parity with the Senior Notes on a particular
Interest Payment Date is not available in the Senior Interest Account of the
Interest Fund for that purpose on the first Business Day preceding an Interest
Payment Date from moneys transferred from the Revenue Fund as provided above,
then the amount of any such deficiency shall be provided from the Reserve Fund,
from any other Account of the Interest Fund, the Junior-Subordinate Note
Redemption Account, if any, of the Note Redemption Fund, the Subordinate Note
Redemption Account of the Note Redemption Fund, the Senior Note Redemption
Account of the Note Redemption Fund, the Student Loan Holding Fund and from
Accounts in the Student Loan Fund (in the order provided under "--Student Loan
Fund" above), in that order. The money in the Senior Interest Account of the
Interest Fund required for the payment of interest on any Senior Notes and to
pay any Issuer Swap Payments secured on a parity with the Senior Notes shall be
applied by the Trustee to the payment of such interest or Issuer Swap Payments
when due without further authorization or direction.
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If money sufficient to pay all interest due on any Subordinate Notes and
Issuer Swap Payments secured on a parity with the Subordinate Notes on a
particular Interest Payment Date is not available in the Subordinate Interest
Account of the Interest Fund for that purpose on the first Business Day
preceding an Interest Payment Date from moneys transferred from the Revenue Fund
as provided above, then the amount of any such deficiency shall be provided from
the Reserve Fund (after first making any required transfers from the Reserve
Fund to the Senior Interest Account), and then from the Junior-Subordinate Note
Redemption Account of the Note Redemption Fund, if any, the Subordinate Note
Redemption Account of the Note Redemption Fund, the Student Loan Holding Fund
and from the Accounts in the Student Loan Fund (in the order provided under "--
Student Loan Fund" above), in that order. The money in the Subordinate Interest
Account of the Interest Fund required for the payment of interest on any
Subordinate Notes and to pay any Issuer Swap Payments secured on a parity with
the Subordinate Notes shall be applied in accordance with this Section by the
Trustee to the payment of such interest or Issuer Swap Payments when due without
further authorization or direction.
If money sufficient to pay all interest due on any Junior-Subordinate
Notes, if any, and Issuer Swap Payments secured on a parity with the Junior-
Subordinate Notes on a particular Interest Payment Date is not available in the
Junior-Subordinate Interest Account, if any, of the Interest Fund for that
purpose on the first Business Day preceding an Interest Payment Date from moneys
transferred from the Revenue Fund as provided above, then the amount of any such
deficiency shall be provided from the Reserve Fund (after first making any
required transfers from the Reserve Fund to the Senior Interest Account and the
Subordinate Interest Account), and then from the Junior-Subordinate Note
Redemption Account of the Note Redemption Fund, the Student Loan Holding Fund
and from the Accounts in the Student Loan Fund (in the order provided under "--
Student Loan Fund" above), in that order. The money in the Junior-Subordinate
Interest Account, if any, of the Interest Fund required for the payment of
interest on any Junior-Subordinate Notes and to pay any Issuer Swap Payments
secured on a parity with the Junior-Subordinate Notes shall be applied as
described herein by the Trustee to the payment of such interest or Issuer Swap
Payments when due without further authorization or direction.
NOTE REDEMPTION FUND
The Trustee shall deposit to the Note Redemption Fund: (a) all amounts
required to be transferred to the Note Redemption Fund from the Revenue Fund,
the Reserve Fund, the Interest Fund, the Student Loan Fund and the Student Loan
Holding Fund; (b) the proceeds of notes and other obligations of the Issuer
which the Issuer elects to apply to the payment of the Notes; and (c) any other
funds made available by the Issuer in its sole discretion for payment of the
Notes. Any moneys transferred to the Note Redemption Fund and not specifically
required to be deposited to any Account therein shall be deposited to the Senior
Note Redemption Account of the Note Redemption Fund unless the Trustee receives
an Issuer Order designating that such amounts shall be deposited to the
Subordinate Note Redemption Account or to the Junior-Subordinate Note Redemption
Account of the Note Redemption Fund.
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Subject to "Description of the Notes--Notice and Partial Redemption of
Notes" herein, the Issuer, pursuant to an Issuer Order, may designate that a
specified amount of moneys or investments to be transferred to the Note
Redemption Fund pursuant to the terms and provisions of the Indenture be
deposited to the Subordinate Note Redemption Account of the Note Redemption Fund
if after the redemption of Subordinate Notes from the moneys and investments
transferred to the Subordinate Note Redemption Account of the Note Redemption
Fund and the redemption of Senior Notes, if any, from the moneys and investments
transferred to the Senior Note Redemption Account of the Note Redemption Fund,
the Aggregate Market Value of the Trust Estate will equal at least 110% of the
aggregate principal amount of all Senior Notes Outstanding. The Issuer,
pursuant to an Issuer Order, may designate that a specified amount of moneys or
investments to be transferred to the Note Redemption Fund pursuant to the terms
and provisions of the Indenture be deposited to the Junior-Subordinate Note
Redemption Account of the Note Redemption Fund if after the redemption of
Junior-Subordinate Notes from the moneys and investments transferred to the
Junior-Subordinate Account of the Note Redemption and the redemption of Senior
Notes and Subordinate Notes, if any, from the moneys and investments transferred
to the Senior Note Redemption Account and the Subordinate Note Redemption
Account of the Note Redemption Fund, the Aggregate Market Value of the Trust
Estate will equal at least 110% of the aggregate principal amount of all Senior
Notes Outstanding and at least 102% of the aggregate principal amount of all
Senior and Subordinate Notes Outstanding.
In addition, FIRST, if on the first Business Day preceding the Stated
Maturity of one or more Senior Notes, there is not available in the Senior Note
Redemption Account of the Note Redemption Fund an amount sufficient to pay the
principal of the Senior Notes coming due on such date, then an amount equal to
such deficiency shall be transferred by the Trustee to the Senior Note
Redemption Account of the Note Redemption Fund, from the Revenue Fund, from the
Student Loan Holding Fund, from the Reserve Fund, from the Subordinate Note
Redemption Account of the Note Redemption Fund, from the Junior-Subordinate Note
Redemption Account, if any, of the Note Redemption Fund, from the Subordinate
Interest Account of the Interest Fund, from the Junior-Subordinate Interest
Account, if any, of the Interest Fund and from the Accounts in the Student Loan
Fund (in the order provided under "--Student Loan Fund" above), in that order,
SECOND, if on the first Business Day preceding the Stated Maturity of any
Subordinate Notes, there is not available in the Subordinate Note Redemption
Account of the Note Redemption Fund an amount sufficient to pay the principal of
the Subordinate Notes coming due on such date, then an amount equal to such
deficiency shall be transferred by the Trustee to the Subordinate Note
Redemption Account of the Note Redemption Fund, from the Revenue Fund, from the
Student Loan Holding Fund, from the Reserve Fund, from the Junior-Subordinate
Interest Account, if any, of the Interest Fund and from the Accounts in the
Student Loan Fund (in the order provided under "--Student Loan Fund" above),
and, THIRD, if on the first Business Day preceding the Stated Maturity of any
Junior-Subordinate Notes, there is not available in the Junior-Subordinate Note
Redemption Account, if any, of the Note Redemption Fund an amount sufficient to
pay the principal of the Junior-Subordinate Notes coming due on such date, then
an amount equal to such deficiency shall be transferred by the Trustee to the
Junior-Subordinate Note Redemption Account, if any, of the Note Redemption Fund,
from the Revenue Fund, from the Student Loan Holding Fund, from the Reserve Fund
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and from the Accounts in the Student Loan Fund (in the order provided under "--
Student Loan Fund" above), in that order.
The Trustee shall use amounts in the Senior Note Redemption Account of the
Note Redemption Fund (a) to pay principal of the Senior Notes at their Stated
Maturity and (b) to pay the redemption price of any Senior Notes pursuant to the
mandatory redemption provisions of the Indenture, only to the extent that such
moneys are identified by the Servicer as being derived from principal repayments
on or with respect to the Financed Eligible Loans or transferred to the Senior
Note Redemption Account of the Note Redemption Fund described under "--Student
Loan Fund" above or under subsection (k) of "--Revenue Fund" above and such
moneys are on deposit in the Senior Note Redemption Account of the Note
Redemption Fund on the fifth Business Day prior to the last date on which a
redemption notice can be given which are in excess of the sum of the principal
due on the Senior Notes on the next Stated Maturity which is within one year of
the date of such transfer. Notwithstanding the foregoing, if on the first
Business Day preceding any Interest Payment Date or Transfer Date there are not
sufficient moneys on deposit in the Revenue Fund to make the transfers required
as described under "--Revenue Fund" above other than clauses (k) and (l)
thereof, then such transfers shall be made by the Trustee, in an amount equal to
any such deficiency, directly from the Senior Note Redemption Account of the
Note Redemption Fund; provided, however, that the Subordinate Note Redemption
Account and the Junior-Subordinate Note Redemption Account, if any, of the Note
Redemption Fund has been fully depleted (except as provided therein) pursuant to
similar transfers previously made from such Accounts of the Note Redemption Fund
as described herein.
The Trustee shall use amounts in the Subordinate Note Redemption Account of
the Note Redemption Fund (a) to pay principal of any Subordinate Notes at their
Stated Maturity and (b) to pay the redemption price of Subordinate Notes
pursuant to the mandatory redemption provisions of the Indenture, only to the
extent that such moneys are identified by the Servicer as being derived from
principal repayments on or with respect to the Financed Eligible Loans or
transferred to the Subordinate Note Redemption Account of the Note Redemption
Fund as described under "--Student Loan Fund" above or under subsection (k) of
"--Revenue Fund" above and such moneys are on deposit in the Subordinate Note
Redemption Account of the Note Redemption Fund on the fifth Business Day prior
to the last date on which a redemption notice can be given which are in excess
of the sum of the principal due on the Subordinate Notes on the next Stated
Maturity which is within one year of the date of such transfer. Notwithstanding
the foregoing, if on the first Business Day preceding any Interest Payment Date
or Transfer Date there are not sufficient moneys on deposit in the Revenue Fund
to make the transfers required as described under "--Revenue Fund" above, other
than as described under clauses (k) and (l) thereof, then such transfers shall
be made by the Trustee, in an amount equal to any such deficiency, directly from
the Subordinate Note Redemption Account of the Note Redemption Fund; provided,
however, that the Junior-Subordinate Note Redemption Account, if any, of the
Note Redemption Fund has been fully depleted (except as provided therein)
pursuant to similar transfers previously made from such Accounts of the Note
Redemption Fund.
If any Junior-Subordinate Notes are Outstanding, the Trustee shall use
amounts in the Junior-Subordinate Note Redemption Account of the Note Redemption
Fund (a) to pay principal
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of any Junior-Subordinate Notes at their Stated Maturity and (b) to pay the
redemption price of Junior-Subordinate Notes pursuant to the mandatory
redemption provisions of the Indenture , only to the extent that such moneys are
identified by the Servicer as being derived from principal repayments on or with
respect to the Eligible Loans or transferred to the Junior-Subordinate Note
Redemption Account of the Note Redemption Fund as described under "--Student
Loan Fund" above or under clauses (k) of "--Revenue Fund" above and such moneys
are on deposit in the Junior-Subordinate Note Redemption Account of the Note
Redemption Fund on the fifth Business Day prior to the last date on which a
redemption notice can be given which are in excess of the sum of the principal
due on the Junior-Subordinate Notes on the next Stated Maturity which is within
one year of the date of such transfer. Notwithstanding the foregoing, if on the
first Business Day preceding any Interest Payment Date or Transfer Date there
are not sufficient moneys on deposit in the Revenue Fund to make the transfers
required as described under "--Revenue Fund" above, other than as described
under clauses (k) and (l) thereof, then such transfers shall be made by the
Trustee, in an amount equal to any such deficiency, directly from the Junior-
Subordinate Note Redemption Account of the Note Redemption Fund.
No moneys in any Account of the Note Redemption Fund shall be transferred
to any other Fund or Account if such money is on deposit for the purpose of
redeeming Notes for which notice has been given.
STUDENT LOAN HOLDING FUND
The Trustee shall deposit to the Student Loan Holding Fund all amounts
received by the Trustee which represent payments, regardless of source, on
Financed Eligible Loans. Except as otherwise specified with respect to a Series
in the related Prospectus Supplement, upon receipt by the Trustee from the
Issuer of the Servicer's statement with a direction indicating the portion of
such payments which represents interest payments on Financed Eligible Loans and
the portion of such payment which represents principal payments on Financed
Eligible Loans, the Trustee shall promptly transfer (i) that portion of such
payment representing interest payments (including Special Allowance Payments and
Interest Subsidy Payments) on Eligible Loans to the Revenue Fund and (ii) shall
so transfer the portion of such payment representing principal payments
(including unamortized premiums) on Financed Eligible Loans held in the Note
Account designated with respect to a Series of the Student Loan Fund to the
Recycling Account designated with respect to such Series of the Student Loan
Fund and (iii) on or after the date specified in the related Prospectus
Supplement to the Note Redemption Fund.
Notwithstanding the foregoing, if on the first Business Day preceding any
Interest Payment Date or Transfer Date there are not sufficient moneys on
deposit in the Revenue Fund to make the transfers required as described under "-
- -Revenue Fund" above, other than subsections (k) and (l) thereof, then, but only
after required transfers from the Note Redemption Fund, if any, such transfers
shall be made by the Trustee, in an amount equal to any such deficiency directly
from the Student Loan Holding Fund.
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COST OF ISSUANCE FUND
The Trustee shall deposit in the Cost of Issuance Fund on the Date of
Issuance with respect to any Series the amounts set forth in the related
Prospectus Supplement. Moneys in the Cost of Issuance Fund shall be used by the
Trustee, upon the written direction of an Authorized Officer of the Issuer,
solely for the purpose of paying costs of issuance of the Notes of such Series,
including without limitation any compensation of the Placement Agent not paid
from the proceeds of the Notes. Any moneys remaining in the Cost of Issuance
Fund shall be paid by the Trustee without further direction to the Issuer.
OPERATING FUND
The Operating Fund is a special fund created and established by an
agreement with a depository bank of the Issuer and shall be used to pay
Maintenance and Operating Expenses. The Operating Fund shall be held by such
depository bank of the Issuer, and neither the Registered Owners, any Swap
Counterparties nor the Trustee shall have any right, title or interest in the
Operating Fund.
On or before the 25th day of each month, the Issuer shall deliver an Issuer
Order to the Trustee which sets forth the Estimated Amount. If at any time the
Issuer determines that the Estimated Amount is less than the amount required to
pay expected Maintenance and Operating Expenses, the Issuer may direct the
Trustee by Issuer Order to transfer additional amounts from the Revenue Fund as
may be needed to pay Maintenance and Operating Expenses, subject to the second
paragraph of "--Revenue Fund" above.
Upon the receipt of any such Issuer Order, the Trustee shall withdraw the
amount so directed from the Revenue Fund (or so much thereof as is then on
deposit in the Revenue Fund) and transfer the same to such depository bank of
the Issuer with instructions to deposit the same in the Operating Fund.
Interest income earned on the money held in the Operating Fund may be retained
therein or as otherwise provided in the agreement with such depository bank of
the Issuer.
GENERAL FUND
Except with respect to the Trustee's right to indemnification for any
liability incurred because of its status as an "eligible lender" under the Act,
neither the Registered Owners, any Swap Counterparties nor the Trustee shall
have any right, title or interest in the General Fund. Except as may otherwise
be specified with respect to a Series in the related Prospectus Supplement,
transfers from the Student Loan Fund to the General Fund shall be made as
described under "--Student Loan Fund" above and transfers from the Revenue Fund
to the General Fund shall be made as described under "Revenue Fund" above;
provided, however, that no transfer of assets to the General Fund shall be made
if there is not on deposit in the Reserve Fund an amount equal to at least the
Reserve Fund Requirement; provided however, that no transfer shall be made to
the General Fund unless, (a) immediately after taking into account any such
transfer, the Aggregate Market Value of the assets in the Trust Estate (less an
amount equal
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to unpaid accrued interest on the Outstanding Notes and less an amount equal to
$250,000 and less any additional amount, if any, required by any Supplemental
Indenture) will be equal to at least 103% of the unpaid principal amount of the
Outstanding Notes and (b) there shall have been delivered to the Trustee a Cash
Flow Certificate showing that after such transfer the Aggregate Market Value of
the assets in the Trust Estate (less an amount equal to unpaid accrued interest
on the Outstanding Notes and less an amount equal to $250,000 and less any
additional amount, if any, required by any Supplemental Indenture) will continue
to be equal to at least 112% of the unpaid principal amount of the Outstanding
Senior Notes and (c) there shall have been delivered to the Trustee a Cash Flow
Certificate showing that after such transfer the Aggregate Market Value of the
assets in the Trust Estate (less an amount equal to unpaid accrued interest on
the Outstanding Notes and less an amount equal to $250,000 and less any
additional amount, if any, required by any Supplemental Indenture) will continue
to be equal to at least 103% of the unpaid principal amount of the Notes
Outstanding on each Interest Payment Date and (d) the Aggregate Market Value of
the assets in the Trust Estate (less an amount equal to unpaid accrued interest
on the Outstanding Notes and less an amount equal to $250,000 and less any
additional amount, if any, required by any Supplemental Indenture) will continue
to be equal to at least 112% of the unpaid principal amount of the Outstanding
Senior Notes on each Interest Payment Date.
The amounts held in the General Fund may be used for any proper purpose of
the Issuer and investment earnings thereon shall be the property of the Issuer.
INVESTMENT OF FUNDS HELD BY TRUSTEE
The Trustee shall invest money held for the credit of any Fund or Account
held by the Trustee under the Indenture as directed in writing (or orally,
confirmed in writing) by an Authorized Officer of the Issuer or a designee
appointed in writing by an Authorized Officer of the Issuer, to the fullest
extent practicable and reasonable, in Investment Securities which shall mature
or be redeemed at the option of the holder prior to the respective dates when
the money held for the credit of such Fund or Account will be required for the
purposes intended. In the absence of written direction by an Authorized Officer
of the Issuer, all uninvested moneys in any Fund or Account held by the Trustee
shall be invested in Investment Securities described in (a), (b), (c), (d), (e)
or (f) of the definition of Investment Securities. Interest earnings on all
Investment Securities shall be transferred to the Revenue Fund on the first
Business Day of each calendar month. The Trustee and the Issuer have agreed
that unless an Event of Default shall have occurred under the Indenture, the
Issuer acting by and through an Authorized Officer shall be entitled to, and
shall, provide written direction or oral direction confirmed in writing to the
Trustee with respect to any discretionary acts required or permitted of the
Trustee under any Investment Agreement and the Trustee shall not take such
discretionary acts without such written direction.
The Investment Securities purchased shall be held by the Trustee and shall
be deemed at all times to be part of such Fund or Account or combination of
Funds or Accounts, and the Trustee shall inform the Issuer of the details of all
such investments. Upon direction in writing (or orally, confirmed in writing)
from an Authorized Officer of the Issuer, the Trustee shall use
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its best efforts to sell at the best price obtainable, or present for
redemption, any Investment Securities purchased by it as an investment whenever
it shall be necessary to provide money to meet any payment from the applicable
Fund. The Trustee shall advise the Issuer in writing, on or before the
fifteenth day of each calendar month (or such later date as reasonably consented
to by the Issuer), of all investments held for the credit of each Fund in its
custody under the provisions of the Indenture as of the end of the preceding
month and the value thereof, and shall list any investments which were sold or
liquidated for less than their value at the time thereof.
Money in any Fund constituting a part of the Trust Estate may be pooled for
the purpose of making investments and may be used to pay accrued interest on
Investment Securities purchased. Any purchase of Investment Securities may be
made by or through the Trustee or any of its affiliates.
Notwithstanding the foregoing, the Trustee shall not be responsible or
liable for any losses on investments made by it under the transaction or for
keeping all Funds held by it, fully invested at all times, its only
responsibility being to comply with the investment instructions of the Issuer or
its designee in a non-negligent manner.
RELEASE
The Trustee shall, upon Issuer Order and subject to the provisions of the
Indenture, take all actions reasonably necessary to effect the release of any
Financed Eligible Loans from the lien of the Indenture to the extent the terms
thereof permit the sale, disposition or transfer of such Financed Eligible
Loans.
DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more Classes of
the Notes of any Series. Credit enhancement may be in the form of a letter of
credit, the subordination of one or more Classes of Notes, the use of a pool
insurance policy or guarantee insurance, the establishment of one or more
reserve funds (as described under "Security and Sources of Payment for the
Notes--Reserve Fund" herein) or another method of credit enhancement described
in the related Prospectus Supplement, or any combination of the foregoing. If
so provided in the related Prospectus Supplement, any form of credit enhancement
may provide credit enhancement for more than one Series of Notes or more than
one Class of Notes to the extent described therein.
Unless otherwise specified in the related Prospectus Supplement with
respect to a Series, the credit enhancement will not provide protection against
all risks of loss and will not guarantee payment to such Noteholders of all
amounts to which they are entitled under the related Indenture. If losses or
shortfalls occur that exceed the amount covered by the credit enhancement or
that are not covered by the credit enhancement, Noteholders will bear their
allocable share of deficiencies. Moreover, if a form of credit enhancement
covers more than
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one Series of Notes, holders of Notes of one Series will be subject to the risk
that such credit enhancement will be exhausted by the claims of the holders of
Notes of one or more other Series before the former receive their intended share
of such coverage.
If credit enhancement is provided with respect to one or more classes of
Notes of a Series, the related Prospectus Supplement will include a description
of (i) the nature and amount of coverage under such credit enhancement, (ii) any
conditions to payment thereunder not otherwise described herein, (iii) the
conditions (if any) under which the amount of coverage under such credit
enhancement may be reduced and under which such credit enhancement may be
terminated or replaced and (iv) the material provisions relating to such credit
enhancement. Additionally, the related Prospectus Supplement will set forth
certain information with respect to the obligor under any instrument of credit
enhancement, generally including (i) a brief description of its principal
business activities, (ii) its principal place of business, place of
incorporation and the jurisdiction under which it is chartered or licensed to do
business, (iii) if applicable, the identity of the regulatory agencies that
exercise primary jurisdiction over the conduct of its business and (iv) its
total assets, and its stockholders' equity or policyholders' surplus, if
applicable, as of a date that will be specified in the Prospectus Supplement.
SUBORDINATE NOTES
If so specified in the related Prospectus Supplement, one or more classes
of Notes of a Series may be Subordinate Notes or Junior-Subordinate Notes. To
the extent specified in the related Prospectus Supplement, the rights of the
holders of Subordinate Notes to receive distributions on any Distribution Date
will be subordinated to the corresponding rights of the holders of Senior Notes,
and the rights of the holders of Junior-Subordinate Notes to receive
distributions on any Distribution Date will be subordinated to the corresponding
rights of the holders of the Subordinate Notes. If so provided in the related
Prospectus Supplement, the subordination of a Class may apply only in the event
of (or may be limited to) certain types of losses or shortfalls. The related
Prospectus Supplement will set forth information concerning the amount of
subordination provided by a Class or Classes of Subordinate Notes or
Junior-Subordinate Notes in a Series, the circumstances under which such
subordination will be available and the manner in which the amount of
subordination will be made available.
LETTER OF CREDIT
If so specified in the Prospectus Supplement with respect to a Series,
deficiencies in amounts otherwise payable on such Notes or certain Classes
thereof will be covered by one or more letters of credit, issued by a bank or
financial institution specified in such Prospectus Supplement (the "L/C Bank").
Under a letter of credit, the L/C Bank will be obligated to honor draws
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, generally equal to a percentage specified in the related Prospectus
Supplement of the aggregate principal balance of the Financed Eligible Loans on
the related Cut-off Date or of the initial aggregate principal balance of the
Notes of one or more Classes of Notes. If so specified in the related
Prospectus Supplement, the letter of credit may permit draws only in the event
of certain types of losses and shortfalls. The amount available under the
letter of credit will, in all cases,
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be reduced to the extent of the unreimbursed payments thereunder and may
otherwise be reduced as described in the related Prospectus Supplement. The
obligations of the L/C Bank under the letter of credit for each Series of Notes
will expire at the earlier of the date specified in the related Prospectus
Supplement or the termination of the Trust Estate. A copy of any such letter of
credit will accompany the Current Report on Form 8-K to be filed with the
Commission within 15 days of issuance of the Notes of the related Series.
NOTE INSURANCE AND SURETY BONDS
If so specified in the Prospectus Supplement with respect to a Series,
deficiencies in amounts otherwise payable on such Notes or certain Classes
thereof will be covered by insurance policies and/or surety bonds provided by
one or more insurance companies or sureties. Such instruments may cover, with
respect to one or more Classes of Notes of the related Series, timely
distributions of interest and/or full distributions of principal on the basis of
a schedule of principal distributions set forth in or determined in the manner
specified in the related Prospectus Supplement. A copy of any such instrument
will accompany the Current Report on Form 8-K to be filed with the Commission
within 15 days of issuance of the Notes of the related Series.
THE ISSUER
The Issuer is a bankruptcy remote, limited purpose corporation organized
under the laws of the State of Nevada on February 28, 1996 to acquire student
loans and pledge such student loans and certain related collateral to a trustee
to secure the Notes.
The Issuer is a wholly-owned subsidiary of Union Financial Services, Inc.,
a Nevada corporation ("UFS"), organized on January 26, 1996 for the purpose of
facilitating the financing of student loans and other financial assets, and to
engage in activities in connection therewith.
The Issuer has taken steps in structuring the transactions contemplated
hereby that are intended to make it unlikely that the voluntary or involuntary
application for relief by UFS or Union Bank under the United States Bankruptcy
Code or similar applicable federal or state laws, respectively ("Insolvency
Laws"), will result in consolidation of the assets and liabilities of the Issuer
with those of UFS or an affiliate including Union Bank. These steps include the
creation of the Issuer as a separate, limited purpose entity pursuant to
articles of incorporation containing certain limitations (including restrictions
on the nature of the Issuer's business and a restriction on the Issuer's ability
to commence a voluntary case or proceeding under any Insolvency Laws without the
prior unanimous affirmative vote of all of its directors). The Issuer's
Articles of Incorporation includes a provision that requires the Issuer to have
a director who qualifies under the Articles of Incorporation as an "independent
director."
The Issuer is governed by a Board of Directors, which is required by the
Issuer's Articles of Incorporation to include at least three directors. The
present directors and the addresses and principal occupations or affiliations of
the directors are as follows:
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Principal Occupation
Name Address or Affiliation
---- ------- --------------
Michael S. Dunlap 4732 Calvert Street Employee of Union
Lincoln, Nebraska 68506 Bank and Trust
Company
Stephen F. Butterfield 6991 East Camelback Road, Suite B290 President of Union
Scottsdale, Arizona 85251 Financial
Services, Inc.
Ross Wilcox 4732 Calvert Street Chief Executive
Lincoln, Nebraska 68506 Officer of Union
Bank and Trust
Company
Ronald W. Page 3015 S. Parker Road Senior Vice
Aurora, CO 80014 President of Union
Financial
Services, Inc.
Dr. Paul Hoff Hernia Hill, Rural Route 1 Retired Physician
Seward, Nebraska 68434
EXECUTIVE MANAGEMENT
The Board of Directors and management officials described below are
responsible for overall management of the Issuer. The Issuer's officers and
directors are shareholders, officers and directors of business entities that
have engaged in the business of purchasing, holding and selling student loans.
MR. MICHAEL S. DUNLAP, CHAIRMAN OF THE BOARD. As the Chairman of the
Board, Mr. Dunlap is responsible for the executive direction of the Issuer. Mr.
Dunlap is also Executive Vice President of Union Bank and Trust Company, and
President of Farmers & Merchants Investment Inc. He has been an employee of
Union Bank and Trust Company for approximately 14 years. Mr. Dunlap received a
Bachelor of Science degree in finance and accounting and a Juris Doctor degree
from the University of Nebraska.
MR. STEPHEN F. BUTTERFIELD, PRESIDENT. As the President, Mr. Butterfield
is responsible for the overall management and direction of the Issuer. Included
in his responsibilities are loan purchasing, marketing of corporate services and
coordination of its capital market activities. Mr. Butterfield has been a
member of the student loan industry since January 1989, first as President of a
for-profit student loan secondary marketing facility located in Scottsdale,
Arizona and currently as President of a non-profit student loan secondary
marketing facility in Scottsdale, Arizona. Prior to his work in the student
loan industry, Mr. Butterfield spent 15 years as an investment banker
specializing in municipal finance. Mr. Butterfield received a Bachelor of
Science Degree in Business from Arizona State University.
RONALD W. PAGE, VICE PRESIDENT, TREASURER AND SECRETARY. As Vice
President, Treasurer and Secretary, Mr. Page is responsible for the financial
operations and record keeping of the Issuer. Included in his responsibilities
are financial planning and capital market operations. Mr. Page spent 20 years
as an investment banker specializing in tax-exempt and
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taxable asset backed finance, with a specialty in the securitization of student
loans. Mr. Page received a Bachelor of Science Degree in Business
Administration from the University of Colorado, Boulder, Colorado, and a Masters
of Public Administration in Public Policy Analysis from the American University,
Washington DC.
UFS will provide certain administrative services to the Issuer in
connection with the operation of the Issuer's Student Loan Purchase Program.
UFS will receive compensation for such services but such payment will be made as
approved by each Rating Agency and when funds are available therefore in the
Operating Fund.
THE ISSUER'S STUDENT LOAN PURCHASE PROGRAM
The Issuer established its Student Loan Purchase Program in order to
effectuate its general corporate purposes.
In order to participate in the Student Loan Purchase Program, each lender
must be an "eligible lender" under the Act and be otherwise approved by the
Issuer. An "eligible lender" under the Act includes certain commercial banks,
mutual savings banks, savings and loan associations, credit unions, insurance
companies, pension funds, certain trust companies and educational institutions.
Each eligible lender must also have entered into an agreement with an eligible
Guarantee Agency for the guarantee of loans originated or acquired by such
lender. In addition, each eligible lender must enter into a Student Loan
Purchase Agreement with the Issuer, providing for the manner and terms of sale
of Eligible Loans in the standard form prescribed by the Issuer from time to
time for all lenders and providing for the manner and terms of repurchase of
Student Loans by the Eligible Lender from the Issuer upon the failure of any
warranty with respect to such Student Loan made by the Eligible Lender under
such agreement. The Student Loan Purchase Agreement may be terminated by the
Issuer on the terms and conditions stated therein.
THE ISSUER'S STUDENT LOAN PURCHASE AGREEMENT
As of July 1, 1996, with respect to the Private Notes, the Issuer had
purchased $_______________ aggregate principal amount of Eligible Loans from
Union Bank, as Seller. The Issuer has entered into Student Loan Purchase
Agreements with Union Bank with respect to such purchases. Eligible Loans
purchased from such Seller may be removed by the Issuer from the UNIPAC
servicing system. However, such Seller has the option to repurchase from the
Issuer all or a portion of the Eligible Loans proposed to be so removed from the
UNIPAC servicing system. In addition, such Seller is required to repurchase, at
the request of the Issuer or the Trustee, any financed Eligible Loan purchased
by the Issuer if, among other items, the Secretary or a Guarantee Agency refuses
to honor all or a part of a claim filed with respect to a Financed Eligible Loan
on account of any circumstance or event that occurred prior to the sale of such
Financed Eligible Loan.
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SERVICING OF FINANCED ELIGIBLE LOANS
The Issuer is required under the Act, the rules and regulations of the
Guarantee Agency and the Indenture to use due diligence in the servicing and
collection of Financed Eligible Loans and to use collection practices no less
extensive and forceful than those generally in use among financial institutions
with respect to other consumer debt.
THE TRUSTEE IS ACTING AS "ELIGIBLE LENDER" WITH RESPECT TO THE FINANCED
ELIGIBLE LOANS AS AN ACCOMMODATION TO THE ISSUER AND NOT FOR THE BENEFIT OF ANY
OTHER PARTY. NOTWITHSTANDING ANY RESPONSIBILITY THAT THE TRUSTEE MAY HAVE TO
THE SECRETARY OF EDUCATION OR ANY GUARANTEE AGENCY UNDER THE ACT, THE TRUSTEE
(UNTIL SUCH TIME AS THE TRUSTEE MAY BECOME THE OWNER OF THE FINANCED ELIGIBLE
LOANS FOLLOWING A DEFAULT UNDER THE INDENTURE AND THE EXERCISE OF CERTAIN
REMEDIES PROVIDED THEREIN) SHALL NOT HAVE ANY RESPONSIBILITY FOR ANY ACTION OR
INACTION OF THE TRUSTEE, THE ISSUER OR ANY OTHER PARTY IN CONNECTION WITH THE
FINANCED ELIGIBLE LOANS AND THE DOCUMENTS, AGREEMENTS, UNDERSTANDINGS AND
ARRANGEMENTS RELATING THERETO.
THE SERVICING AGREEMENTS
The Issuer has entered into an Amended and Restated Servicing Agreement
with Union Bank dated as of June 15, 1996 (the "Servicing Agreement") with
respect to the Private Notes which continues until the earlier of (i)
termination of the Indenture, (ii) early termination after material default by
Servicer as provided for in the Servicing Agreement, and (iii) the Financed
Eligible Loans serviced under the Servicing Agreement are paid in full. As of
the same date, Union Bank entered into an amendment to its servicing agreement
(the "Subservicing Agreement") with UNIPAC Service Corporation, a Nebraska
corporation ("UNIPAC"), under which UNIPAC, as Subservicer, assumed all of the
duties of the Servicer under the Servicing Agreement for the term of the
Servicing Agreement. UNIPAC will provide data processing and other assistance
necessary in connection with the servicing of the Issuer's portfolio of Financed
Eligible Loans acquired in connection with its Student Loan Purchase Program.
In accordance with the Subservicing Agreement, UNIPAC will undertake to service
the Issuer's Financed Eligible Loans as required by the Act and the Guarantee
Agencies, and the Issuer will cause the Trustee to pay, from the Trust Estate
and only to the extent moneys are available in the Revenue Fund established
under the Indenture, to Union Bank and UNIPAC servicing fees and subservicing
fees, respectively, and certain expenses for the services which Union Bank and
UNIPAC provide. In the event Union Bank no longer acts as the primary servicer
of the Financed Eligible Loan portfolio, UNIPAC has agreed to service the
Financed Eligible Loans under the terms of and pursuant to the Servicing
Agreement.
Under the terms of the Servicing Agreement, the Servicer may be obligated
to pay the Issuer an amount equal to the outstanding principal balance plus all
accrued interest and other fees due to the date of purchase of a Financed
Eligible Loan if the Servicer causes such Financed Eligible Loan to be denied
the benefit of any applicable guarantee and is unable to cause the reinstatement
of such guarantee within twelve (12) months of denial by the applicable
Guarantee Agency. Upon such payment, such Financed Eligible Loan shall be
subrogated to the Servicer. In the event the Servicer cures any Financed
Eligible Loan which has been subrogated to the
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Servicer, the Servicing Agreement provides that the Issuer shall pay an amount
equal to the then outstanding principal balance plus all accrued interest due
on such Financed Eligible Loan, less the amount subject to certain risk sharing
provisions in the Act, whereupon the subrogation rights of the Servicer shall
terminate.
As may be specified with respect to a Series in the related Prospectus
Supplement, another Servicer may be designated by the Issuer with respect to
certain Financed Eligible Loans financed from the proceeds of any such Series.
If so designated, the other Servicer and the servicing agreement with respect
thereto will be described in such Prospectus Supplement. Any Servicer, other
than Union Bank, shall be confirmed in writing by each Rating Agency. In
addition, any servicing agreement with Union Bank other than the Servicing
Agreement will be described in the related Prospectus Supplement.
UNIPAC
The following information relating to UNIPAC has been obtained from UNIPAC
and is not guaranteed as to accuracy by the Issuer or any placement agent or
underwriter with respect to any Series and is not to be construed as a
representation by the Issuer or any such placement agent or underwriter;
provided, that none of the Issuer, the placement agent or underwriter shall have
any reason to believe that such information is inaccurate in any material
respect.
UNIPAC began its education loan servicing operations on January 1, 1978,
and provides education loan servicing, time sharing, administration and other
services to lenders, secondary market purchasers and guarantee agencies
throughout the United States. UNIPAC is a privately held corporation, owned
primarily by Union Bank and Trust Company, Lincoln, Nebraska, with a minority
ownership held by Packers Service Group, Inc., Lincoln, Nebraska. UNIPAC offers
student loan servicing to lending institutions and secondary markets. UNIPAC's
corporate headquarters is located in Aurora, Colorado, where UNIPAC employs
approximately 626 people. In December 1989, UNIPAC opened a second servicing
center in Lincoln, Nebraska, which currently employs approximately 298 people.
As of March 30, 1996, UNIPAC's servicing volume in its Colorado office was
approximately $3.2 billion for its full-service and secondary market clients,
and approximately $2.2 billion for its remote lender clients and, in its
Nebraska office, was approximately $1.7 billion for its full-service and
secondary market clients.
UNIPAC's due diligence schedule is conducted through automated letter
generation. Telephone calls are made by an auto-dialer system. All functions
are monitored by an internal quality control system to ensure their performance.
Compliance training is provided on both centralized and unit level basis. In
addition, UNIPAC has distinct compliance and internal auditing departments whose
functions are to advise and coordinate compliance issues. In order to provide
these services, UNIPAC has developed and maintains a computer mainframe and
software system. See "Certain Relationships Among Financing Participants."
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GUARANTEE AGENCIES
Information with respect to the Guarantee Agencies that have guaranteed the
Financed Eligible Loans pledged to the Trustee as well as the Eligible Loans
proposed to be acquired with respect to any Series will be included in the
related Prospectus Supplement. While the source of such information will be
described in such Prospectus Supplement, neither the Issuer nor any placement
agent or underwriter makes any representations as to its accuracy; provided,
that none of the Issuer, the placement agent or the underwriter shall have any
reason to believe that such information is incorrect in any material respect.
The Issuer, in connection with future financing of Eligible Loans, may in its
discretion engage the services of these entities or any other Guarantee
Agencies, as described below under the subheading "--Other Guarantee Agencies."
GENERAL
Each Guarantee Agency has entered into certain agreements with the
Secretary of Education (the "Federal Reinsurance Agreements"), under which the
Secretary will reimburse them for 100%, or for student loans made subsequent to
October 1, 1993, 98%, of the amount expended by the Guarantee Agency in
discharging guarantee obligations as a result of the death, disability or
bankruptcy of a student and for at least 90% or 80% or, for student loans made
subsequent to October 1, 1993, 88% or 78%, of the amount expended by the
Guarantee Agency in discharging its guarantee obligations resulting from
defaults in the payment of principal or interest on "guaranteed loans" by
students, depending on the claims rate of the Guarantee Agency. The reduced
percentages for federal reimbursement do not apply if the loan was transferred
to the Guarantee Agency from an insolvent Guarantee Agency or if the loan was
made by the Guarantee Agency as a lender-of-last resort. The following table
summarizes the relationship between the claims rate and the level of
reimbursement by the Secretary with respect to claims resulting from defaults:
CLAIMS RATE OF REIMBURSEMENT
------ ---------------------
0% to less than 5% 100% or 98%, as applicable
Equal to or greater than 5% 100% or 98%, as applicable, of claims up to 5%
but less than 9% and 90% or 88%, as applicable, of claims equal to
or greater than 5% but less than 9%
Equal to or greater than 9% 100% or 98%, as applicable, of claims up to 5%,
90% or 88% as applicable, of claims equal to or
greater than 5% but less than 9%, and 80% or 78%
as applicable, of claims equal to or greater than
9%
The claims rate for a Guarantee Agency with respect to defaults is
determined annually by dividing the amount of such claims by the Guarantee
Agency for reimbursement from the
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Secretary under the Federal Reinsurance Agreements in any one federal fiscal
year by the principal amount of loans guaranteed by the Guarantee Agency which
are in repayment at the end of the preceding federal fiscal year. An increase
in defaults on loans guaranteed by a Guarantee Agency would increase a Guarantee
Agency's claims rate. If these defaults raise claims rates high enough to cause
the reimbursement determinant to exceed 5% in any given federal fiscal year,
federal reimbursements to a Guarantee Agency for the balance of that fiscal year
would decrease in accordance with the foregoing table. Regardless of the claims
rate, a Guarantee Agency is entitled to receive not less than 80% (or 78% for
most loans made on or after October 1, 1993) reimbursement from the Secretary
for claims paid by a Guarantee Agency as long as the Guarantee Agency complies
with its Federal Reinsurance Agreements with the Secretary of Education.
Pursuant to the formula, any decrease in the amount of reimbursement will be
made only for the balance of the federal fiscal year in which the reimbursement
determinant exceeds 5%.
The Secretary may withhold reimbursement payments if the Guarantee Agency
makes a material misrepresentation or fails to comply with the terms of its
agreements with the Secretary or applicable federal law or if the Secretary
determines that the Guarantee Agency has not exercised reasonable prudence in
the administration of its program. The Federal Reinsurance Agreements are
subject to annual renegotiation and to termination for cause by the Secretary.
Owners of guaranteed student loans are required to exercise due diligence
in servicing loans and to use practices which are at least as extensive and
forceful as those used by financial institutions in the collection of other
consumer loans. If the Guarantee Agency has probable cause to believe that the
holder has made misrepresentations or has failed to comply with the terms of its
contract with the Guarantee Agency, the Guarantee Agency may take reasonable
action, including withholding payments or requiring reimbursement of funds. The
Guarantee Agency may also terminate, limit or suspend contracts of guaranty
covering loans guaranteed by the Guarantee Agency for cause upon notice and
hearing.
OTHER GUARANTEE AGENCIES
Although the Issuer expects that most of the Eligible Loans it acquires
under the Indenture will be guaranteed by the Guarantee Agencies described in
the related Prospectus Supplement, the Issuer may acquire Eligible Loans under
the Indenture which are guaranteed by other Guarantee Agencies with the approval
of the Rating Agencies.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain federal income tax consequences of the
purchase, ownership and disposition of Notes is based on the advise of Kutak
Rock, as tax counsel to the Issuer. This summary is based upon laws,
regulations, rulings and decisions currently in effect, all of which are subject
to change. The discussion does not deal with all federal tax consequences
applicable to all categories of investors, some of which may be subject to
special rules. In addition, this summary is generally limited to investors who
will hold the Notes as "capital assets" (generally, property held for
investment) within the meaning of Section 1221 of
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the Internal Revenue Code of 1986, as amended (the "Code"). Investors should
consult their own tax advisors to determine the federal, state, local and other
tax consequences of the purchase, ownership and disposition of the Notes of any
Series. Prospective investors should note that no rulings have been or will be
sought from the Internal Revenue Service (the "Service") with respect to any of
the federal income tax consequences discussed below, and no assurance can be
given that the Service will not take contrary positions.
CHARACTERIZATION OF THE TRUST ESTATE
Based upon certain assumptions and certain representations of the Issuer,
Kutak Rock has advised the Issuer that the Notes will be treated as debt of the
Issuer, rather than as an interest in the Financed Eligible Loans for federal
income tax purposes. Such opinion is not binding on the courts or the Service.
It is possible that the Service could assert that, for purposes of the Code, the
transaction contemplated by this Memorandum constitutes a sale of the Financed
Eligible Loans (or an interest therein) to the Registered Owners or that the
relationship which will result from this transaction is that of a partnership,
or an association taxable as a corporation.
If, instead of treating the transaction as creating secured debt in the
form of the Series issued by the Issuer as a corporate entity, the transaction
were treated as creating a partnership among the Registered Owners, the Servicer
and the Issuer which has purchased the underlying Financed Eligible Loans, the
resulting partnership would not be subject to federal income tax. Rather, the
Servicer, the Issuer and each Registered Owner would be taxed individually on
their respective distributive shares of the partnership's income, gain, loss,
deductions and credits. The amount and timing of items of income and deduction
of the Registered Owner could differ if the Notes were held to constitute
partnership interests, rather than indebtedness.
If, alternatively, it were determined that this transaction created an
entity other than the Issuer which was classified as a corporation or a publicly
traded partnership taxable as a corporation and was treated as having sold the
Financed Eligible Loans, the Trust would be subject to federal income tax at
corporate income tax rates on the income it derives from the Financed Eligible
Loans, which would reduce the amounts available for payment to the Registered
Owners. Cash payments to the Registered Owners generally would be treated as
dividends for tax purposes to the extent of such corporation's earnings and
profits. A similar result would apply if the Registered Owners were deemed to
have acquired stock or other equity interests in the Issuer. However, as noted
above, the Issuer has been advised that the Notes will be treated as debt of the
Issuer for federal income tax purposes.
CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS
The Issuer and the Registered Owners express in the Indenture their intent
that, for applicable tax purposes, the Notes will be indebtedness of the Issuer
secured by the Financed Eligible Loans. The Issuer and the Registered Owners,
by accepting the Notes, have agreed to treat the Notes as indebtedness of the
Issuer for federal income tax purposes. The Issuer intends
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to treat this transaction as a financing reflecting the Notes as its
indebtedness for tax and financial accounting purposes.
In general, the characterization of a transaction as a sale of property or
a secured loan, for federal income tax purposes, is a question of fact, the
resolution of which is based upon the economic substance of the transaction,
rather than its form or the manner in which it is characterized. While the
Service and the courts have set forth several factors to be taken into account
in determining whether the substance of a transaction is a sale of property or a
secured indebtedness, the primary factor in making this determination is whether
the transferee has assumed the risk of loss or other economic burdens relating
to the property and has obtained the benefits of ownership thereof.
Notwithstanding the foregoing, in some instances, courts have held that a
taxpayer is bound by the particular form it has chosen for a transaction, even
if the substance of the transaction does not accord with its form.
The Issuer believes that it has retained the preponderance of the primary
benefits and burdens associated with the Financed Eligible Loans and should,
thus, be treated as the owner of the Financed Eligible Loans for federal income
tax purposes. If, however, the Service were to successfully assert that this
transaction should be treated as a sale of the Financed Eligible Loans, the
Service could further assert that the entity created pursuant to the Indenture,
as the owner of the Financed Eligible Loans for federal income tax purposes,
should be deemed engaged in a business and, therefore, characterized as an
association taxable as a corporation.
TAXATION OF INTEREST INCOME OF REGISTERED OWNERS
Payments of interest with regard to the Notes will be includible as
ordinary income when received or accrued by the Registered Owners in accordance
with their respective methods of tax accounting and applicable provisions of the
Code. In particular, Section 1272 of the Code requires the current ratable
inclusion in income of original issue discount using a constant yield method.
In general, original issue discount is calculated, with regard to any accrual
period, by applying the instrument's yield to its adjusted issue price at the
beginning of the accrual period, reduced by any qualified stated interest
allocable to the period. The aggregate original issue discount allocable to an
accrual period is allocated to each day included in such period. The holder of
a debt instrument must include in income the sum of the daily portions of
original issue discount attributable to the number of days he owned the
instrument.
Original issue discount is the stated redemption price at maturity of a
debt instrument over its issue price. The stated redemption price at maturity
includes all payments with respect to an instrument other than interest
unconditionally payable at a fixed rate or a qualified variable rate at fixed
intervals of one year or less. The Service recently promulgated Regulations
regarding the circumstances in which interest will be deemed calculated at a
fixed rate or a qualified variable rate for this purpose. The Issuer expects
that interest payable with respect to the Accrual Notes, if any, will not be
qualified stated interest and that such Accrual Notes will be issued with
original issuer discount. Further, there can be no assurance that the Service
would not assert that the interest payable with respect to the Subordinate Notes
may not be
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qualified stated interest because such payments are not unconditional and that
the Subordinate Notes are issued with original issue discount.
Payments of interest received with respect to the Notes may also constitute
"investment income" for purposes of certain limitations of the Code concerning
the deductibility of investment interest expense. Potential Registered Owners
or the Beneficial Owners should consult their own tax advisors concerning the
treatment of interest payments with regard to the Notes.
A purchaser who buys a Note of any Series at a discount from its principal
amount or its adjusted issue price if issued with original issue discount
greater than a specified de minimis amount will be subject to the market
discount rules of the Code. In general, the market discount rules of the Code
treat principal payments and gain on disposition of a debt instrument as
ordinary income to the extent of accrued market discount. Although the accrued
market discount on debt instruments such as the Notes which are subject to
prepayment based on the prepayment of other debt instruments is to be determined
under regulations yet to be issued, the legislative history of these provisions
of the Code indicate that the same prepayment assumption used to calculate
original issue discount should be utilized. Each potential investor should
consult his tax advisor concerning the application of the market discount rules
to the Notes.
The annual statement regularly furnished to Registered Owners for federal
income tax purposes will include information regarding the accrual of payments
of principal and interest with respect to the Notes. As noted above, the Issuer
believes, based on the advice of counsel, that it will retain ownership of the
Financed Eligible Loans for federal income tax purposes. In the event the
Indenture is deemed to create a passthrough entity as the owner of the Financed
Eligible Loans for federal income tax purposes instead of the Issuer (assuming
such entity is not, as a result, taxed as an association), the owners of the
Notes could be required to accrue payments of interest more rapidly than
otherwise would be required.
BACKUP WITHHOLDING
Certain purchasers may be subject to backup withholding at the rate of 31%
with respect to interest paid with respect to the Notes if the purchasers, upon
issuance, fail to supply the Trustee or their brokers with their taxpayer
identification numbers, furnish incorrect taxpayer identification numbers, fail
to report interest, dividends or other "reportable payments" (as defined in the
Code) properly, or, under certain circumstances, fail to provide the Trustee
with a certified statement, under penalty of perjury, that they are not subject
to backup withholding. Information returns will be sent annually to the Service
and to each purchaser setting forth the amount of interest paid with respect to
on the Notes and the amount of tax withheld thereon.
The Issuer makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Notes under the tax laws of any state,
locality or foreign jurisdiction. Investors considering an investment in the
Notes should consult their own tax advisors regarding such tax consequences.
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LIMITATION ON THE DEDUCTIBILITY OF CERTAIN EXPENSES
Under Section 67 of the Code, an individual may deduct certain
miscellaneous itemized deductions only to the extent that the sum of such
deductions for the taxable year exceed 2% of his or her adjusted gross income.
If contrary to expectation, the entity created under the Indenture were treated
as the owner of the Financed Eligible Loans (and not as an association taxable
as a corporation), then the Issuer believes that a substantial portion of the
expenses to be generated by the Trust could be subject to the foregoing
limitations. As a result, each potential Registered Owner should consult his or
her personal tax advisor concerning the application of these limitations to an
investment in the Notes.
TAX-EXEMPT INVESTORS
In general, an entity which is exempt from federal income tax under the
provisions of Section 501 of the Code is subject to tax on its unrelated
business taxable income. An unrelated trade or business is any trade or
business which is not substantially related to the purpose which forms the basis
for such entity's exemption. However, under the provisions of Section 512 of
the Code, interest may be excluded from the calculation of unrelated business
taxable income unless the obligation which gave rise to such interest is subject
to acquisition indebtedness. If, contrary to expectations, one or more of the
Notes of any Series were considered equity for tax purposes and if one or more
other Notes were considered debt for tax purposes, those Notes treated as equity
likely would be subject to acquisition indebtedness and likely would generate
unrelated business taxable income. However, as noted above, counsel has advised
the Issuer that the Notes will be characterized as debt for federal income tax
purposes. Therefore, except to the extent any Registered Owner incurs
acquisition indebtedness with respect to a Note, interest paid or accrued with
respect to such Note may be excluded by each tax-exempt Registered Owner from
the calculation of unrelated business taxable income. Each potential tax-exempt
Registered Owner is urged to consult its own tax advisor regarding the
application of these provisions.
SALE OR EXCHANGE OF NOTES
If a holder sells a Note, such person will recognize gain or loss equal to
the difference between the amount realized on such sale and the basis of such
Note. If a Note was acquired subsequent to its initial issuance at a discount,
a portion of such gain will be recharacterized as interest and therefore
ordinary income.
If the term of a Note was materially modified, in certain circumstances, a
new debt obligation would be deemed created and exchanged for the prior
obligation in a taxable transaction. Among the modifications which may be
treated as material are those which relate to the redemption provisions and, in
the case of a nonrecourse obligation, those which involve the substitution of
collateral. Each potential holder of a Note should consult its own tax advisor
concerning the circumstances in which the Notes would be deemed reissued and the
likely effects, if any, of such reissuance.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain fiduciary and prohibited transaction restrictions on employee
pension and welfare benefit plans subject to ERISA ("ERISA Plans"). Section
4975 of the Code imposes essentially the same prohibited transaction
restrictions on tax-qualified retirement plans described in Section 401(a) of
the Code ("Qualified Retirement Plans") and on Individual Retirement Accounts
("IRAs") described in Section 408(b) of the Code (collectively, "Tax-Favored
Plans"). Certain employee benefit plans, such as governmental plans (as defined
in Section 3(32) of ERISA), and, if no election has been made under Section
410(d) of the Code, church plans (as defined in Section 3(33) of ERISA), are not
subject to ERISA requirements. Accordingly, assets of such plans may be
invested in Notes without regard to the ERISA considerations described below,
subject to the provisions of applicable federal and state law. Any such plan
which is a Qualified Retirement Plan and exempt from taxation under Sections
401(a) and 501(a) of the Code, however, is subject to the prohibited transaction
rules set forth in the Code.
In addition to the imposition of general fiduciary requirements including
those of investment prudence and diversification and the requirement that a
Plan's investment be made in accordance with the documents governing the Plan,
Section 406 of ERISA and Section 4975 of the Code prohibit a broad range of
transactions involving assets of ERISA Plans and Tax-Favored Plans and entities
whose underlying assets include plan assets by reason of ERISA Plans or Tax-
Favored Plans investing in such entities (collectively hereafter "Plan" or
"Plans") and persons ("Parties in Interest" or "Disqualified Persons") who have
certain specified relationships to the Plans, unless a statutory or
administrative exemption is available. Certain Parties in Interest (or
Disqualified Persons) that participate in a prohibited transaction may be
subject to a penalty (or an excise tax) imposed pursuant to Section 502(i) of
ERISA or Section 4975 of the Code unless a statutory or administrative exemption
is available.
The investment in a security by a Plan may, in certain circumstances, be
deemed to include an investment in the assets of the issuer of such security.
The U.S. Department of Labor (the "DOL") has promulgated regulations (the
"Regulations") concerning whether or not an ERISA Plan's assets would be deemed
to include an interest in the underlying assets of an entity (such as a Trust
Fund) for purposes of the general fiduciary responsibility provisions of ERISA
and for the prohibited transaction provisions of ERISA and the Code, when a Plan
acquires an "equity interest" in such entity.
Under these provisions the acquisition by a Plan of a security which is
treated as debt under local law and which has no substantial equity features
will not be treated as the acquisition of an "equity interest" in the issuer.
In addition, under such Regulations the assets of an ERISA Plan will not include
an interest in the assets of an entity, the equity interests of which are
acquired by the ERISA Plan, if at no time do ERISA Plans in the aggregate own
25% or more of the equity interests in such entity. Because the availability of
this exemption depends upon the identity of the Registered Owners at any time,
there can be no assurance that the Notes will qualify for this exemption.
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The Regulations also provide an exemption from "plan asset" treatment for
securities issued by an entity if such securities are debt securities under
applicable state law with no "substantial equity features." Except as specified
with respect to a Series in the related Prospectus Supplement, the Notes are
intended to represent debt of the Issuer for state law and federal income tax
purposes; however, there can be no assurance that the DOL will not challenge
such position. Assuming that a Class of Notes will be considered debt with no
substantial equity features for purposes of the Regulations, the assets of the
Trust will not be characterized as "plan assets" under the Regulations whether
any Class of Notes may be purchased by Plans will be set forth in the related
Prospectus Supplement.
Without regard to whether the Notes are treated as an "equity interest" for
such purposes, the acquisition or holding of Notes by or on behalf of a Plan
could be considered to give rise to a prohibited transaction if the Issuer or
any of their respective affiliates is or becomes a Party in Interest or
Disqualified Person with respect to such Plan, or in the event that a Note is
purchased in the secondary market by a Plan from a Party in Interest or
Disqualified Person with respect to such Plan. There can be no assurance that
the Issuer or any of their respective affiliates will not be or become a party
in interest or a disqualified person with respect to a Plan that acquires Notes.
However, one or more of the following prohibited transaction class exemptions
may apply to the acquisition, holding and transfer of the Notes: Prohibited
Transaction Class Exemption ("PTCE") 84-14 (regarding investments by qualified
professional asset managers), PTCE 90-1 (relating to investments by insurance
company pooled separate accounts), PTCE 91-38 (regarding investments by bank
collective investment funds), PTCE 95-60 (regarding investments by insurance
company general accounts) and PTCE 96-23 (regarding investments by in-house
asset managers). Any ERISA Plan fiduciary considering whether to purchase Notes
of any Series on behalf of an ERISA Plan should consult with its counsel
regarding the applicability of the fiduciary responsibility and prohibited
transaction provisions of ERISA and the Code to such investment and the
availability of any of the exemptions referred to above. Persons responsible
for investing the assets of Tax-Favored Plans that are not ERISA Plans should
seek similar counsel with respect to the prohibited transaction provisions of
the Code.
CERTAIN RELATIONSHIPS AMONG FINANCING PARTICIPANTS
The Issuer has acquired all Financed Eligible Loans currently pledged to
the Trustee from Union Bank pursuant to its respective Student Loan Purchase
Agreements and the Issuer may acquire additional Eligible Loans from Union Bank
in the future. Union Bank will, unless specified with respect to a Series in
the related Prospectus Supplement, also act as Servicer for all other acquired
Financed Eligible Loans pursuant to the Servicing Agreement. However, UNIPAC,
as Subservicer, will discharge the Servicer's duties with respect to the
Financed Eligible Loans pursuant to the Subservicing Agreement. UNIPAC is a
privately held corporation which is 80.5% owned by Union Bank. The respective
Student Loan Purchase Agreements provide that Union Bank has a right to
repurchase any Financed Eligible Loans acquired from Union Bank which the Issuer
causes to be removed from UNIPAC's servicing system. UNIPAC will also act as
Custodian for the Financed Eligible Loans. See "Risk Factors--Reliance upon
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Sellers," "--Certain Legal Aspects" and "--Perfection of Security Interest in
Financed Eligible Loans" herein.
The Issuer is a wholly owned subsidiary of Union Financial Services, Inc.
("UFS"). UFS is a privately held corporation whose minority owners include the
parent of Union Bank, certain employees of Union Bank and certain relatives of
such employees.
PLAN OF DISTRIBUTION
The Issuer may sell the Offered Notes of each Series to or through
underwriters (the "Underwriters") or placement agents (the "Placement Agents")
by "best efforts" underwriting or a negotiated firm commitment underwriting and
public reoffering by the Underwriters or Placement Agents, and also may sell and
place the Offered Notes directly to other purchasers or through agents. If so
indicated in the Prospectus Supplement, the Issuer may sell such Notes, directly
or through agents, through a competitive bidding process described in the
applicable Prospectus Supplement. The Issuer intends that such Notes will be
offered through such various methods from time to time and that offerings may be
made concurrently through more than one of these methods or that an offering of
a particular Series of such Notes may be made through a combination of such
methods.
The distribution of the Offered Notes may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of the Offered Notes, Underwriters or Placement
Agents or agents may receive compensation from the Issuer or from the purchasers
of such Notes for whom they may act as agents in the form of discounts,
concessions or commissions. Underwriters or Placement Agents may sell the Notes
of a Series to or through dealers and such dealers may receive compensation in
the form of discounts, concessions or commissions from the Underwriters or
Placement Agents and/or commissions from the purchasers for whom they may act as
agents. Underwriters or Placement Agents, dealers and agents that participate
in the distribution of the Notes of a Series may be deemed to be underwriters
and any discounts or commissions received by them from the Issuer and any profit
on the resale of the Notes by them may be deemed to be underwriting discounts
and commissions, under the 1933 Act. Any such Underwriters or Placement Agents
will be identified, and any such compensation received from the Issuer will be
described, in the applicable Prospectus Supplement.
Under agreements which may be entered into by the Issuer, the Underwriters
or Placement Agents and agents who participate in the distribution of the
Offered Notes may be entitled to indemnification by the Issuer against certain
liabilities, including liabilities under the 1933 Act, or to contribution with
respect to payments which the Underwriters or Placement Agents or agents may be
required to make in respect thereto.
If so indicated in the Prospectus Supplement, the Issuer will authorize
Underwriters or Placement Agents or other persons acting as the Issuer's agents
to solicit offers by certain
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institutions to purchase the Offered Notes from the Issuer pursuant to contracts
providing for payment and delivery on a future date. Institutions with which
such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must be approved by
the Issuer. The obligation of any purchaser under any such contract will be
subject to the condition that the purchaser of the Offered Notes shall not at
the time of delivery be prohibited under the laws of the jurisdiction to which
such purchaser is subject from purchasing such Notes. The Underwriters or the
Placement Agents and such other agents will not have responsibility in respect
of the validity or performance of such contracts.
The Underwriters or the Placement Agents may, from time to time, buy and
sell Notes, but there can be no assurance that an active secondary market will
develop and there is no assurance that any market, if established, will
continue.
LEGAL MATTERS
Certain legal matters, including certain income tax matters, will be passed
upon for the Issuer by Kutak Rock, Denver, Colorado. Other counsel, if any,
passing upon legal matters for any placement agent or underwriter will be
identified in the related Prospectus Supplement.
FINANCIAL INFORMATION
The Issuer has determined that its financial statements are not material to
the offering made hereby. The Issuer will engage in no activities other than as
described herein. Accordingly, no financial statements with respect to the
Issuer are included in this Prospectus.
RATINGS
It is a condition to the issuance of the Offered Notes of any Series that
the Classes of Notes publicly offered be investment grade rated by at least one
nationally recognized statistical rating organization. Such ratings will be
described in the related Prospectus Supplement.
A securities rating addresses the likelihood of the receipt by Registered
Owners of the Notes rated of payments of principal and interest with respect to
their Notes from assets in the Trust Estate. The rating takes into
consideration the characteristics of the Financed Eligible Loans, and the
structural, legal and tax aspects associated with the rated Notes.
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each securities rating should be evaluated independently of
similar ratings on different securities.
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INDEX TO AND GLOSSARY OF TERMS
There is provided below an index to and a glossary of definitions used in
this Prospectus. To the extent not contained herein and the Appendices hereto,
certain definitions may be set forth in the Indenture included as an exhibit to
this Registration Statement of which this Prospectus is a part.
INDEX OF DEFINED TERMS
There follows a reference to the definitions of capitalized terms used in
this Prospectus.
Accrual Notes..............................................................cover
Best efforts..................................................................55
Code..........................................................................49
Disqualified Persons..........................................................53
DOL...........................................................................53
ERISA.........................................................................53
ERISA Plans...................................................................53
Indenture....................................................................vii
IRAs..........................................................................53
Issuer.....................................................................cover
L/C Bank......................................................................41
Parties in Interest...........................................................53
Placement Agents..............................................................55
Prior Class A Notes...........................................................iv
Prior Class B Notes...........................................................iv
Qualified Retirement Plans....................................................53
Regulations...................................................................53
Scheduled Sale Date...........................................................20
Securities Act.............................................................cover
Seller.....................................................................cover
Service.......................................................................49
Student Loan Portfolio.......................................................xiv
Tax-Favored Plans.............................................................53
Underwriters..................................................................55
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APPENDIX I
DESCRIPTION OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM
THE FEDERAL FAMILY EDUCATION LOAN PROGRAM
The Higher Education Act provides for a program of (a) direct federal
insurance of student loans ("FISLP") and (b) reinsurance of student loans
guaranteed or insured by a state agency or private non-profit corporation
(collectively, "Federal Family Education Loans" and the "Federal Family
Education Loan Program"). Several types of loans are currently authorized as
Federal Family Education Loans pursuant to the Federal Family Education Loan
Program. These include: (a) loans to students with respect to which the federal
government makes interest payments available to reduce student interest cost
during periods of enrollment ("Subsidized Federal Stafford Loans"); (b) loans to
students with respect to which the federal government does not make such
interest payments ("Unsubsidized Federal Stafford Loans" and, collectively with
Subsidized Stafford Loans, "Stafford Loans"); (c) supplemental loans to parents
of dependent students ("Federal PLUS Loans"); and (d) loans to fund payment and
consolidation of certain of the borrower's obligations ("Federal Consolidation
Loans"). Prior to July 1, 1994, the Federal Family Education Loan Program also
included a separate type of loan to graduate and professional students and
independent undergraduate students and, under certain circumstances, dependent
undergraduate students, to supplement their Stafford Loans ("Federal
Supplemental Loans for Students" or "Federal SLS Loans").
This summary of the Federal Family Education Loan Program as established by
the Higher Education Act does not purport to be comprehensive or definitive and
is qualified in its entirety by reference to the text of the Higher Education
Act and the regulations thereunder. Certain of the provisions of the Federal
Family Education Loan Program described below have been subsequently modified by
legislation signed by President Clinton on August 10, 1993 and December 20,
1993. See "1993 Amendments to the Federal Family Education Loan Program" and
"Subsidized Federal Stafford Loans--Principal and Interest" below.
SUBSIDIZED FEDERAL STAFFORD LOANS
The Higher Education Act provides for federal (a) insurance or reinsurance
of eligible Subsidized Federal Stafford Loans, (b) interest subsidy payments to
eligible lenders with respect to certain eligible Subsidized Federal Stafford
Loans, and (c) special allowance payments representing an additional subsidy
paid by the Secretary of Education to such holders of eligible Subsidized
Federal Stafford Loans.
Subsidized Federal Stafford Loans are eligible for reinsurance under the
Higher Education Act if the eligible student to whom the loan is made has been
accepted or is enrolled in good standing at an eligible institution of higher
education or vocational school and is carrying at least one-half the normal
full-time workload at that institution. In connection with eligible Subsidized
Federal Stafford Loans there are limits as to the maximum amount which may be
borrowed for
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an academic year and in the aggregate for both undergraduate and
graduate/professional study. Both aggregate limitations exclude loans made under
the Federal SLS and Federal PLUS Programs. The Secretary of Education has
discretion to raise these limits to accommodate students undertaking specialized
training requiring exceptionally high costs of education.
SUBJECT TO THESE LIMITS, SUBSIDIZED FEDERAL STAFFORD LOANS ARE AVAILABLE TO
BORROWERS IN AMOUNTS NOT EXCEEDING THEIR UNMET NEED FOR FINANCING AS PROVIDED IN
THE HIGHER EDUCATION ACT. PROVISIONS ADDRESSING THE IMPLEMENTATION OF NEEDS
ANALYSIS AND THE RELATIONSHIP BETWEEN UNMET NEED FOR FINANCING AND THE
AVAILABILITY OF SUBSIDIZED FEDERAL STAFFORD LOAN PROGRAM FUNDING HAVE BEEN THE
SUBJECT OF FREQUENT AND EXTENSIVE AMENDMENT IN RECENT YEARS. THERE CAN BE NO
ASSURANCE THAT FURTHER AMENDMENT TO SUCH PROVISIONS WILL NOT MATERIALLY AFFECT
THE AVAILABILITY OF SUBSIDIZED FEDERAL STAFFORD LOAN FUNDING TO BORROWERS OR THE
AVAILABILITY OF SUBSIDIZED FEDERAL STAFFORD LOANS FOR SECONDARY MARKET
ACQUISITION.
QUALIFIED STUDENT. Generally, a loan may be made only to 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 institution, (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
applicable "needs" requirements. Eligible institutions include higher
educational institutions and vocational schools that comply with certain federal
regulations. Each loan is to be evidenced by an unsecured note.
PRINCIPAL AND INTEREST. Subsidized Federal Stafford Loans may bear
interest at a rate not in excess of 7% per annum if made to a borrower to cover
costs of instruction for any period beginning prior to January 1, 1981 or,
subsequent to such date, if made to a borrower who, upon entering into a note
for a loan, has outstanding student loans under the Federal Family Education
Loan Program for which the interest rates do not exceed 7%. Subsidized Federal
Stafford Loans made to new borrowers for periods of instruction between January
1, 1981 and July 13, 1983 bear interest at a rate of 9% per annum and for
periods of instruction beginning on or after July 13, 1983 the rate for new
borrowers is 8% per annum. Further, loans to first-time borrowers for periods
of enrollment beginning on or after July 1, 1988, made pursuant to Section 427A
of the Higher Education Act ("427A Loans"), bear interest at rates of 8% per
annum from disbursement through four years after repayment commences and 10% per
annum thereafter, subject to a provision (the so-called "rebate") requiring
annual discharge of principal to the extent, in excess of $50, that the sum of
quarterly calculations of the amount by which interest calculated at the rate of
10% per annum exceeds the amount which would result from application of a rate
equivalent to the annual average T-bill rate plus 3.25%. For new loans made to
all existing borrowers after July 23, 1992 and for loans made to all new
borrowers after July 23, 1992 but prior to October 1, 1992, the provision that
requires annual rebate is effective immediately, the rate with which the
quarterly calculation of interest is compared is equivalent to the annual
average 91-day Treasury bill bond equivalent rate plus 3.10%, and any rebate
with respect to a loan for a period during which the Secretary of Education is
making interest subsidy payments must be credited to the Secretary of Education.
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The Higher Education Technical Amendments of 1993, enacted December 20,
1993 (P.L. 103-208) (the "1993 Technical Amendments") changed the excess
interest rebate provisions of the Higher Education Act applicable to the Federal
Stafford Loans described in the preceding paragraph which were previously
subject to such rebate requirements. Holders of all such loans previously
subject to rebates are required to convert the fixed rates on such loans to
annual variable rates by January 1, 1995 in most cases (loans with an initial
rate of 8% which increase to 10% after four years of repayment ("8/10% loans")
must convert by January 1, 1995 or the date of increase to 10%, whichever is
later). The converted loans will not thereafter be subject to the rebate
requirements. At the time of conversion the holder of the loan also must
retroactively convert the fixed interest rate for periods prior to the
conversion to a quarterly variable rate. In all cases the new variable rate
cannot exceed the originally stated fixed rate. The new annual variable rate
for 8/10% loans made prior to July 23, 1992 and to new borrowers between July
23, 1992 and October 1, 1992 will be the bond equivalent rate of the 91-day
Treasury bills auctioned at the final auction prior to each June 1, plus 3.25%.
The new annual variable rate for 8/10% loans and other fixed rate loans made to
existing borrowers between July 23, 1992 and October 1, 1992 will be the bond
equivalent rate of the 91-day Treasury bills auctioned at the final auction
prior to each June 1, plus 3.10%. The retroactive quarterly variable rates for
periods prior to conversion will be the average of the bond equivalent rates of
the 91-day Treasury bills auctioned for the preceding three months plus 3.25%
(in the case of 8/10% loans described in the second preceding sentence) or 3.10%
(in the case of loans described in the preceding sentence).
Subsidized Federal Stafford Loans initially disbursed on or after October 1,
1992 to new borrowers as of that date, and subsequent loans to such borrowers,
bear a variable rate of interest, subject to annual reset. The effective
interest rate thereon would equal 3.10% over the average of the bond equivalent
rate of 91-day Treasury bills auctioned during a particular fiscal year not to
exceed 9%. The 1993 Amendments (as described below) made certain changes to
the interest rates on student loans to be originated in the future. The interest
rates on Subsidized Federal Stafford Loans made to new borrowers as of July 1,
1994 will be the 91-day T-bill rate plus 3.1%, not to exceed 8.25 %. The
interest rates on these programs for loans made on or after July 1, 1995 prior
to repayment and during any grace period will be the 91-day T-bill plus 2.5%,
not to exceed 8.25%. The interest rate on Federal Stafford Loans and
Unsubsidized Federal Stafford Loans made to new borrowers on or after July 1,
1998, will be the bond equivalent rate of the U.S. Treasury security with a
comparable maturity as established by the Secretary of Education plus 1%, not to
exceed 8.25%.
The Higher Education Act requires that loans in excess of $1,000 made to
cover enrollment periods longer than six months be disbursed by eligible
lenders in at least two separate disbursements. Prior to January 1, 1987,
the maximum amount of the loan for an academic year could not exceed $2,500
for undergraduate study and $5,000 for graduate or professional study,
subject to an aggregate limit of $12,500 for undergraduate study and up to
$25,000 for graduate and professional study, inclusive of loans for
undergraduate study. Since January 1, 1987, undergraduates have been able to
borrow up to $2,625 annually through the completion of the second year of
instruction and $4,000 annually through the remainder of undergraduate study.
Subsidized Federal Stafford Loans are subject to an aggregate limit of
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$17,250 for undergraduate study, while graduate or professional students, who
may borrow up to $7,500 annually, are subject to an aggregate limit of $54,750,
inclusive of loans for undergraduate study. After July 1, 1993, the maximum
amount of a Subsidized Federal Stafford Loan for an academic year cannot exceed
$2,625 for the first year of undergraduate study, $3,500 for the second year of
undergraduate study and $5,500 for the remainder of undergraduate study. The
aggregate limit for undergraduate study is $23,000. The maximum amount of the
loans for an academic year for graduate students is $8,500. In either case, the
Secretary of Education has discretion to raise these limits by regulation to
accommodate highly specialized or exceptionally expensive courses of study.
REPAYMENT. Repayment of principal on a Subsidized Federal Stafford Loan
does not commence while a student remains a qualified student, but generally
begins upon expiration of the applicable Grace Period, as described below. Such
Grace Periods may be waived by borrowers. In general, each loan must be
scheduled for repayment over a period of not more than ten years after the
commencement of repayment. The Higher Education Act currently requires minimum
annual payments of $600, including principal and interest, unless the borrower
and the lender agree to lesser payments; in instances in which a borrower and
spouse both have such loans outstanding, the total combined payments for such a
couple may not be less than $600 per year.
GRACE PERIOD, DEFERMENT PERIODS, FORBEARANCE. Repayment of principal of a
Subsidized 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 1,
1988) after the student borrower ceases to pursue at least a half-time course of
study (a "Grace Period"). However, during certain other periods and subject to
certain conditions, no principal repayments need be made, including periods when
the borrower has returned to an eligible educational institution on a half-time
basis or is pursuing studies pursuant to an approved graduate fellowship
program, is a member of the Armed Forces or a volunteer under the Peace Corps
Act or the Domestic Volunteer Service Act of 1973, or is temporarily totally
disabled or is unable to secure employment by reason of the care required by a
dependent who is so disabled ("Deferment Periods"). Other Deferment Periods
include periods of unemployment and qualified internships. The lender may also
allow periods of forbearance during which the borrower may defer principal
payments because of temporary financial hardship.
INTEREST SUBSIDY PAYMENTS. The Secretary of Education pays interest on
Subsidized Federal Stafford Loans while the student is a qualified student,
during a Grace Period or during certain Deferment Periods. The Secretary of
Education makes interest subsidy payments to the owner of Subsidized Federal
Stafford Loans in the amount of interest accruing on the unpaid balance thereof
prior to the commencement of repayment or during any Deferment Period. The
Higher Education Act provides that the owner of an eligible Subsidized Federal
Stafford Loan shall be deemed to have a contractual right against the United
States to receive interest subsidy payments in accordance with its provisions.
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UNSUBSIDIZED FEDERAL STAFFORD LOANS
The 1992 Amendments (defined below) created the Unsubsidized Federal
Stafford Loan Program designed for students who do not qualify for Subsidized
Federal Stafford Loans due to parental and/or student income and assets in
excess of permitted amounts. In other respects, the general requirements for
Unsubsidized Federal Stafford Loans are essentially the same as those for
Subsidized Federal Stafford Loans. The interest rate, the annual loan limits
and the special allowance payment provisions of the Unsubsidized Federal
Stafford Loans are the same as the Subsidized Federal Stafford Loans. However,
the terms of the Unsubsidized Federal Stafford Loans differ materially from
Subsidized Federal Stafford Loans in that the federal government will not make
interest subsidy payments and the loan limitations are determined without
respect to the expected family contribution. The borrower will be required to
pay interest from the time such loan is disbursed or capitalize the interest
until repayment begins. The authority for offering Unsubsidized Federal
Stafford Loans became effective for periods of enrollment beginning on or after
October 1, 1992.
The 1993 Amendments made certain changes to the interest rates on student
loans to be originated in the future. The interest rates on Unsubsidized
Federal Stafford Loans made to new borrowers as of July 1, 1994 will be the 91-
day T-bill rate plus 3.10%, not to exceed 8.25%. The interest rates on these
programs for loans made on or after July 1, 1995 prior to repayment and during
any grace period will be the 91-day T-bill rate plus 2.50%, not to exceed 8.25%.
The interest rate on Unsubsidized Federal Stafford Loans made on or after July
1, 1998 will be the bond equivalent rate of the security with a comparable
maturity as established by the Secretary of Education plus 1.0%, not to exceed
8.25%.
SPECIAL ALLOWANCE PAYMENTS
The Higher Education Act provides for special allowance payments to be made
by the Secretary of Education to eligible lenders. The rates for special
allowance payments are based on formulas that differ according to the type of
loan (Federal Stafford or Federal PLUS and Federal SLS), the date the loan was
originally made or insured and the type of funds used to finance such loan (tax-
exempt or taxable). The effective formulas for special allowance payment rates
for Subsidized Federal Stafford Loans to borrowers whose first loans were
disbursed prior to July 23, 1992 and were acquired or originated with the
proceeds of tax-exempt obligations are set forth in the following table. This
formula has been changed by the 1993 Amendments, as hereinafter described, for
loans acquired or funded with proceeds of tax-exempt obligations originally
issued after September 30, 1993.
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Annualized SAP Rate/ Annualized SAP Rate/
Interest Pre-October 1980 Post-October 1980
Rate on Loan Loans(1) Tax-Exempt Loans(1)
------------ ------------------- --------------------
7% T-Bill - 3.5% (T-Bill-3.5%)/2: minimum 2.5%
8% T-Bill - 4.5% (T-Bill-4.5%)/2: minimum 1.5%
9% T-Bill - 5.5% (T-Bill-5.50%)/2: minimum 0.5%
- ----------------
(1) "T-Bill," as used in this table, means the average 13-week Treasury bill
rate calculated as a "bond equivalent rate" in the manner applied by the
Secretary of Education as referred to in Section 438 of the Higher Education
Act.
As noted in the foregoing table, there are minimum special allowance
payment rates for Subsidized Federal Stafford Loans acquired with proceeds of
tax-exempt obligations made on and after October 1, 1980, except for 427A Loans
(while bearing interest at 10%), which rates effectively ensure an overall
minimum return of 9.5% on such Subsidized Federal Stafford Loans. However,
loans acquired with the proceeds of tax-exempt obligations originally issued
after September 30, 1993 will no longer be assured of a minimum special
allowance payment. In addition, the formula will be the same as for loans
acquired with taxable proceeds (i.e., the full, rather than half, special
allowance payment rate). The formula for special allowance payment rates for
Federal PLUS and Federal SLS Loans is similar to that for the Subsidized Federal
Stafford Loans except that no such payments are made until the rate on the
Federal PLUS or Federal SLS Loan exceeds a certain rate per annum according to
the type of loan and based on when the loan was first disbursed. In order to be
eligible for special allowance payments, the rate on PLUS Loans first disbursed
on or after October 1, 1992 must exceed 10% and for SLS Loans first disbursed on
or after October 1, 1992 the rate must exceed 11%. The rate of special
allowance payments for Subsidized Federal Stafford Loans first disbursed on or
after October 1, 1992 is based on the bond equivalent 91-day Treasury bill rate
plus 3.1%. The special allowance payment rates applicable to Federal
Consolidation Loans are determined in the same manner as Subsidized Federal
Stafford Loans made on or after October 1, 1980.
There can be no assurance that relevant federal laws, including the Higher
Education Act, will not be changed retroactively or prospectively in a manner
which might adversely affect the Issuer's ability to pay the principal of and
interest on the Notes. For example, the Higher Education Act has been amended
in the past to change the method of determining special allowance payments.
Special allowance payments are pledged as security for the Notes and are payable
to the Issuer for all applicable Financed Eligible Loans pledged to secure the
Notes.
FEDERAL PLUS AND FEDERAL SLS LOAN PROGRAMS
The Higher Education 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. Only parents who do not have an adverse credit
history are eligible for Federal PLUS Loans that have a first disbursement date
on or after July 1, 1993. The basic provisions applicable to Federal PLUS and
Federal SLS Loans are similar to those of Subsidized Federal Stafford Loans
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with respect to the involvement of guaranty agencies and the Secretary of
Education in providing federal reinsurance on the loans. However, Federal PLUS
and Federal SLS Loans differ significantly from Subsidized Federal Stafford
Loans, particularly because federal interest subsidy payments are not available
under the Federal PLUS and Federal SLS Programs and special allowance payments
are more restricted.
Federal SLS Loan limits for loans disbursed on or after July 1, 1993 are
dependent on 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 1,
1993 ranges 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.
The only limit on the annual and aggregate amounts of Federal PLUS Loans first
disbursed on or after July 1, 1993 is the student's unmet financial need.
Federal PLUS and Federal SLS Loans disbursed prior to July 1, 1993 are limited
to $4,000 per academic year with a maximum aggregate amount of $20,000. Prior
to October 17, 1986, the applicable loan limits were $3,000 per academic year
with a maximum aggregate amount of $15,000. Federal PLUS and Federal SLS Loans
are also limited, generally, to the cost of attendance minus other financial aid
for which the student is eligible.
The applicable interest rate depends upon the date of issuance of the loan
and the period of enrollment for which the loan is to apply. For Federal PLUS
Loans issued on or after October 1, 1981, but for periods of educational
enrollment beginning prior to July 1, 1987, the applicable rate of interest is
either 12% or 14% per annum. A variable interest rate applies to Federal PLUS
and Federal SLS Loans made and disbursed on or after July 1, 1987 but prior to
October 1, 1992. The rate is determined on the basis of any 12-month period
beginning on July 1 and ending on the following June 30, such that the rate
shall be the bond equivalent rate of 52-week Treasury bills auctioned at the
final auction held prior to the June 1 preceding the applicable 12-month period,
plus 3.25%, with a maximum rate of 12% per annum. Special allowance payments
are available on variable rate Federal PLUS and Federal SLS Loans disbursed on
or after July 1, 1987 but prior to October 1, 1992 only if the rate determined
by the formula above would exceed 12%. The variable interest rate for Federal
PLUS and Federal SLS Loans first disbursed on or after October 1, 1992 is based
on the same 12-month period as Federal PLUS and Federal SLS Loans disbursed
prior to October 1, 1992, except that 3.10% shall be added to the bond
equivalent rate of 52-week Treasury bills auctioned prior to the applicable
period, with a maximum rate of 11% per annum for Federal SLS Loans, and a
maximum rate of 10% per annum for Federal PLUS Loans. Special allowance
payments are available on variable rate Federal SLS and Federal PLUS Loans
disbursed on or after October 1, 1992 only if the rate determined by the formula
in the preceding sentence exceeds 11% per annum for Federal SLS Loans and 10%
for Federal PLUS Loans.
The 1993 Amendments made certain changes to the interest rates on student
loans to be originated in the future. The interest rate on the Federal PLUS
Loans made on or after July 1, 1994 shall be the 52-week T-bill rate plus 3.10%,
not to exceed 9%. Federal PLUS Loans made on or after July 1, 1998 shall have
an interest rate of the bond equivalent rate of the
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security with a comparable maturity as established by the Secretary of
Education, plus 2.10%, not to exceed 9%.
The 1992 Amendments provide Federal SLS Loan borrowers 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 provisions. The
deferral provisions which apply are more limited than those which apply to
Stafford Loans. In addition, a parent borrower may defer principal payments for
periods during which the borrower has a dependent student for whom the parent
borrowed a Federal PLUS Loan, if such student is engaged in a qualifying
educational program, graduate fellowship program or rehabilitation training
program.
Repayment of interest, however, may be deferred only during certain periods
of educational enrollments specified under the Higher Education Act. Further,
whereas federal interest subsidy payments are not available for such deferments,
the Higher Education Act provides an opportunity for the capitalization of
interest during such periods upon agreement of the lender and borrower. Amounts
borrowed to capitalize interest do not count against the $4,000 annual loan
limit.
A borrower may refinance all outstanding Federal PLUS Loans under a single
repayment schedule for principal and interest. The interest rate of such
refinanced loan shall be the weighted average of the rates of all 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
1, 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.
Commencing July 1, 1994, the Federal SLS Loan Program has been replaced by
the Unsubsidized Stafford Loan Program with annual loan limits in the merged
program equal to the combined limits of the two programs prior to the merger.
THE FEDERAL CONSOLIDATION LOAN PROGRAM
The Higher Education Act authorizes a program under which certain borrowers
may consolidate their various student loans into a single loan insured and
reinsured on a basis similar to Subsidized Federal Stafford Loans. Federal
Consolidation Loans may be made in an amount sufficient to pay outstanding
principal, unpaid interest and late charges on certain federally insured or
reinsured student loans incurred under and pursuant to the Federal Family
Education Loan Program (other than Federal PLUS Loans made to "parent
borrowers") selected by the borrower, as well as loans made pursuant to the
Perkins (formally "National Direct Student Loan") and Health Professional
Student Loan Programs. These loans, for applications received on or after
January 1, 1993, are available only to borrowers who have aggregate outstanding
student loan balances of at least $7,500, and for applications received before
January 1, 1993,
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are available only to borrowers who have aggregate outstanding student
loan balances of at least $5,000. The borrowers may be either in repayment
status or in a grace period preceding repayment and, for applications received
prior to January 1, 1993, the borrower must not be delinquent by more than 90
days on any loan payment; for applications received on or after January 1, 1993
delinquent or defaulted borrowers are eligible to obtain Federal Consolidation
Loans if they agree to re-enter repayment through loan consolidation. For
applications received on or after January 1, 1993, borrowers may add additional
loans to a Federal Consolidation Loan during the 180-day period following
origination of the Federal Consolidation Loan. Further, a married couple whose
application is received on or after January 1, 1993 and who agree to be jointly
and severally liable will be treated as one borrower for purposes of loan
consolidation eligibility. A Federal Consolidation Loan will be federally
insured or reinsured only if such loan is made in compliance with requirements
of the Higher Education Act.
Federal Consolidation Loans made prior to July 1, 1994 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%. Interest on Federal Consolidation Loans accrues and, for
applications received prior to January 1, 1993, is to be paid without deferral.
Borrowers may defer periodic payments of principal under certain circumstances
that are more limited than those applicable to the loans being refinanced.
Deferral of principal repayments is authorized for periods similar to those for
Subsidized Federal Stafford Loans. Borrowers may elect to accelerate principal
payments without penalty. The rate for special allowance payments for Federal
Consolidation Loans financed with tax-exempt funds is determined in the same
manner as for Subsidized Federal Stafford Loans made on or after October 1,
1980. See "Special Allowance Payments" above. Further, no insurance premium
may be charged to a borrower and no insurance premium may be charged by a lender
in connection with a Federal Consolidation Loan. However, a fee may be charged
to a lender by the guarantor to cover the costs of increased or extended
liability with respect to a Federal Consolidation Loan.
Repayment of Federal Consolidation Loans begins 60 days after discharge of
all prior loans which are consolidated. Federal interest subsidy payments
generally are not available with respect to Federal Consolidation Loans.
Repayment schedules include, for applications received on or after January 1,
1993, the establishment of graduated and 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, the
repayment shall be made over periods no shorter than ten but not more than 25
years in length. For consolidation loans made after July 1, 1994, the maximum
maturity schedule is thirty years for Federal Consolidation Loans of $60,000 or
more.
FEDERAL INSURANCE AND REIMBURSEMENT OF GUARANTORS
A Federal Family Education Loan is considered to be in default for
purposes of the Higher Education 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 in the case of a loan
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repayable in monthly installments or for 240 days in the case of a loan
repayable in less frequent installments.
If the loan in default is covered by federal loan insurance in accordance
with the provisions of the Higher Education Act, the Secretary of Education is
to pay the holder 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 in the following paragraphs.
The Higher Education Act provides that, subject to compliance with such
Act, the full faith and credit of the United States is pledged to the payment of
insurance claims and such Act guarantees reimbursements are not subject to
reduction. It further provides that guaranty agencies shall be deemed to have a
contractual right against the United States to receive reimbursement in
accordance with its provisions. In addition, the 1992 Amendments provide that
if a guarantor is unable to meet its insurance obligations, holders of loans may
submit insurance claims directly to the Secretary until such time as the
obligations are transferred to a new guarantor capable of meeting such
obligations or until a successor guarantor assumes such obligations. Federal
reimbursement and insurance payments for defaulted loans are paid from the
Student Loan Insurance Fund established under the Higher Education Act. The
Secretary of Education is authorized, to the extent provided in advance by
appropriations acts, to issue obligations to the Secretary of the Treasury to
provide funds to make such federal payments.
LOANS INITIALLY DISBURSED PRIOR TO OCTOBER 1, 1993. If the loan is
guaranteed by a guaranty agency, the eligible lender is reimbursed by the
guaranty agency for 100% of the unpaid principal balance of the loan plus
accrued unpaid interest on any loan defaulted so long as the eligible lender has
properly serviced such loan. Under the Higher Education Act, the Secretary of
Education enters into a guaranty agreement and an annually renewable
supplemental guaranty agreement with a guaranty agency which provides for
federal reimbursement for amounts paid to eligible lenders by the guarantor with
respect to defaulted loans.
Pursuant to such agreements, the Secretary of Education is to reimburse a
guaranty agency for 100% of the amounts expended in connection with a claim
resulting from the death, bankruptcy or 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 1, 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 guarantor's
claims rate experience for federal reimbursement purposes. The Secretary of
Education is also required to repay the unpaid balance of any loan if collection
is stayed under 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 Secretary of Education. Further, the Secretary of
Education is to reimburse a guaranty agency for any amounts paid to satisfy
claims not resulting from death, bankruptcy, or disability subject to reduction
as described in the following paragraphs.
The amount of such insurance or reimbursement payment is subject to
reduction based upon the annual claim rate of the guaranty agency calculated to
equal the amount of federal
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reimbursement as a percentage of the original principal amount of originated or
guaranteed loans in repayment on the last day of the prior fiscal year. The
formula used for loans initially disbursed prior to October 1, 1993 is
summarized below:
CLAIMS RATE FEDERAL PAYMENT
----------- ---------------
0% up to 5% 100%
5% up to 9% 100% of claims up to 5%;
90% of claims 5% and over
9% and over 100% of claims up to 5%;
90% of claims 5% and over, up to 9%;
80% of claims 9% and over
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.
LOANS INITIALLY DISBURSED ON OR AFTER OCTOBER 1, 1993. The 1993 Amendments
reduce the reimbursement amounts described above (effective for loans initially
disbursed on or after October 1, 1993) as follows: 100% reimbursement is reduced
to 98%, 90% reimbursement is reduced to 88%, and 80% reimbursement is reduced to
78%, subject to certain limited exceptions.
REIMBURSEMENT
The original principal amount of loans guaranteed by a guaranty agency
which are in repayment for purposes of computing reimbursement payments to a
guaranty agency means the original principal amount of all loans guaranteed by a
guaranty agency less: (a) guaranty payments on such loans, (b) the original
principal amount of such loans that have been fully repaid, and (c) the original
amount of such loans for which the first principal installment payment has not
become due. Guaranty agencies with default rates below 5% are required to pay
the Secretary of Education annual fees equivalent to 0.51% of new loans
guaranteed, while all other such agencies must pay a 0.5% fee.
In addition, the Secretary of Education may withhold reimbursement payments
if a guaranty agency makes a material misrepresentation or fails to comply with
the terms of its agreements with the Secretary of Education or applicable
federal law. A supplemental guaranty agreement is subject to annual
renegotiation and to termination for cause by the Secretary of Education. The
Issuer has no knowledge that any aforementioned supplemental guaranty agreement
will not be renegotiated on the same terms as are currently in effect.
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Under the guaranty agreements and the supplemental guaranty agreements, if
a payment on a Federal Family Education Loan guaranteed by a guaranty agency is
received after reimbursement by the Secretary of Education, the guaranty agency
is entitled to receive an equitable share of the payment.
Any originator of any student loan guaranteed by a guaranty agency is
required to discount from the proceeds of the loan at the time of disbursement,
and pay to the guaranty agency, an insurance premium which may not exceed that
permitted under the Higher Education Act.
The Issuer (or any other holder of a loan) is required to exercise due care
and diligence in the servicing of the loan and to utilize practices which are at
least as extensive and forceful as those utilized by financial institutions in
the collection of other consumer loans. If a guaranty agency has probable cause
to believe that the holder has made misrepresentations or failed to comply with
the terms of its agreement for guaranty, the guaranty agency may take reasonable
action including withholding payments or requiring reimbursement of funds. The
guaranty agency may also terminate the agreement for cause upon notice and
hearing.
THE GUARANTY AGREEMENT
Pursuant to most typical agreements for guaranty between a guaranty agency
and the originator of the loan, any eligible holder of a loan insured by such a
guaranty agency is entitled to reimbursement from such guaranty agency of any
proven loss incurred by the holder of the loan resulting from default, death,
permanent and total disability or bankruptcy of the student borrower at the rate
of 100% of such loss (or, subject to certain limitations, 98% for loans in
default made on or after October 1, 1993). Guaranty agencies generally deem
default to mean a student borrower's failure to make an installment payment when
due or to comply with other terms of a note or agreement under circumstances in
which the holder of the loan may reasonably conclude that the student borrower
no longer intends to honor the repayment obligation and for which the failure
persists for 180 days in the case of a loan payable in monthly installments or
for 240 days in the case of a loan payable in less frequent installments. When
a loan becomes from 60 to 90 days past due, the holder is required to request
preclaims assistance from the applicable guaranty agency in order to attempt to
cure the delinquency. When a loan becomes 150 days past due, the holder is
required to make a final demand for payment of the loan by the borrower and to
submit a claim for reimbursement to the applicable guaranty agency. The holder
is required to continue collection efforts until the loan is 180 days past due.
At the time of payment of insurance benefits, the holder must assign to the
applicable guaranty agency all rights accruing to the holder under the note
evidencing the loan. The Higher Education Act prohibits a guaranty agency from
filing a claim for reimbursement with respect to losses prior to 270 days after
the loan becomes delinquent with respect to any installment thereon.
If a student who has received any loan directly insured by the Secretary of
Education dies, becomes totally and permanently disabled or is discharged in
bankruptcy, the Secretary is required to discharge the borrower's liability on
the loan by repaying the amount owed.
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HIGHER EDUCATION AMENDMENTS OF 1992
The 1992 Amendments reauthorized the Higher Education Act and made certain
amendments thereto. The following text describes some of the amendments to the
Higher Education Act contained in the 1992 Amendments, but does not purport to
be a complete description of those amendments, to which reference is made for
full and complete statements of their respective provisions.
The 1992 Amendments adopted several provisions that affect loan terms,
which are described in part above. These include, among others, provisions to
grant new borrowers (with respect to loans for which the first disbursement is
on or after July 1, 1993) the right to receive income-sensitive repayment
schedules. In cases where the borrowers have indicated a willingness to pay,
but have demonstrated an inability to do so, the 1992 Amendments entitle them to
forbearance, on and after October 1, 1992. The 1992 Amendments also provide
that in-school interest and special allowance payments to lenders shall be made
only with respect to loans that have been consummated by the borrower.
In addition, the 1992 Amendments include provisions regarding the
relationship between the Secretary of Education and the various guaranty
agencies. These include, but are not limited to, a requirement that the
Secretary of Education promulgate regulations to standardize forms and practices
used by guaranty agencies; a requirement that the Secretary of Education work
with guaranty agencies to develop criteria regarding assignment of loans to the
Secretary of Education; a requirement for annual submissions to, and evaluations
by, the Secretary of Education of financial information concerning each guaranty
agency; a provision for the establishment by the Secretary of standards pursuant
to which certain guaranty agencies would be required to submit management plans
to the Secretary of Education; a provision authorizing the Secretary of
Education to, among other things, revoke a guaranty agency's reinsurance
contract if it does not submit a satisfactory management plan or if the
Secretary of Education determines the guaranty agency to be financially
nonviable; and a provision that makes the Secretary of Education responsible for
the payment of obligations of insolvent guaranty agencies. The 1992 Amendments
also require that officers and employees of guaranty agencies and other
participants in the Higher Education Act's program (such as lenders, secondary
markets and servicers) report to the Secretary of Education regarding financial
interests they may have in other participants in the Higher Education Act's
program. The foregoing provisions of the 1992 Amendments were generally
effective on the date of enactment, July 23, 1992, subject to rulemaking
procedures.
The 1992 Amendments also established a direct lending demonstration program
which would not have involved banks, secondary markets, or guaranty agencies.
This program was to cover the period of July 1, 1994 through June 30, 1998. The
direct loan demonstration program was to include educational institutions which
were representative of the Higher Education Act's program participants and which
were to be selected by the Secretary of Education first, from among those
institutions expressing an interest in participating and second, from those
institutions selected by the Secretary of Education as necessary to complete the
sample, with an opportunity for such institutions to decline to participate.
Selected institutions
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may be required to participate either in the demonstration program or the Act's
program, but not both. Institutions comprising more than 15% of the annual loan
volume of any one guaranty agency will not be selected. The 1993 Amendments,
described below, made substantial revisions to the direct lending program
established by the 1992 Amendments. Certain of the 1992 Amendments require
promulgation of regulations by the Secretary of Education.
1993 AMENDMENTS TO THE
FEDERAL FAMILY EDUCATION LOAN PROGRAM
On August 10, 1993, President Clinton signed into law the Omnibus Budget
Reconciliation Act of 1993, including Title IV of the Omnibus Budget
Reconciliation Act of 1993 and the Student Loan Reform Act of 1993 (the "1993
Amendments"). The summary of the 1993 Amendments contained herein does not
purport to be complete or comprehensive.
The 1993 Amendments provide for substantial changes to the current student
loan programs under the Federal Family Education Loan Program (the "FFEL
Program") and the Federal Direct Loan Demonstration program of the Higher
Education Act. Except as stated herein and in the 1993 Amendments, these
changes were effective on the date of enactment of the 1993 Amendments into law.
TERMS AND CONDITIONS. Several terms and conditions of the current FFEL
Program were changed as follows:
With respect to loans initially disbursed on or after October 1, 1993, a
lender is entitled to receive from a guarantor 98% (reduced from 100%) of the
unpaid principal of defaulted loans (except with respect to loans made by a
lender-of-last-resort).
The effective floor rate of return of 9.5% available to holders of loans
made or purchased with funds obtained by the holder from the issuance of tax
exempt obligations, will be eliminated for such obligations which are issued on
or after October 1, 1993. The special allowance payments payable with respect
to eligible loans acquired or funded with the proceeds of tax-exempt obligations
issued after September 30, 1993 are the full special allowance payments paid to
other lenders.
With respect to loans initially disbursed on or after October 1, 1993, the
Secretary of Education is required to reduce the interest subsidy and any
special allowance payment to any holder of a loan by a loan fee equal to 0.50%
of the principal amount of the loan.
Each holder of a Federal Consolidation Loan for which the first
disbursement is made on or after October 1, 1993, shall pay to the Secretary of
Education a monthly rebate fee calculated on an annual basis equal to 1.05% of
the principal plus accrued unpaid interest on such loan.
Guaranty agency retention on collections is reduced to 27% from 30%. A
one-time lender-paid user fee of 0.5% on new loan volume will be imposed.
Guaranty agency
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reinsurance reimbursement will be reduced from 100% to 98%, 90% to 88% and 80%
to 78% of the amount expended by it in the discharge of its insurance
obligation. Loans made under a lender-of-last-resort program and under an
agreement resulting from guaranty agency insolvency are exempt from these
reductions.
GENERAL. Under the Federal Direct Student Loan Program (the "FDSL
Program") established by the 1993 Amendments, a variety of student loans,
including loans for parents of students, will be obtained directly from the
student's institution of higher education ("IHE") or through an alternative
originator designated by the Secretary of Education, without application to an
outside lender. Loans made under the FDSL Program will be funded and owned by
the Secretary of Education. The FDSL Program will provide for a variety of
repayment plans from which borrowers may choose, including repayment plans based
on income.
PHASE-IN. The 1993 Amendments also provide that, in order to ensure
transition from the FFEL Program to the FDSL Program, the Secretary of Education
will be required, in the exercise of his or her discretion, to determine the
number of IHEs with which to enter into participation or origination agreements
in a given academic year. The FDSL Program will be phased in as follows: (a)
for academic year 1994-1995, 5% of new Federal student loan volume under the
FDSL Program and the FFEL Program combined (excluding consolidated loans) would
be comprised of FDSL Program loans; (b) for academic year 1995-1996, 40% of new
student loan volume for those two programs would be comprised of FDSL Program
loans; (c) for academic years 1996-1997 and 1997-1998, FDSL Program loans would
comprise 50% of the new student loan volume under parts B and D of Title IV of
the Higher Education Act; and (4) for the academic year beginning 1998, 60% of
the new student loan volume would be comprised of FDSL Program loans. The
Secretary of Education may exceed the limits specified for academic years
beginning in 1996 if the Secretary of Education determines that a higher
percentage rate is warranted by the number of eligible IHEs that desire to
participate.
There can be no assurance that further amendments to the Higher Education
Act or budgetary action will not materially change the provisions described
herein or the effect thereof. From time to time, legislation is introduced in
the United States Congress to amend the Higher Education Act. Currently, such
legislation is pending in the United States Congress as part of the budget
process. Certain legislation has been introduced in the United States Congress,
the final language of which is not yet available. At this time neither the
Issuer nor the Placement Agent can make any representation as to whether or not
such legislation, or any substitute or additional student loan proposed
legislation, will be enacted into law, or as to the exact provisions of such
legislation or of any such other legislation when and if they are enacted into
law. Based on the information currently available to the Issuer, however, the
Issuer believes that certain provisions of such legislation would, if enacted in
its current form, have a significant impact on the FFEL Program and the FDSL
Program.
DIRECT LOANS. The 1993 Amendments provide that, unless otherwise
specified, loans made to borrowers under the FDSL Program will have the same
terms, conditions, and will be available in the same amounts as loans made to
borrowers for Subsidized Federal Stafford Loans, Federal PLUS Loans and
Unsubsidized Federal Stafford Loam. The FDSL Program
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loans would be known respectively as Federal Direct Stafford Loans, Federal
Direct PLUS Loans and Federal Direct Unsubsidized Stafford Loans.
GUARANTY AGENCIES. The 1993 Amendments also provide that a guaranty
agency's assets are dedicated to the loan programs and may not be used for
unauthorized purposes. Thus, the 1993 Amendments add to the guaranty agency
reserve provisions in the Higher Education Act what the 1993 Amendments describe
as a "clarification" that, notwithstanding any other provision of law, the
reserve funds of the guaranty agencies, and any assets purchased with these
reserve funds, regardless of who holds or controls the reserves or assets, are
the property of the United States, to be used in the operation of the FFEL
Program or the FDSL Program. These reserves would be required to be maintained
by each guaranty agency to pay program expenses and contingent liabilities, as
authorized by the Secretary of Education. The 1993 Amendments further provide
that the Secretary of Education is prohibited from requiring the return of all
of a guaranty agency's reserve funds unless the Secretary of Education
determines that the return of these funds is in the best interest of the
operation of the FFEL Program, or to ensure the proper maintenance of such
agency's funds or assets or the orderly termination of the guaranty agency's
operations and the liquidation of its assets. However, the Secretary of
Education is also authorized to direct a guaranty agency to: (a) return to the
Secretary of Education all or a portion of its reserve expenses and contingent
liabilities; (b) return to the Secretary of Education, or the guaranty agency
any funds or assets held by, or under the control of, any other entity, which
the Secretary of Education determines are necessary to pay the program expenses
and contingent liabilities of the agency, or which are required for the orderly
termination of the agency's operation and liquidation of its assets; and (c)
cease any activities involving expenditure, use or transfer of the guaranty
agency's reserve funds or assets which the Secretary of Education determines is
a misapplication, misuse or improper expenditure.
The 1993 Amendments give the Secretary of Education increased flexibility
to terminate a guaranty agency's agreement by allowing the Secretary of
Education to terminate the agreement if the Secretary of Education determines
that termination is necessary, to protect the federal financial interest, to
ensure the continued availability of loans to student or parent borrowers, or to
ensure an orderly transition from the FFEL Program to the FDSL Program.
The 1993 Amendments also expand the Secretary of Education's authorized
functions when a guaranty agency's agreement is terminated. The Secretary of
Education is authorized to provide the guaranty agency with additional advance
funds with such restrictions on the use of such funds as is determined
appropriate by the Secretary of Education, in order to meet the immediate cash
needs of the guaranty agency, ensure the uninterrupted payment of claims, or
ensure that the guaranty agency will make loans as the lender-of-last-resort.
Finally, the 1993 Amendments authorized the Secretary of Education to take
whatever other action is necessary, to ensure an orderly transition from the
FFEL Program to the FDSL Program.
The 1993 Amendments provide that if the Secretary of Education has
terminated or is seeking to terminate a guaranty agency's agreement, or has
assumed a guaranty agency's functions, notwithstanding any other provision of
law: (a) no state court may issue an order affecting the Secretary of
Education's actions with respect to that guaranty agency; (b) any
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contract entered into by the guaranty agency with respect to the administration
of the agency's reserve funds or assets acquired with reserve funds shall
provide that the contract is terminable by the Secretary of Education upon 30
days notice to the contracting parties if the Secretary of Education determines
that such contract includes an impermissible transfer of funds or assets or is
inconsistent with the terms or purposes of this law; and (c) no provision of
state law shall apply to the actions of the Secretary of Education in
terminating the operations of the guaranty agency. Finally, notwithstanding any
other provision of law, the 1993 Amendments provide that the Secretary of
Education's liability for any outstanding liabilities of a guaranty agency
(other than outstanding student loan guarantees under Part D of Title IV of the
Higher Education Act), the functions of which the Secretary of Education has
assumed, shall not exceed the fair market value of the reserves of the guaranty
agency, minus any necessary liquidation or other administrative costs.
AMENDMENTS TO TERMS OF FEDERAL FAMILY EDUCATION LOAN PROGRAM LOANS. The
1993 Amendments also amend the terms of loans under the FFEL Program. The 1993
Amendments require that following a borrower's default, the Secretary of
Education shall require at least 10% of borrowers who have defaulted on loans
made under the FFEL Program and whose loan is assigned to the Secretary of
Education to repay that loan under an income contingent repayment plan, the
terms and conditions of which would be established by the Secretary of
Education, and would be the same as or similar to the income contingent
repayment plan authorized under the FDSL Program.
These provisions of the 1993 Amendments will be effective for loans for
periods of instruction beginning on or after July 1, 1994 or, in the case of
Federal PLUS Loans, for loans made on or after July 1, 1994.
FEDERAL FAMILY EDUCATION LOAN PROGRAM LOAN CONSOLIDATION. The 1993
Amendments alter the provisions for the Federal Consolidation Loan Program in
order to facilitate the expansion of the FDSL Program. The 1993 Amendments
define "eligible borrower" for loan consolidation in the FFEL Program to mean a
borrower who, at the time of application for a consolidation loan, is in
repayment status, or in a grace period preceding repayment, or is a delinquent
or defaulted borrower who will reenter repayment through loan consolidation.
In addition, the 1993 Amendments provide that any lender who wishes to make
consolidation loans must enter into an agreement with the Secretary of Education
that the lender shall offer an income-sensitive repayment schedule to the
borrower of any Federal Consolidation Loan made by the lender on or after July
1, 1994. The Federal Consolidation Loan must also be evidenced by a note or
other written agreement which includes a provision stating that interest during
periods of authorized deferment shall accrue and be paid by the Secretary of
Education, in the case of consolidation of only Federal Stafford Loans for which
the borrower received an interest subsidy or by the borrower or capitalized in
the case of a Federal Consolidation Loan that consolidated loans other than the
Federal Stafford Loans. The interest rate on Federal Consolidation Loans made
before July 1, 1994, shall be the greater of the weighted average of the
interest rates on the consolidated loans, rounded to the nearest whole percent
or 9%. The interest rate of a Federal Consolidation Loan made on or after July
1, 1994 shall be the weighted
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average of the rates on the Federal Consolidation Loans, rounded upward to the
nearest whole percent.
The 1993 Amendments modify the terms of the Federal Consolidation Loan
Agreement to require a lender to offer income sensitive repayment terms for a
Federal Consolidation Loan made on or after July 1, 1994. In the event that a
borrower is unable to obtain a consolidation loan with income sensitive
repayment terms acceptable to the borrower from the holders of the borrower's
outstanding loans (that are selected for consolidation), or from any other
eligible lender, including Sallie Mae, the 1993 Amendments authorize the
Secretary of Education to offer the borrower a direct consolidation loan with
income contingent terms under the Federal Direct Student Loan Program. Such
direct Federal Consolidation Loans shall be repaid either pursuant to income
contingent repayment or any other repayment provision under this section. If
the Secretary of Education determines that the Department of Education does not
have the necessary origination and servicing arrangements in place for such
loans, the Secretary of Education shall not offer such loans.
The 1993 Amendments repeal the Federal Supplemental Loans for Students
program, but the loan limits for Unsubsidized Federal Stafford Loans were
increased to include the amounts formerly disbursed under the Federal
Supplemental Loans for Students program. Further, a section is added that
provides that the amount of periodic payment and the repayment schedule for any
Unsubsidized Federal Stafford Loan shall be established by assuming an interest
rate equal to the applicable rate of interest at the time the repayment of the
loan principal commences. At the option of the lender, the note or other
written evidence of the loan may require that the amount of the periodic payment
will be adjusted annually or the period of repayment of principal will be
lengthened or shortened to reflect adjustments in interest rates. Finally, the
10 year repayment period of these loans shall commence at the time the first
payment of principal is due from the borrower.
INTEREST RATES. The interest rates on Federal Stafford Loans and
Unsubsidized Federal Stafford Loans made to new borrowers as of July 1, 1994
will be the 91-day T-bill rate plus 3.1%, not to exceed 8.25%. The interest
rates for loans made on or after July 1, 1995 prior to repayment, during any
grace period or during deferment status, will be the 91-day T-bill rate plus
2.5%, not to exceed 8.25%. The interest rate on Federal Stafford Loans and
Unsubsidized Federal Stafford Loans made on or after July 1, 1998 will be the
bond equivalent rate of the U.S. Treasury security with a comparable maturity as
established by the Secretary of Education plus 1.0%, not to exceed 8.25%. The
interest rate on the Federal PLUS Loans made on or after July 1, 1994 shall be
the 52-week T-bill plus 3.1%, not to exceed 9%. Federal PLUS Loans made or
after July 1, 1998 shall have an interest rate of the bond equivalent rate of
the security with a comparable maturity as established by the Secretary of
Education plus 2.1%, not to exceed 9%.
POTENTIAL IMPACT OF 1993 AMENDMENTS ON THE ISSUER. The Issuer is not yet
able to assess completely the potential impact that the 1993 Amendments will
have on the Issuer and its operations. The Issuer anticipates, however, that
the substance of the 1993 Amendments has the capability of materially affecting
the Issuer's operations including originating and purchasing
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student loans. The potential impact on the Issuer of the FDSL Program set forth
in the 1993 Amendments could include, among other things, curtailment of the
Issuer's loan acquisitions and the recycling of principal payments into new
Eligible Loans, and thereby the potential early retirement of the Notes. There
may be other potential impacts resulting from the enactment of legislation that
could affect the Issuer and its various activities, which the Issuer cannot
discern or predict at this time.
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APPENDIX II
GLOSSARY OF TERMS AND SUMMARY OF
CERTAIN PROVISIONS OF THE INDENTURE
GLOSSARY OF TERMS
There follows definitions of certain capitalized terms used in this
Prospectus. Definitions relating to the Auction Rate Notes and the LIBOR Rate
Notes are found in Appendix III and V hereto, respectively. Words importing the
masculine gender include the feminine gender. Words importing persons include
firms, associations and corporations. Words importing the singular number
include the plural number and vice versa. The Indenture contains the definition
of certain terms not included herein and reference is made thereto for such
definitions. The following definitions shall be applicable with respect to each
Series unless otherwise specified in the related Prospectus Supplement.
"ACCOUNT" shall mean any of the accounts created and established within any
Fund by the Indenture.
"ACT" shall mean the Higher Education Act of 1965, as amended or
supplemented from time to time, or any successor federal act and all
regulations, directives, bulletins, and guidelines proposed or promulgated from
time to time thereunder.
"ADDITIONAL NOTES" shall mean any notes, other than the Offered Notes, the
Prior Class A Notes and the Prior Class B Notes, issued pursuant to the
Indenture.
"AGGREGATE MARKET VALUE" shall mean on any calculation date the sum of the
Values of all assets of the Trust Estate, less moneys in any Fund or Account
which the Issuer is then entitled to receive for deposit into the Operating Fund
or the General Fund but which has not yet been removed from the Trust Estate.
"AUTHORIZED DENOMINATIONS" shall mean with respect to any Class or subclass
of Notes, $100,000 or any integral multiple thereof.
"AUTHORIZED OFFICER" shall mean, when used with reference to the Issuer,
its President, its Vice President, its Secretary, or any other officer or agent
authorized in writing by the Board to act on behalf of the Issuer.
"BOARD" or "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Issuer.
"BUSINESS DAY" shall mean any day on which banks located in the City of New
York, New York and banks located in the city in which the Principal Office of
the Trustee is located are not required or authorized by law to remain closed
and on which The New York Stock Exchange is not closed.
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"CASH FLOW CERTIFICATE" shall mean a report or reports prepared by the
Issuer showing, with respect to the period covered by the Cash Flow Certificate,
which period shall extend from the date of the Cash Flow Certificate to the
latest maturity of the Notes then Outstanding, (a) all Revenue expected to be
received during such period from the Trust Estate, (b) the application of all
such Revenue in accordance with the Indenture and (c) the resulting periodic
balances on each Interest Payment Date, and showing that anticipated Revenue
will exceed, by a margin of $250,000 plus any additional amount, if any,
required by any Supplemental Indenture, the amount necessary to pay the
principal of and interest on the Notes when due and all expenses payable under
the Indenture when due and to maintain the Reserve Fund Requirement at a level
which will not cause change to the Rating Agencies to withdraw or reduce their
respective ratings on the Notes Outstanding, under all scenarios included in the
Cash Flows. Each Cash Flow Certificate shall be accompanied by all supporting
Cash Flows, shall be based solely upon assumptions acceptable to each Rating
Agency and shall be approved in writing by each Rating Agency.
"CASH FLOWS" shall mean cash flow schedules prepared by the Issuer or its
designee including a listing of all assumptions used in the preparation of such
cash flow schedules. Such assumptions will include those contained in Exhibits
E-1 and E-2 to the Indenture or such other assumptions at the time such Cash
Flows are prepared as shall be reasonable in the judgment of the Issuer and each
Rating Agency.
"CERTIFICATE OF INSURANCE" shall mean a certificate of federal loan
insurance issued with respect to an Eligible Loan by the Secretary pursuant to
the provisions of the Act.
"CLASS A NOTES" shall mean the Issuer's Taxable Student Loan Asset-Backed
Notes issued pursuant to the Indenture and designated as Class A.
"CLASS A-1 NOTES" shall mean, with respect to the Series 1996A Notes, the
$48,300,000 of Class A Notes designated as Class A-1.
"CLASS A-2 NOTES" shall mean, with respect to the Series 1996A Notes, the
$48,300,000 of Class A Notes designated as Class A-2.
"CLASS A-3 NOTES" shall mean, with respect to the Series 1996B Notes, the
$73,700,000 of Class A Notes designated as Class A-3.
"CLASS A-4 NOTES" shall mean, with respect to the Series 1996B Notes, the
$54,300,000 of Class A Notes designated as Class A-4.
"CLASS B NOTES" shall mean the Issuer's Taxable Student Loan Asset-Backed
Notes issued pursuant to the Indenture and designated as Class B.
"CLASS B-2 NOTES" shall mean the Issuer's Taxable Student Loan Asset-Backed
Notes issued pursuant to the Indenture and designated as Class B-2.
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"CLOSING CASH FLOW PROJECTION" shall mean the Cash Flow Certificate
delivered on the Date of Issuance with respect to any Series as attached to the
Indenture as Exhibit F-2.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time. Each reference to a section of the Code herein shall be deemed to
include the United States Treasury Regulations, including temporary and proposed
regulations, relating to such section which are applicable to the Notes of the
use of the proceeds thereof. A reference to any specific section of the Code
shall be deemed also to be a reference to the comparable provisions of any
enactment which supersedes or replaces the Code thereunder from time to time.
"COMPLIANCE CERTIFICATE" shall mean a certificate substantially in the form
of Exhibit D attached to the Indenture signed by an Authorized Officer and all
documents, opinions and certificates required thereby.
"CONSOLIDATION LOAN" shall mean a Student Loan authorized under Section
428C of the Act consolidating Eligible Loans.
"CONTRACT OF INSURANCE" shall mean the contract of insurance between the
Eligible Lender and the Secretary.
"COST OF ISSUANCE FUND" shall mean the Fund by that name created in the
Indenture and further described in the Indenture.
"COUNTERPARTY SWAP PAYMENT" shall mean a payment due to the Issuer from a
Swap Counterparty pursuant to the applicable Swap Agreement (including, but not
limited to, payments in respect of an Early Termination Date, as defined in the
applicable Swap Agreement).
"CUSTODIAN AGREEMENT" shall mean, collectively, the Custodian Agreement
dated as of March 1, 1996, between the Trustee and the Custodian, and the
custodian agreements with any Servicer related to Financed Eligible Loans.
"CUTOFF DATE" shall mean, with respect to the Date of Issuance with respect
to any Series, the date specified in the related Prospectus Supplement and with
respect to each Scheduled Sale Date or other date of acquisition thereafter, the
close of business on the Business Day preceding such Scheduled Sale Date or date
of acquisition, as the case may be.
"DATE OF ISSUANCE" shall mean, with respect to any Offered Notes or
Additional Notes, the date of delivery of such Offered Notes or Additional Notes
to the placement agent or the underwriter.
"ELIGIBLE BORROWER" shall mean a borrower who is eligible under the Act to
be the obligor of a loan for financing a program of education at an Eligible
Institution or for consolidating two or more such loans, including without
limitation a borrower who is eligible under the Act to be an obligor of a loan
made pursuant to Section 428A, 428B or 428C of the Act.
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"ELIGIBLE INSTITUTION" shall mean (a) an institution of higher education;
(b) a vocational school; or (c), with respect to students who are nationals of
the United States, an institution outside the United States which is comparable
to an institution of higher education or to a vocational school and which has
been approved by the Secretary.
"ELIGIBLE LENDER" shall mean any "ELIGIBLE LENDER," as defined in the Act,
permitted to participate as a seller of Student Loans to the Issuer under the
Program and which has received an eligible lender designation from the Secretary
with respect to Insured Student Loans or from the Guarantee Agency with respect
to Guaranteed Student Loans.
"ELIGIBLE LOAN" shall mean a Student Loan which (a) has been or will be
made to an Eligible Borrower; (b) is Insured or is Guaranteed by a Guarantee
Agency which then has a Guarantee Agreement with the Trustee; (c) unless it is
an Unsubsidized Stafford Loan, a PLUS Loan or an SLS Loan or a Consolidation
Loan, is an "eligible loan" under the Act for purposes of receiving Interest
Benefit Payments; (d) bears interest at not less than the maximum applicable
rate of interest permitted by the Act at the time originated; (e) is not
delinquent more than 180 days and has not been tendered at any time to either
the Secretary or any guarantee agency, including without limitation, the
Guarantee Agency, for payment unless the situation giving rise to such tender
has been cured; and (f) is eligible for Special Allowance Payments as provided
in Section 438 of the Act.
"ESTIMATED AMOUNT" shall mean the amount which the Issuer estimates will be
required to pay Maintenance and Operating Expenses (including accrued but unpaid
Maintenance and Operating Expenses) for the period beginning on the Date of
Issuance of the Series 1996A Notes and ending on June 30, 1996, and thereafter
for the monthly period beginning on the first Business Day of each month,
commencing July 1, 1996. The Estimated Amount shall be paid pursuant to the
Indenture; provided, however, such Estimated Amount shall not exceed (i) the
amount shown therefor in the Closing Cash Flow Projection, (ii) 0.12% annualized
on the Outstanding Financial Eligible Loans or (iii) the amount shown in the
most recent subsequent Cash Flow Certificate.
"EVENT OF BANKRUPTCY" shall mean (a) the Issuer shall have commenced a
voluntary case or other proceeding seeking liquidation, reorganization, or other
relief with respect to itself or its debts under any bankruptcy, insolvency, or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian, or other similar official of it or any
substantial part of its property, or shall have made a general assignment for
the benefit of creditors, or shall have declared a moratorium with respect to
its debts or shall have failed generally to pay its debts as they become due, or
shall have taken any action to authorize any of the foregoing; or (b) an
involuntary case or other proceeding shall have been commenced against the
Issuer seeking liquidation, reorganization, or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian, or other similar official of it or any substantial part
of its property provided such action or proceeding is not dismissed within 60
days.
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"EVENT OF DEFAULT" shall have the meaning specified in the Indenture.
"EXCHANGE DATE" shall mean the date that the Notes are exchanged for
Exchange Notes pursuant to the Indenture.
"EXCHANGE NOTES" shall mean the Notes exchanged for the Series 1996A Notes
and the Series 1996B Notes pursuant to the Indenture.
"FEDERAL REIMBURSEMENT CONTRACTS" shall mean the agreements between the
Guarantee Agency and the Secretary providing for the payment by the Secretary of
amounts authorized to be paid pursuant to the Act, including (but not
necessarily limited to) reimbursement of amounts paid or payable upon defaulted
Financed Eligible Loans and other Student Loans Guaranteed or Insured by the
Guarantee Agency and Interest Benefit Payments and Special Allowance Payments to
holders of qualifying Student Loans Guaranteed or Insured by the Guarantee
Agency.
"FINANCED" or "FINANCING," when used with respect to Eligible Loans or
Student Loans, shall mean or refer to Eligible Loans or Student Loans, as the
case may be, (i) acquired by the Issuer with balances in the Student Loan Fund
and (ii) Eligible Loans substituted or exchanged for Financed Eligible Loans or
Financed Eligible Loans, but does not include Student Loans or Eligible Loans
released from the lien of the Indenture and sold or transferred, to the extent
permitted by the Indenture.
"FISCAL YEAR" shall mean the fiscal year of the Issuer as established from
time to time.
"FISL PROGRAM" shall mean the federal loan insurance program created under
the Act, whereby the Secretary directly insures the repayment of 100% of the
principal of and accrued interest on student loans under the Act.
"FITCH" shall mean Fitch Investors Service, L.P., and its successors and
assigns, and, for the purposes of the Auction Procedures, if such corporation
shall be dissolved or liquidated or shall no longer perform the functions of a
securities rating agency, "Fitch" shall be deemed to relate to any other
nationally recognized securities rating agency designated by the Issuer by
notice to the Trustee, the Auction Agent and the Broker-Dealers; provided,
however, that such notice shall not be effective unless accompanied by a consent
of a majority of the Broker-Dealers.
"FUNDS" shall mean the following funds created under Section 5.01 of the
Indenture and held by the Trustee: (a) the Student Loan Fund, including therein
the Series 1996 Loan Account, the Series 1996 Note Account, the Series 1996
Recycling Account and any other Loan Account and Recycling Account designated
with respect to a Series, (b) the Revenue Fund, (c) the Reserve Fund, (d) the
Interest Fund, including therein the Senior Interest Account, the Subordinate
Interest Account and the Junior-Subordinate Interest Account, if any, (e) the
Note Redemption Fund, including therein the Senior Note Redemption Account, the
Subordinate Note Redemption Account and the Junior-Subordinate Note Redemption
Account, if any, (f) the Student Loan Holding Fund and (g) the Cost of Issuance
Fund.
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"GENERAL FUND" shall mean the fund by that name described in the Indenture.
"GUARANTEE" or "GUARANTEED" shall mean with respect to a Student Loan, the
insurance or guarantee by the Guarantee Agency pursuant to such Guarantee
Agency's Guarantee Agreement of not less than 98% of the principal of and
accrued interest on such Student Loan and the coverage of such Student Loan by
the Federal Reimbursement Contracts, providing, among other things, for
reimbursement to the Guarantee Agency for payments made by it on defaulted
Student Loans insured or guaranteed by the Guarantee Agency of at least the
minimum reimbursement allowed by the Federal Reinsurance Contracts and the Act
with respect to a particular Student Loan.
"GUARANTEE AGENCY" shall mean (a) United Student Aid Funds, Inc., (b) Iowa
College Student Aid Commission, (c) Oklahoma State Guaranty Agency, (d) Nebraska
Student Loan Program, Inc. (e) Kentucky Higher Education Assistance Authority
and (f) and any other guarantee agency so long as the Issuer shall have received
written confirmation from each Rating Agency that the designation of such entity
as a "Guarantee Agency" hereunder will not, at the time of such designation,
adversely affect its Ratings then applicable to any of the Notes, and their
respective successors and assigns.
"GUARANTEE AGREEMENTS" shall mean (a) the Guarantee Agreement, dated as of
March 7, 1996, between United Student Aid Funds, Inc. and Norwest Bank
Minnesota, National Association as trustee, (b) the Guarantee Agreement, dated
as of February 23, 1996, between Iowa College Student Aid Commission and Norwest
Bank Minnesota, National Association, as trustee, (c) the Guarantee Agreement,
dated as of March 7, 1996, between Oklahoma State Guaranty Agency and Norwest
Bank Minnesota, National Association, as trustee, (d) the Guarantee Agreement,
dated as of May 1, 1996, between Nebraska Student Loan Program, Inc. and Norwest
Bank Minnesota, National Association, as trustee, (e) the Guarantee Agreement,
dated as of June 12, 1996, between Kentucky Higher Education Assistance
Authority and Norwest Bank Minnesota, National Association, as trustee, (f) any
similar guarantee or lender agreement with any other Guarantee Agency, and (g)
any amendments to the foregoing.
"GUARANTEED STUDENT LOAN" shall mean a Student Loan which is Guaranteed or
Insured.
"GUARANTEED STUDENT LOAN PROGRAM" shall mean the program known as the
Federal Family Education Loan Program which makes low interest loans under the
Act available to pay the costs of a student attending post-secondary schools,
whether under the Guarantee Agency program or the FISL Program.
"HOLD ORDER" shall have the meaning set forth in the Indenture.
"IMMEDIATE NOTICE" shall mean notice by telephone, telex or telecopier to
such address as the addressee shall have directed in writing, promptly followed
by written notice by first class mail, postage prepaid; provided, however, that
if any person required to give Immediate Notice shall not have been provided
with the necessary information as to the telephone, telex or
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telecopier number of an addressee, Immediate Notice shall mean written notice by
first class mail, postage prepaid.
"INDENTURE" shall mean the Second Amended and Restated Indenture of Trust,
including all supplements and amendments thereto.
"INSURANCE," "INSURED" or "INSURING" shall mean, with respect to a Student
Loan, insurance by the Secretary under the Act (as evidenced by a Contract of
Insurance issued or entered into under the provisions of the Act) of the maximum
percentage of the principal of such Student Loan allowed by the Act, and, during
such time as such Student Loan is not entitled to Interest Benefit Payments, the
interest on such Student Loan.
"INTEREST BENEFIT PAYMENT" shall mean an interest payment on Student Loans
received pursuant to the Interest Benefits Agreement.
"INTEREST BENEFITS AGREEMENT" shall mean the agreement between the
Guarantee Agency and the Secretary whereby the Secretary agrees to pay to
holders of Student Loans Guaranteed by the Guarantee Agency the portion of the
interest charges on such loans which students are entitled to have paid on their
behalf pursuant to Sections 428(a)(1) and 428(a)(2) of the Act.
"INTEREST FUND" shall mean the Fund by that name created in the Indenture
and further described in the Indenture, including the Senior Interest Account,
the Subordinate Interest Account and the Junior-Subordinate Interest Account, if
any, created therein.
"INVESTMENT AGREEMENT" shall mean, collectively, the Investment Agreement
dated as of June 19, 1996 by and among the Trustee, the Issuer and Lehman
Brothers, Inc. and the Promissory Note dated as of June 19, 1996 between the
Issuer and Lehman Brothers Holdings Inc.
"INVESTMENT SECURITIES" shall mean
(a) Direct obligations of (including obligations issued or held in
book entry form on the books of) the Department of Treasury of the United
States of America with remaining maturities not exceeding the first
Business Day preceding the next Transfer Date. If not rated by Standard &
Poor's, the obligations must have a predetermined fixed dollar principal
due at maturity that cannot vary or change. If the obligation is rated, it
should not have an "r" highlighter affixed to its rating;
(b) Obligations of any of the following federal agencies which
obligations represent full faith and credit of the United States of America
with remaining maturities not exceeding the first Business Day preceding
the next Transfer Date, (i) Export - Import Bank; (ii) Farmers Home
Administration; (iii) General Services Administration; (iv) Government
National Mortgage Association (GNMA); (v) U.S. Department of Housing &
Urban Development (PHA's); (vi) Federal Housing Administration. If not
rated by S&P, the obligations must have a predetermined fixed dollar
principal due at
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maturity that cannot vary or change. If the obligation is rated, it should
not have an "r" highlighter affixed to its rating;
(c) Notes, bonds or other evidences of indebtedness rated "AAA" by
Fitch and S&P issued by the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation with remaining maturities not
exceeding the first Business Day preceding the next Transfer Date. If not
rated by S&P, the obligations must have a predetermined fixed dollar
principal due at maturity that cannot vary or change. If the obligation is
rated, it should not have an "r" highlighter affixed to its rating;
(d) U.S. dollar denominated deposit accounts, federal funds and
banker's acceptances with domestic commercial banks which have a rating on
their short-term debt obligations of "A-1+" by S&P and "F-1+" by Fitch and
maturities not exceeding the first Business Day preceding the next Transfer
Date. In addition, the instruments should not have an "r" highlighter
affixed to the rating and its terms should have a predetermined amount of
principal due at maturity that cannot vary or change (Ratings on holding
companies are not considered as the rating of the bank);
(e) Commercial paper which is rated "F-1+" by Fitch and "A-1+" by S&P
and maturities not exceeding the first Business Day preceding the next
Transfer Date. In addition, the instruments should not have an "r"
highlighter affixed to the rating and its terms should have a predetermined
amount of principal due at maturity that cannot vary or change;
(f) Investments in a money market funds (i) rated within the two
highest rating categories of Fitch and (ii) "AAAm" or "AAAm-G" by S&P;
(g) With the prior written consent of Fitch and S&P, repurchase
agreements with respect to securities of the type described in (a), (b) or
(c) above, with (i) a registered broker/dealer rated by Fitch and S&P or
approved in writing by Fitch and S&P and subject to the Securities
Investors' Protection Issuer Liquidation Act in the event of insolvency to
the full extent of such repurchase agreement, (ii) a primary dealer rated
by Fitch and S&P reporting to and trading with the Federal Reserve Bank of
New York, or (iii) any commercial bank, and in the case of clauses (i),
(ii) and (iii), (x) whose unsecured long-term indebtedness is rated by
Fitch and S&P and whose long-term or short-term indebtedness is rated
"F-1+" or "AAA" by Fitch and "A-1+" or "AAA" by S&P (dependent upon whether
the repurchase agreement is long-term or short-term, respectively) or
better by Fitch, or (y) which (in the case of clause (iii)) is the lead
bank of a parent bank holding company whose unsecured long-term
indebtedness is rated "AAA" or better by Fitch and S&P, and in the case of
either (x) or (y), having a combined capital, surplus and undivided profits
of not less than $100 million and which repurchase agreement shall provide
that:
(A) the repurchase obligation is collateralized by the
securities themselves which shall be held by the Trustee (unless the
Trustee is the purchaser
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under the repurchase agreement) or a third party which is a Federal
Reserve Bank or a commercial bank with capital, surplus and undivided
profits of not less than $50 million, and the Trustee shall have
received written confirmation from such third party that it holds such
securities;
(B) a perfected security interest in favor of the Trustee in the
securities has been created under the Uniform Commercial Code or
pursuant to the book entry procedures described in 31 C.F.R. 306.1 et
seq. or 31 C.F.R. 350.0 et seq., as amended, and any successor
regulations thereto; and
(C) the securities on the date of execution of the repurchase
agreement and upon weekly evaluation by the Trustee thereafter have a
fair market value of at least 102% of the amount of the repurchase
obligation, including both principal and interest;
(h) With the prior written consent of Fitch and S&P, any investment
agreement that has as a counterparty, an institution rated "F-1+" or "AAA"
by Fitch and "A-1+" or "AAA" by S&P; and
(i) The Investment Agreement and any other investment approved in
advance in writing by each Rating Agency.
"ISSUER" shall mean Union Financial Services-1, Inc., a corporation
organized and existing under the corporation laws of the State, and any
successor to its functions.
"ISSUER ORDER" shall mean a written order signed in the name of the Issuer
by an Authorized Officer.
"ISSUER SWAP PAYMENT" shall mean a payment due to a Swap Counterparty from
the Issuer pursuant to the applicable Swap Agreement (including, but not limited
to, payments in respect of an Early Termination Date, as defined in the
applicable Swap Agreement).
"JUNIOR-SUBORDINATE INTEREST ACCOUNT" shall mean the Account by that name
created within the Interest Fund by Section 5.01 of the Indenture and further
described in the Indenture.
"JUNIOR-SUBORDINATE NOTE REDEMPTION ACCOUNT" shall mean the Account by that
name created within the Note Redemption Fund by the Indenture and further
described in the Indenture.
"JUNIOR-SUBORDINATE NOTES" shall mean Offered Notes or Additional Notes, if
any, subordinate to the Subordinate Notes, the principal of and interest on
which is paid from the Junior-Subordinate Redemption Account of the Note
Redemption Fund and the Junior-Subordinate Interest Account of the Interest
Fund, respectively; provided, however, that any series of the Junior-Subordinate
Notes need not necessarily be payable on a parity with all other series of the
Junior-Subordinate Notes. Any Junior-Subordinate Notes shall be designated by
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Class "C," "D," "E" or lower alphabetic designation, the higher alphabetic
designation ("C" being higher than "D") indicating the more senior series of the
Junior-Subordinate Notes.
"LETTER OF REPRESENTATIONS" means the Letters of Representations among the
Securities Depository, the Issuer and the Trustee.
"LOAN ACCOUNT" shall mean the Account by that name created within the
Student Loan Fund by the Indenture designated with respect to each Series and
further described in the Indenture.
"MAINTENANCE AND OPERATING EXPENSES" shall mean the expenses of the Issuer
incurred in direct connection with the Program under the Indenture, including
attorneys' fees, auditing fees, marketing fees, travel expenses of directors and
officers, insurance, taxes, and such other reasonable and necessary expenses
which may be incurred directly or indirectly in connection with the operation of
the Program under the Indenture and in an annual amount not to exceed the
estimated Maintenance and Operating Expenses described in Exhibit E-2 to the
Indenture until January 1, 1999, unless otherwise approved by each Rating
Agency, and on and after January 1, 1999, an annual amount not to exceed the
estimated Maintenance and Operating Expenses described in a Cash Flow
Certificate to be approved by each Rating Agency for a specified period approved
by each Rating Agency, but such term shall not include servicing fees and
expenses incurred under the Servicing Agreement or the Subservicing Agreement,
as the case may be, the Trustee fees and expenses and the Calculation Agent fees
and expenses incurred under the Indenture or the Custodian Agreement, the
Auction Agent's fees and expenses incurred under the Auction Agent Agreement,
any Broker-Dealer Fees and expenses incurred under a Broker-Dealer Agreement or
the Rating Agency Fees and expenses incurred under the Indenture.
"MATURITY" shall mean, when used with respect to any Note, the date on
which the principal thereof becomes due and payable as provided herein in the
Indenture, whether at its Stated Maturity, by earlier redemption, by declaration
of acceleration, or otherwise.
"NET LOSSES" shall mean the aggregate principal amount of all Financed
Eligible Loans which are over 540 days delinquent, less any recoveries of
principal received with respect to such Financed Eligible Loans.
"NOTE COUNSEL" shall mean Kutak Rock, or any other counsel of nationally
recognized standing in the field of law relating to notes, selected by the
Issuer and reasonably acceptable to the Trustee.
"NOTE REDEMPTION FUND" shall mean the Fund by that name created in the
Indenture and further described in the Indenture, including the Senior Note
Redemption Account, the Subordinate Note Redemption Account and the Junior-
Subordinate Note Redemption Account created therein.
"NOTES" shall mean the Private Notes, the Offered Notes and any other
Additional Notes.
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"NOTICE OF MANDATORY EXCHANGE" shall mean the notice regarding the exchange
of the Notes to be delivered by the Trustee pursuant to the Indenture.
"NOTIFICATION OF LOAN APPROVAL" shall mean the written notification by the
Guarantee Agency with respect to an Eligible Loan evidencing the Guarantee
thereof by the Guarantee Agency.
"OFFERED NOTES" shall mean, with respect to any Series, the Taxable Student
Loan Asset-Backed Notes being offered with respect thereto as specified in the
related Prospectus Supplement.
"OPERATING FUND" shall mean the fund by that name continued by and
described in the Indenture.
"ORDER" shall have the meaning set forth in the Indenture.
"OUTSTANDING" shall mean, when used in connection with any Note, a Note
which has been executed and delivered pursuant to the Indenture which at such
time remains unpaid as to principal or interest, unless provision has been made
for such payment pursuant to the Indenture, excluding Notes which have been
replaced pursuant to the Indenture.
"OWNERSHIP INTEREST" means, with respect to any Note, any ownership
interest in such Note, including any interest in such Note as the Registered
Owner thereof and any other interest therein, whether direct or indirect, legal
or beneficial.
"PARTICIPANT" means a member of, or participant in, the Depository.
"PERSON" shall mean an individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, or
government or agency or political subdivision thereof.
"PLACEMENT AGENT" shall mean Smith Barney Inc.
"PLUS LOAN" or "FEDERAL PLUS LOAN" shall mean a Student Loan authorized
under Section 428B of the Act.
"PRESIDENT" shall mean the President of the Issuer.
"PRINCIPAL OFFICE" shall mean the principal corporate trust office of the
Trustee.
"PRIOR CLASS A NOTES" shall mean (i) the Issuer's Taxable Student Loan
Asset-Backed Notes, Series 1996A Senior Auction Rate issued pursuant to the
Indenture in the aggregate principal amount of $96,600,000 and consisting of
$48,300,000 of Class 1996 A-1 Notes (Auction Rate Securities-SM- (ARS-SM-)) and
$48,300,000 of Class 1996 A-2 Notes (Auction Rate Securities-SM- (ARS-SM-)) and
(ii) the Issuer's Taxable Student Loan Asset-Backed Notes,
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Series 1996B, Class 1996B Senior Auction Rate issued pursuant to the Indenture
in the aggregate principal amount of $128,000,000 and consisting of $73,700,000
of Class A-3 Notes (Auction Rate Securities-SM- (ARS-SM-)) and $54,300,000 of
Class A-4 Notes (Auction Rate Securities-SM- (ARS-SM-)).
"PRIOR CLASS B NOTES" shall mean (i) the Issuer's Taxable Student Loan
Asset-Backed Notes, Series 1996A, Class B Subordinate LIBOR Rate, issued
pursuant to the Indenture in the aggregate principal amount of $11,100,000 and
(ii) the Issuer's Taxable Student Loan Asset-Backed Notes, Series 1996B, Class
B-2 Subordinate LIBOR Rate, issued pursuant to the Indenture in the aggregate
principal amount of $14,200,000.
"PRIVATE NOTES" shall mean the Series 1996A Notes and the Series 1996B
Notes.
"PROGRAM" or "PURCHASE PROGRAM" shall mean the Issuer's Program for the
purchase of Eligible Loans from Eligible Lenders in order to increase the supply
of money available for new Student Loans, thereby assisting students in
obtaining an education at an Eligible Institution.
"PURCHASE PRICE" shall mean the purchase price described in the respective
Student Loan Purchase Agreement.
"RATING" shall mean one of the rating categories of Fitch, S&P or any other
Rating Agency, provided Fitch, S&P or any other Rating Agency, as the case may
be, is currently rating the Notes.
"RATING AGENCY" shall mean, collectively, (a) Fitch and its successors and
assigns, (b) S&P and its successors and assigns or (c) or any other Rating
Agency requested by the Issuer to maintain a Rating on any of the Notes, but
only to the extent such entity is at the time maintaining a Rating on the Notes.
"RECYCLING ACCOUNT" shall mean the Account by that name created within the
Student Loan Fund by the Indenture designated with respect to each Series and
further described in the Indenture.
"REGISTERED OWNER" shall mean the Person in whose name a Note is registered
on the Note registration books maintained by the Trustee or, if a Note is
registered in the name of a Securities Depository, any other Person with an
Ownership Interest.
"REGULATIONS" shall mean the Regulations promulgated from time to time by
the Secretary or the Guarantee Agency.
"RESERVE FUND" shall mean the Fund by that name created in the Indenture
and further described in the Indenture.
"RESERVE FUND REQUIREMENT" shall mean at any time (a) the greater of an
amount equal to 2% of the aggregate principal amount of the Notes then
Outstanding or $750,000 plus (b) an
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amount, if any, required to be on deposit in the Reserve Fund with respect to
any Additional Notes pursuant to the Supplemental Indenture authorizing the
issuance of such Additional Notes.
"RESOLUTION" shall mean a resolution duly adopted by the Board.
"REVENUE" shall mean all principal and interest payments, proceeds, charges
and other income received by the Trustee or the Issuer from or on account of any
Financed Eligible Loan (including, but not limited to, scheduled, delinquent and
advance payments of and any insurance proceeds with respect to, interest,
including Interest Benefit Payments, on Financed Eligible Loans and any Special
Allowance Payments received by the Issuer or the Trustee with respect to any
Financed Eligible Loan) and investment income from all Funds and Accounts, and
any proceeds from the sale or other disposition of such Financed Eligible Loans.
"REVENUE FUND" shall mean the Fund by that name created in the Indenture
and further described in the Indenture.
"S&P" shall mean Standard & Poor's Ratings Services, a Division of The
McGraw-Hill Companies, Inc., its successors and assigns, and, for the purposes
of the Auction Procedures, if such corporation shall be dissolved or liquidated
or shall no longer perform the functions of a securities rating agency, "S&P"
shall be deemed to relate to any other nationally recognized securities rating
agency designated by the Issuer by notice to the Trustee, the Auction Agent and
the Broker-Dealers; provided, however, that such notice shall not be effective
unless accompanied by a consent of a majority of the Broker-Dealers.
"SECRETARY" shall mean the Secretary of the United States Department of
Education or any successor to the pertinent functions thereof, under the Act or
when the context so requires, the former Commissioner of Education of the United
States Department of Health, Education and Welfare.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES DEPOSITORY" shall mean The Depository Trust Company and its
successors and assigns or if, (i) the then Securities Depository resigns from
its functions as depository of the Notes or (ii) the Issuer discontinues use of
the Securities Depository pursuant to Section 2.01(d) of the Indenture, any
other securities depository which agrees to follow the procedures required to be
followed by a securities depository in connection with the Notes and which is
selected by the Issuer with the consent of the Trustee.
"SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"SELLER" shall mean an Eligible Lender from which the Issuer is purchasing
or has purchased or agreed to purchase Eligible Loans pursuant to a Student Loan
Purchase Agreement between the Issuer and such Eligible Lender; provided,
however, that any Seller, other than Union Bank and Trust Company, shall be
approved in writing by each Rating Agency.
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"SENIOR NOTE REDEMPTION ACCOUNT" shall mean the Account by that name
created within the Note Redemption Fund by Section 5.01 of the Indenture and
further described in the Indenture.
"SENIOR NOTES" shall mean the Prior Class A Notes and any Offered Notes or
Additional Notes secured on a parity with the Prior Class A Notes, the principal
of and interest on which is paid from the Senior Note Redemption Account of the
Note Redemption Fund and the Senior Interest Account of the Interest Fund,
respectively.
"SENIOR INTEREST ACCOUNT" shall mean the Account by that name created
within the Interest Fund by the Indenture and further described in the
Indenture.
"SERIES 1996 NOTE ACCOUNT" shall mean the Account by that name created
within the Student Loan Fund by the Indenture and further described in the
Indenture.
"SERIES 1996A NOTES" shall mean the Union Financial Services-1, Inc.,
Taxable Student Loan Asset-Backed Notes, Series 1996A issued pursuant to the
Indenture in the aggregate principal amount of $107,700,000, consisting of the
Class A-1 Notes, the Class A-2 Notes and the Class B Notes.
"SERIES 1996B NOTES" shall mean the Union Financial Services-1, Inc.,
Taxable Student Loan Asset-Backed Notes, Series 1996B issued pursuant to the
Indenture in the aggregate principal amount of $142,200,000, consisting of the
Class A Notes and the Class B-2 Notes with respect thereto.
"SERVICER" shall mean Union Bank and Trust Company, and any other servicer
so long as the Issuer shall have received written confirmation from each Rating
Agency that the designation of such entity as a "Servicer" under the Indenture
will not, at the time of such designation, cause such Rating Agency to reduce or
withdraw its Ratings then applicable to any of the Notes, and their respective
successors and assigns.
"SERVICING AGREEMENT" shall mean the Amended and Restated Servicing
Agreement, dated as of June 19, 1996, as amended, between the Issuer and Union
Bank and Trust Company and any other servicing agreement with any other Servicer
relating to Financed Eligible Loans.
"SLS LOAN" or "FEDERAL SLS LOAN" shall mean a Student Loan authorized under
Section 428A of the Act.
"SPECIAL ALLOWANCE PAYMENTS" shall mean the special allowance payments
authorized to be made by the Secretary by Section 438 of the Act, or similar
allowances authorized from time to time by federal law or regulation.
"SPECIAL RECORD DATE" shall have the meaning set forth in the Indenture.
"STATE" shall mean the State of Nevada.
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"STATED MATURITY" shall mean the date specified in the Notes as the fixed
date on which principal of such Notes is due and payable.
"STUDENT LOAN" shall mean a loan under the Act to an Eligible Borrower for
education at an Eligible Institution (or a loan to consolidate the same)
authorized to be made or acquired by the Issuer pursuant to its articles of
incorporation and the Loan Purchase Regulations and described in Section
144(b)(1)(A) of the Code.
"STUDENT LOAN FUND" shall mean the Fund by that name created in the
Indenture and further described in the Indenture, including the Series 1996 Loan
Account, the Series 1996 Note Account and the Series 1996 Recycling Account
created therein and each Loan Account and Recycling Account designated with
respect to Additional Notes.
"STUDENT LOAN HOLDING FUND" shall mean the Fund by that name created in the
Indenture and further described in the Indenture.
"STUDENT LOAN PURCHASE AGREEMENT" shall mean, collectively, (a) that
certain Loan Sale and Commitment Agreement dated as of March 1, 1996 between the
Issuer and Union Bank and Trust Company, (b) that certain Loan Sale and
Commitment Agreement dated as of June 19, 1996, between the Issuer and Union
Bank and Trust Company and (c) any other loan purchase agreement, entered into
between the Issuer and any Eligible Lender for the purchase of Eligible Loans in
substantially the same form as said Loan Sale and Commitment Agreement, as
determined by the Issuer and with an opinion of Note Counsel.
"SUBORDINATE INTEREST ACCOUNT" shall mean the Account by that name created
within the Interest Fund by the Indenture and further described in the
Indenture.
"SUBORDINATE NOTE REDEMPTION ACCOUNT" shall mean the Account by that name
created within the Note Redemption Fund by the Indenture and further described
in the Indenture.
"SUBORDINATE NOTES" shall mean the Prior Class B Notes and any Offered
Notes or Additional Notes secured on a parity with the Prior Class B Notes, the
principal of and interest on which is paid from the Subordinate Note Redemption
Account of the Note Redemption Fund and the Subordinate Interest Account of the
Interest Fund, respectively.
"SUBSERVICER" shall mean UNIPAC Service Corporation, a Nebraska
corporation, and any other subservicer so long as the Issuer shall have received
written confirmation from each Rating Agency that the designation of such entity
as a "Subservicer" hereunder will not, at the time of such designation, cause
such Rating Agency to reduce or withdraw its Ratings then applicable to any of
the Notes, and their respective successors and assigns.
"SUBSERVICING AGREEMENT" shall mean the Servicing Agreement, dated as of
January 1, 1995, as amended by the First Amendment to Servicing Agreement dated
as of March 1, 1996 and the Second Amendment to Servicing Agreement dated as of
June 19, 1996, each between
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the Servicer and the Subservicer and any other subservicing agreement with any
other Subservicer relating to Financed Eligible Loans.
"SUPPLEMENTAL INDENTURE" shall mean an agreement supplemental to the
Indenture executed pursuant to the Indenture.
"SWAP AGREEMENT" shall mean an interest rate swap agreement between the
Issuer and a Swap Counterparty, as originally executed and as amended or
supplemented, or other interest rate hedge or basis agreement between the Issuer
and a Swap Counterparty, as originally executed and as amended or supplemented,
in each case approved in writing by each Rating Agency, for the purpose of
converting in whole or in part the Issuer's variable interest rate liability on
all or a portion of the Private Notes, the Offered Notes or any variable rate
Additional Notes issued on a parity therewith to a fixed rate liability, or for
the purpose of converting in whole or in part the Issuer's fixed interest rate
liability on all or a portion of the Private Notes, the Offered Notes or any
fixed rate Additional Notes issued on a parity therewith to a variable rate
liability.
"SWAP COUNTERPARTY" shall mean any Person with whom the Issuer shall, from
time to time, enter into a Swap Agreement.
"SWAP COUNTERPARTY GUARANTEE" shall mean a guarantee in favor of the Issuer
given in connection with the execution and delivery of a Swap Agreement under
the Indenture.
"TRANSFER DATE" shall mean each January 1 and July 1, commencing July 1,
1996.
"TRUST ESTATE" shall mean the property described as such in the granting
clauses to the Indenture.
"TRUSTEE" shall mean Norwest Bank Minnesota, National Association, acting
in its capacity as Trustee under the Indenture, or any successor trustee
designated pursuant to the Indenture.
"UNSUBSIDIZED LOAN" or "UNSUBSIDIZED STAFFORD LOAN" shall mean a Student
Loan authorized under Section 428H of the Act.
"VALUE" on any calculation date when required under the Indenture shall
mean the value of the Trust Estate calculated by the Trustee as follows:
(a) with respect to any Eligible Loan, the unpaid principal amount
thereof plus any unamortized premiums, any accrued but unpaid interest,
Interest Benefit Payments and Special Allowance Payments as set forth on
the most recent Servicer's report or from the Issuer;
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(b) with respect to any funds on deposit in any commercial bank or as
to any banker's acceptance or repurchase agreement or investment contract,
the amount thereof plus accrued but unpaid interest;
(c) with respect to any Investment Securities of an investment
company, the net asset value price of the shares as reported by the
investment company;
(d) as to investments the bid and asked prices of which are published
on a regular basis in THE WALL STREET JOURNAL (or, if not there, then in
THE NEW YORK TIMES): (i) the average of the bid and asked prices for such
investments so published on or most recently prior to such time of
determination, but not in excess of the par amount of such investment plus
accrued interest thereon or (ii) the bid price published by a nationally
recognized pricing service;
(e) with respect to Swap Agreements, (i) mark to market for purposes
of a sale of an interest in a Swap Agreement and (ii) the amount thereof
plus accrued but unpaid interest for other purposes; and
(f) as to investments the bid and asked prices of which are not
published on a regular basis in THE WALL STREET JOURNAL or THE NEW YORK
TIMES: (i) the lower of the bid prices at such time of determination for
such investments by any two nationally recognized government securities
dealers (selected by the Issuer in its absolute discretion) at the time
making a market in such investments or (ii) the bid price published by a
nationally recognized pricing service.
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
The following is a summary of certain provisions of the Indenture. This
summary does not purport to be comprehensive and reference should be made to the
Indenture for a full and complete statement of the provisions thereof.
PARITY OF LIEN
The provisions, covenants and agreements set forth in the Indenture to be
performed by or on behalf of the Issuer shall be for the equal benefit,
protection and security of the Registered Owners of any and all of the Notes,
all of which, regardless of the time or times of their issuance or maturity,
shall be of equal rank without preference, priority or distinction of any of the
Notes over any other thereof, except as expressly provided in the Indenture.
OTHER OBLIGATIONS OF THE ISSUER
The Issuer agrees not to commingle the Funds established by the Indenture
with funds, proceeds, or investment of funds relating to other issues or series
of notes heretofore or hereafter issued, except to the extent such commingling
is required by the Trustee for ease in administration of its duties and
responsibilities; provided, however, that should the Trustee
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require such permitted commingling, it shall keep complete records in order that
the funds, proceeds, or investments under the Indenture may at all times be
identified by source and application, and if necessary, separated.
The Issuer agrees not to create or voluntarily permit to be created any
debt, lien, or charge which would be on a parity with, junior to, or prior to
the lien of the Indenture; shall not do or omit to do or suffer to be done or
omitted to be done any matter or things whatsoever whereby the lien of the
Indenture or the priority of such lien for the Notes and Issuer Swap Payments
thereby secured might or could be lost or impaired; and agrees to pay or cause
to be paid or to make adequate provisions for the satisfaction and discharge of
all lawful claims and demands which if unpaid might by law be given precedence
to or any equality with the Indenture as a lien or charge upon the Financed
Eligible Loans; provided, however, that nothing in this paragraph shall require
the Issuer to pay, discharge, or make provision for any such lien, charge,
claim, or demand so long as the validity thereof shall be by it in good faith
contested, unless thereby, in the opinion of the Trustee, the same will endanger
the security for the Notes and Issuer Swap Payments; and provided further that
any subordinate lien (i.e., subordinate to the lien securing the Senior Notes,
the Issuer Swap Payments, the Subordinate Notes and the Junior-Subordinate
Notes, if any) shall be entitled to no payment from the Trust Estate, nor may
any remedy be exercised with respect to such subordinate lien against the Trust
Estate until all Notes and Issuer Swap Payments shall have been paid or deemed
paid under the Indenture.
SWAP AGREEMENTS; COUNTERPARTY SWAP
PAYMENTS; ISSUER SWAP PAYMENTS
The Issuer in the Indenture authorizes and directs the Trustee to
acknowledge and agree to any Swap Agreement hereafter entered into by the Issuer
and a Swap Counterparty under which (a) the Issuer may be required to make, from
time to time, Issuer Swap Payments and (b) the Trustee may receive, from time to
time, Counterparty Swap Payments for the account of the Issuer.
PLEDGE FOR PAYMENT
The Notes and interest thereon and any Issuer Swap Payments shall be and
are payable from and equally secured (except as to priority of payment of the
Senior Notes and any Issuer Swap Payments secured on a parity with the Senior
Notes, over the Subordinate Notes and any Issuer Swap Payment secured on a
parity with the Subordinate Notes, and the Junior-Subordinate Notes, if any, and
any Issuer Swap Payments secured on a parity with the Junior--Subordinate Notes,
the priority of payment of the Senior Notes, any Issuer Swap Payments secured on
a parity with the Senior Notes, the Subordinate Notes and any Issuer Swap
Payments secured on a parity with the Subordinate Notes, over the
Junior-Subordinate Notes, if any, and any Issuer Swap Payments secured on a
parity with the Junior-Subordinate Notes, and the priority, if any, of payment
of one series of Junior-Subordinate Notes and any Issuer Swap Payments secured
on a parity with such series of Junior-Subordinate Notes over any other class of
Junior-Subordinate Notes and any Issuer Swap Payments secured on a parity with
such class of Junior-Subordinate Notes, as provided in the Indenture or as
provided in any Supplemental
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Indenture) by an irrevocable first lien on and pledge of the properties
constituting the Trust Estate, subject to the application thereof as permitted
by the Indenture, but in no event shall the Registered Owners or any Swap
Counterparty have any right to possession of any Financed Eligible Loans, which
shall be held only by the Trustee or its agent or bailee. The Issuer reserves
the right to issue, in the future, additional notes subordinate to the
Subordinate Notes offered hereby pursuant to the terms of the Indenture.
REPRESENTATIONS AND WARRANTIES OF THE ISSUER
The Issuer represents and warrants in the Indenture that it is duly
authorized under the laws of the State to create and issue the Notes and to
execute and deliver the Indenture and any Swap Agreement and to make the pledge
to the payment of Notes and any Issuer Swap Payments thereunder, that all
necessary action on the part of the Issuer and the Board for the creation and
issuance of the Notes and the execution and delivery of the Indenture and any
Swap Agreement has been duly and effectively taken; and that the Notes in the
hands of the Registered Owners thereof and the Issuer Swap Payments are and will
be valid and enforceable special limited obligations of the Issuer secured by
and payable solely from the Trust Estate.
COVENANTS AS TO ADDITIONAL CONVEYANCES
At any and all times, the Issuer will duly execute, acknowledge, and
deliver, or will cause to be done, executed, and delivered, all and every such
further acts, conveyances, transfers, and assurances in law as the Trustee shall
reasonably require for the better conveying, transferring, and pledging and
confirming unto the Trustee, all and singular, the properties constituting the
Trust Estate transferred and pledged, or intended so to be transferred and
pledged by the provisions of the Indenture.
FURTHER COVENANTS OF THE ISSUER
The Issuer will cause financing statements and continuation statements with
respect thereto at all times to be filed in the office of the Secretary of State
of the State and any other jurisdiction necessary to perfect and maintain the
security interest granted by the Issuer under the Indenture.
The Issuer will duly and punctually keep, observe and perform each and
every term, covenant, and condition on its part to be kept, observed and
performed, contained in the Indenture and the other agreements, to which the
Issuer is a party pursuant to the transactions contemplated by the Indenture,
and will punctually perform all duties required by the Bylaws of the Issuer and
laws of the State.
The Issuer shall be operated on the basis of its Fiscal Year.
The Issuer shall cause to be kept full and proper books of records and
accounts, in which full, true, and proper entries will be made of all dealings,
business, and affairs of the Issuer which relate to the Notes and any Swap
Agreement.
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The Issuer, upon written request of the Trustee, will permit at all
reasonable times the Trustee or its agents, accountants, and attorneys, to
examine and inspect the property, books of account, records, reports, and other
data relating to the Financed Eligible Loans, and will furnish the Trustee such
other information as it may reasonably request. The Trustee shall be under no
duty to make any such examination unless requested in writing to do so by the
Registered Owners of 51% in collective aggregate principal amount of the Notes
at the time Outstanding, and unless such Registered Owners shall have offered
the Trustee security and indemnity satisfactory to it against any costs,
expenses and liabilities which might be incurred thereby.
The Issuer shall cause an annual audit to be made by an independent
auditing firm of national reputation and file one copy thereof with the Trustee
within 150 days of the close of each Fiscal Year. The Trustee shall be under no
obligation to review or otherwise analyze such audit.
The Issuer covenants in the Indenture that in the event it intends to
transfer or sell Financed Eligible Loans which are a part of the Trust Estate,
it shall give written notice thereof to the Trustee and each Rating Agency. The
Issuer also covenants that in the event it intends to transfer or sell Financed
Eligible Loans (except in the case of a consolidation or
serialization/combination or submitting Financed Eligible Loans for claim to a
Guarantee Agency) which constitute more than 10% of the Trust Estate, it shall
give written notice thereof to each Rating Agency within fifteen days of such
sale. The Issuer shall not sell Financed Eligible Loans except as permitted by
the provisions of the Indenture, in which case such Financed Eligible Loans may
be sold at a price not less than the principal amount thereof (including accrued
by unpaid interest). In such case, the proceeds thereof shall be used to either
acquire Eligible Loans with the same or more favorable characteristics or to
redeem Notes. Further, there shall be no sale of Financed Eligible Loans
(except in the case of a consolidation or serialization/combination or
submitting Financed Eligible Loans for claim to a Guarantee Agency) if the
Aggregate Market Value of the Trust Estate is less than the aggregate principal
amount of the Notes Outstanding and there shall be no sale of Financed Eligible
Loans (except in the case of a consolidation or serialization/combination or
submitting Financed Eligible Loans for claim to a Guarantee Agency) when the
Aggregate Market Value of the Trust Estate is greater than the aggregate
principal amount of the Notes Outstanding unless, immediately upon such sale,
the proceeds thereof are used to acquire an equal or greater principal amount of
Eligible Loans or are used to redeem Notes optionally pursuant to the provisions
of the Indenture, and thereupon the Aggregate Market Value of the Trust Estate
is greater than the aggregate principal amount of all Notes Outstanding (after
giving effect to such redemption) except in the limited circumstances set forth
in the Indenture.
The Issuer covenants that all Financed Eligible Loans upon receipt thereof
shall be delivered to the Trustee or its agent or bailee to be held pursuant to
the provisions of the Indenture and pursuant to the Servicing Agreement or a
custodian agreement.
Notwithstanding anything to the contrary contained in the Indenture, except
upon the occurrence and during the continuance of an Event of Default under the
Indenture, the Issuer
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expressly reserves and retains the privilege to receive and, subject to the
terms and provisions of the Indenture, to keep or dispose of, claim, bring suits
upon or otherwise exercise, enforce or realize upon its rights and interest in
and to the Financed Eligible Loans and the proceeds and collections therefrom,
and neither the Trustee nor any Registered Owner shall in any manner be or be
deemed to be an indispensable party to the exercise of any such privilege, claim
or suit and the Trustee shall be under no obligation whatsoever to exercise any
such privilege, claim or suit; provided, however, that the Trustee shall have
and retain possession of the Financed Eligible Loans pursuant to the provisions
of the Indenture (which Financed Eligible Loans may be held by the Trustee's
agent or bailee) so long as such loans are subject to the lien of the Indenture.
The Issuer shall notify the Trustee and each Rating Agency in writing prior
to entering into any Swap Agreement.
SERVICING AGREEMENT
The Issuer covenants that it will keep in force and effect a Servicing
Agreement whereby a Servicer will be responsible for the performance of certain
administrative functions in connection with the Financed Eligible Loans.
PROCEDURES FOR TRANSFER OF FUNDS
In any instance where the Indenture requires a transfer of funds or money
from one Fund to another, a transfer of ownership in investments or an undivided
interest therein may be made in any manner agreeable to the Issuer and the
Trustee, and in the calculation of the amount transferred, interest on the
investment which has or will accrue before the date the money is needed in the
fund to which the transfer is made shall not be taken into account or considered
as money on hand at the time of such transfer.
ADDITIONAL COVENANTS WITH RESPECT TO THE ACT
The Issuer covenants that it will cause the Trustee to be, or replace the
Trustee with, an Eligible Lender under the Act, that it will acquire or cause to
be acquired Eligible Loans only by an Eligible Lender; that it will not dispose
of or deliver any Financed Eligible Loans or any security interest in any such
Financed Eligible Loans to any party who is not an Eligible Lender so long as
the Act or Regulations adopted thereunder require an Eligible Lender to be the
owner or holder of Guaranteed Student Loans; provided, however, that nothing
above shall prevent the Issuer from delivering the Eligible Loans to the
Servicer or the Guarantee Agency. The Registered Owners of the Notes shall not
in any circumstances be deemed to be the owner or holder of the Guaranteed
Student Loans.
The Issuer, or its designated agent, shall be responsible for each of the
following actions with respect to the Act: (a) The Issuer shall be responsible
for dealing with the Secretary with respect to the rights, benefits and
obligations under the Certificates of Insurance and the Contract of Insurance,
and the Issuer, or its designated agent, shall be responsible for dealing with
the
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Guarantee Agencies with respect to the rights, benefits and obligations under
the Guarantee Agreements with respect to the Financed Eligible Loans; (b) The
Issuer, or its designated agent, shall cause to be diligently enforced, and
shall cause to be taken all reasonable steps, actions and proceedings necessary
or appropriate for the enforcement of all terms, covenants and conditions of all
Financed Eligible Loans and agreements in connection therewith, including the
prompt payment of all principal and interest payments and all other amounts due
thereunder; (c) The Issuer, or its designated agent, shall cause the Financed
Eligible loans to be serviced by entering into the Servicing Agreement or other
agreement with the Servicer for the collection of payments made for, and the
administration of the accounts of, the Financed Eligible Loans; (d) The Issuer,
or its designated agent, shall comply, and shall cause all of its officers,
directors, employees and agents to comply, with the provisions of the Act and
any regulations or rulings thereunder, with respect to the Financed Eligible
Loans; and (e) The Issuer, or its designated agent, shall cause the benefits of
the Guarantee Agreements, the Interest Subsidy Payments and the Special
Allowance Payments to flow to the Trustee. The Trustee shall have no liability
for actions taken at the direction of the Issuer, except for negligence or
willful misconduct in the performance of its express duties under the Indenture.
The Trustee shall have no obligation to administer, service or collect the loans
in the Trust Estate or to maintain or monitor the administration, servicing or
collection of such loans.
STUDENT LOANS; COLLECTIONS
THEREOF; ASSIGNMENT THEREOF
The Issuer, through the Servicer, shall diligently collect all principal
and interest payments on all Financed Eligible Loans, and all Interest Benefit
Payments, insurance and default claims and Special Allowance Payments which
relate to such Financed Eligible Loans. The Issuer shall cause the filing and
assignment of such claims (prior to the timely-filing deadline for such claims
under the Regulations) by the Servicer. The Issuer will comply with the Act and
Regulations which apply to the Guaranteed Student Loan Program and to such
Financed Eligible Loans.
APPOINTMENT OF AGENTS
The Issuer shall employ and appoint all employees, agents, consultants and
attorneys which it may consider necessary. No member of the Board, neither
singly nor collectively, shall be personally liable for any act or omission not
willfully fraudulent or mala fide.
CAPACITY TO SUE
The Issuer shall have the power and capacity to sue and to be sued on
matters arising out of or relating to the financing of the Financed Eligible
Loans.
CERTAIN MATTERS RELATING TO BANKRUPTCY
The Issuer will only engage in activities permitted by its Articles of
Incorporation and the Indenture. The Issuer has no intention of filing a
voluntary petition under the United States
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Bankruptcy Code or any similar applicable state law so long as the Issuer is
solvent and does not reasonably foresee becoming insolvent. There can be no
assurance, however, that the Issuer, or the Seller will not become insolvent and
file a voluntary petition under the United States Bankruptcy Code or any similar
applicable state law in the future.
The voluntary or involuntary application for relief under the United States
Bankruptcy Code or any similar applicable law with respect to the Seller should
not necessarily result in a similar voluntary application with respect to the
Issuer so long as the Issuer is solvent and does not reasonably foresee becoming
insolvent either by reason of the Seller's insolvency or otherwise. The Issuer
has taken certain steps in structuring the transaction contemplated by the
Indenture that are intended to make it unlikely that any voluntary or
involuntary petition for relief by the Seller under the insolvency laws will
result in the consolidation, pursuant to the insolvency laws, of the assets and
liabilities of the Issuer with those of the Seller. These steps include the
formation of the Issuer as a special purpose entity pursuant to its Articles of
Incorporation containing certain limitations (including restrictions on the
nature of Issuer's business and on the ability to commence a voluntary case or
proceeding under any Insolvency Law without an affirmative vote of all of the
directors of the Issuer). The Seller and the Issuer believe that (a) subject to
certain assumptions (including the assumption that the books and records
relating to the assets and liabilities of the Seller will at all times be
maintained separately from those relating to the assets and liabilities of the
Issuer, the Issuer will prepare its own balance sheets and financial statements
and the Financed Eligible Loans will not appear as assets of the Seller on its
balance sheets, and there will be no commingling of the assets of the Seller
with those of the Issuer) the assets and liabilities of the Issuer should not be
substantively consolidated with the assets and liabilities of the Seller in the
event of a petition for relief under the United States Bankruptcy Code with
respect to the Seller and (b) the transfer of Financed Eligible Loans by the
Seller should constitute an absolute transfer and, therefore, such Financed
Eligible Loans would not be property of the Seller in the event of the filing of
an application for relief by or against the Seller under the United States
Bankruptcy Code. If, however, a bankruptcy trustee for the Seller or a creditor
of the Seller were to take the view that the Seller and the Issuer should be
substantively consolidated or that the transfer of the Financed Eligible Loans
from the Seller to the Issuer should be recharacterized as a pledge of such
Financed Eligible Loans, then delays in payments on the Notes or (should the
bankruptcy court rule in favor of any such trustee, debtor in possession or
creditor) reductions in such payments could result.
EVENTS OF DEFAULT
For purposes of the Indenture, each of the following events are defined as,
and are declared to be, "Events of Default":
(a) default in the due and punctual payment of any interest on any of
the Senior Notes when due or failure to make any Issuer Swap Payment
secured on a parity with the Senior Notes when due;
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(b) default in the due and punctual payment of the principal of any
of the Senior Notes at their Maturity;
(c) if no Senior Notes are Outstanding under the Indenture, default
in the due and punctual payment of any interest on any of the Subordinate
Notes when due or failure to make any Issuer Swap Payment secured on a
parity with the Subordinate Notes when due:
(d) if no Senior Notes are Outstanding under the Indenture, default
in the due and punctual payment of the principal of any of the Subordinate
Notes at their Maturity;
(e) if no Senior Notes or Subordinate Notes are Outstanding under the
Indenture, default in the due and punctual payment of any interest on the
Junior-Subordinate Notes, if any, when due or failure to make any Issuer
Swap Payment secured on a parity with the Junior-Subordinate Notes when
due;
(f) if no Senior Notes or Subordinate Notes are Outstanding under the
Indenture, default in the due and punctual payment of the principal of any
of the Junior-Subordinate Notes at their Maturity;
(g) default in the performance or observance of any other of the
covenants, agreements, or conditions on the part of the Issuer to be kept,
observed, and performed contained in the Indenture or in the Notes, and
continuation of such default for a period of 90 days after written notice
thereof by the Trustee to the President and Secretary of the Issuer; or
(h) the occurrence of an Event of Bankruptcy.
Any notice provided to be given to the President or Secretary of the Issuer with
respect to any default shall be deemed sufficiently given if sent by registered
mail with postage prepaid to the Person to be notified. The Trustee may give
any such notice in its discretion and shall give such notice if requested to do
so in writing by the Registered Owners of at least 51% of the collective
aggregate principal amount of the Senior Notes and each Swap Counterparty
secured on a parity with the Senior Notes, if required by the related Swap
Agreement at the time Outstanding (or if no Senior Notes or Swap Agreements
secured on a parity with the Senior Notes are Outstanding under the Indenture at
such time, then by the Registered Owners of at least 51% of the collective
aggregate principal amount of the Subordinated Notes and each Swap Counterparty
secured on a parity with the Subordinate Notes, if required by the related Swap
Agreement at the time Outstanding) (or if no Senior Notes or Swap Agreements
secured on a parity with the Senior Notes or Subordinate Notes or Swap
Agreements secured on a parity with the Subordinate Notes are Outstanding under
the Indenture at such time, then by the Registered Owners of at least 51% of the
collective aggregate principal amount of any Junior-Subordinate Notes and each
Swap Counterparty secured on a parity with such Junior-Subordinate Notes, if
required by the related Swap Agreement at the time Outstanding) (the "Registered
Owners Approval").
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REMEDIES ON DEFAULT
POSSESSION OF TRUST ESTATE
Subject to the rights of the Trustee as described under "Right to Enforce
in Trustee" below, upon the happening and continuance of any Event of Default,
the Trustee personally or by its attorneys or agents may enter into and upon and
take possession of such portion of the Trust Estate as shall be in the custody
of others, and all property comprising the Trust Estate, and each and every part
thereof, and exclude the Issuer and its agents, servants and employees wholly
therefrom, and have, hold, use, operate, manage, and control the same and each
and every part thereof, and in the name of the Issuer or otherwise, as they
shall deem best, conduct the business thereof and exercise the privileges
pertaining thereto and all the rights and powers of the Issuer and use all of
the Trust Estate for that purpose, and collect and receive all charges, income
and Revenues of the same and of every part thereof, and after deducting
therefrom all expenses incurred thereunder and all other proper outlays in the
Indenture authorized, and all payments which may be made as just and reasonable
compensation for its own services, and for the services of its attorneys,
agents, and assistants, the Trustee shall apply the rest and residue of the
money received by the Trustee as follows:
(a) if the principal of none of the Notes shall have become due,
FIRST, to the payment of the interest in default on the Senior Notes and to
the payment of all Issuer Swap Payments secured on a parity with the Senior
Notes then due, in order of the maturity of the installments of such
interest and any such Issuer Swap Payments, with interest on the overdue
installments thereof at the same rates, respectively, as were borne by the
Senior Notes on which such interest shall be in default and any such Issuer
Swap Payments then due, such payments to be made ratably to the parties
entitled thereto without discrimination or preference, SECOND, to the
payment of the interest in default on the Subordinate Notes and to the
payment of all Issuer Swap Payments secured on a parity with the
Subordinate Notes then due, in order of the maturity of the installments of
such interest and any such Issuer Swap Payments, with interest on the
overdue installments thereof at the same rates, respectively, as were borne
by the Subordinate Notes on which such interest shall be in default and any
such Issuer Swap Payments then due, such payments to be made ratably to the
parties entitled thereto without discrimination or preference and, THIRD,
to the payment of the interest in default on the Junior-Subordinate Notes,
if any, and to the payment of all Issuer Swap Payments secured on a parity
with such Junior-Subordinate Notes then due, in order of the maturity of
the installments of such interest and any such Issuer Swap Payments, with
interest on the overdue installments thereof at the same rates,
respectively, as were borne by the Junior-Subordinate Notes on which such
interest shall be in default and any such Issuer Swap Payments then due,
such payments to be made ratably to the parties entitled thereto without
discrimination or preference, except as may be provided in a Supplemental
Indenture; and
(b) if the principal of any of the Notes shall have become due by
declaration of acceleration or otherwise, FIRST to the payment of the
interest and principal in default
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on the Senior Notes and all Issuer Swap Payments secured on a parity with
the Senior Notes then due, with interest on overdue installments of
principal, interest and such Issuer Swap Payments then due at the same
rates, respectively, as were borne by the Senior Notes on which such
interest shall be in default, and such Issuer Swap Payments then due, as
the case may be, such payments to be made ratably to the parties entitled
thereto without discrimination or preference, SECOND, to the payment of the
interest in default on the Subordinate Notes and all Issuer Swap Payments
secured on a parity with the Subordinate Notes then due, with interest on
overdue installments of principal, interest and such Issuer Swap Payments
then due at the same rates, respectively, as were borne by the Subordinate
Notes on which such interest shall be in default and such Issuer Swap
Payments then due at the same rates, respectively, such payments to be made
ratably to the parties entitled thereto without discrimination or
preference, THIRD, to the payment of the principal of all Subordinate Notes
then due, such payments to be made ratably to the parties entitled thereto
without discrimination or preference, FOURTH, to the payment of the
interest in default on the Junior-Subordinate Notes, if any, and all Issuer
Swap Payments secured on a parity with such Junior-Subordinate Notes then
due, with interest on overdue installments of principal, interest and such
Issuer Swap Payments then due at the same rates, respectively, as were
borne by the Junior-Subordinate Notes on which such interest shall be in
default and such Issuer Swap Payments then due at the same rates,
respectively, such payments to be made ratably to the parties entitled
thereto without discrimination or preference, and FIFTH, to the payment of
the principal of all Junior-Subordinate Notes, if any, then due, such
payments to be made ratably to the parties entitled thereto without
discrimination or preference, except as may be provided in a Supplemental
Indenture.
ADVICE OF COUNSEL
Upon the happening of any Event of Default, the Trustee may proceed to
protect and enforce the rights of the Trustee and the Registered Owners in such
manner as counsel for the Trustee may advise, whether for the specific
performance of any covenant, condition, agreement or undertaking in the
Indenture contained, or in aid of the execution of any power therein granted, or
for the enforcement of such other appropriate legal or equitable remedies as, in
the opinion of such counsel, may be more effectual to protect and enforce the
rights aforesaid.
SALE OF TRUST ESTATE
Upon the happening of any Event of Default and if the principal of all of
the Outstanding Notes shall have been declared due and payable, then and in
every such case, and irrespective of whether other remedies authorized by the
Indenture shall have been pursued in whole or in part, the Trustee may sell,
with or without entry, to the highest bidder the Trust Estate, and all right,
title, interest, claim and demand thereto and the right of redemption thereof,
at any such place or places, and at such time or times and upon such notice and
terms as may be required by law. Upon such sale the Trustee may make and
deliver to the purchaser or purchasers a good and sufficient assignment or
conveyance for the same, which sale shall be a perpetual bar both at law and in
equity against the Issuer and all Persons claiming such properties. No
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purchaser at any sale shall be bound to see to the application of the purchase
money or to inquire as to the authorization, necessity, expediency or regularity
of any such sale. The Trustee is irrevocably appointed the true and lawful
attorney-in-fact of the Issuer, in its name and stead, to make and execute all
bills of sale, instruments of assignment and transfer and such other documents
of transfer as may be necessary or advisable in connection with a sale of all or
part of the Trust Estate, but the Issuer, if so requested by the Trustee, shall
ratify and confirm any sale or sales by executing and delivering to the Trustee
or to such purchaser or purchasers all such instruments as may be necessary, or
in the judgment of the Trustee, proper for the purpose which may be designated
in such request. In addition, the Trustee may proceed to protect and enforce
the rights of the Trustee, the Registered Owners of Notes under the Indenture
and each Swap Counterparty in such manner as counsel for the Trustee may advise,
whether for the specific performance of any covenant, condition, agreement or
undertaking contained in the Indenture, or in aid of the execution of any power
therein granted, or for the enforcement of such other appropriate legal or
equitable remedies as may in the opinion of such counsel, be more effectual to
protect and enforce the rights aforesaid. The Trustee shall take any such
action or actions if requested to do so in writing by the Registered Owners of
at least 51% of the collective aggregate principal amount of the Outstanding
Senior Notes and each Swap Counterparty secured on a parity with the Senior
Notes, if required by the related Swap Agreement (or if no Senior Notes or Swap
Agreements secured on a parity with the Senior Notes are Outstanding hereunder,
then by the Registered Owners of at least 51% of the collective aggregate
principal amount of the Outstanding Subordinate Notes and each Swap Counterparty
secured on a parity with the Subordinate Notes, if required by the related Swap
Agreement) (or if no Senior Notes or Swap Agreements secured on a parity with
the Senior Notes or Subordinate Notes or Swap Agreements secured on a parity
with the Subordinate Notes are Outstanding hereunder, then by the Registered
Owners of at least 51% of the collective aggregate principal amount of such
Outstanding Junior-Subordinate Notes and each Swap Counterparty secured on a
parity with such Junior-Subordinate Notes, if required by the related Swap
Agreement).
RESTORATION OF POSITION
In case the Trustee shall have proceeded to enforce any rights under the
Indenture by sale or otherwise, and such proceedings shall have been
discontinued, or shall have been determined adversely to the Trustee, then and
in every such case to the extent not inconsistent with such adverse decree, the
Issuer and the Trustee shall be restored to their former respective positions
and the rights under the Indenture in respect to the Trust Estate, and all
rights, remedies, and powers of the Trustee and of the Registered Owners and
Swap Counterparties shall continue as though no such proceeding had been taken.
PURCHASE OF PROPERTIES BY TRUSTEE OR REGISTERED OWNERS
In case of any such sale of the Trust Estate, any Registered Owner or
Registered Owners or committee of Registered Owners, Swap Counterparty or the
Trustee, may bid for and purchase such property and upon compliance with the
terms of sale may hold, retain possession, and dispose of such property as the
absolute right of the purchaser or purchasers without further
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accountability and shall be entitled, for the purpose of making any settlement
or payment for the property purchased, to use and apply any Notes secured by the
Indenture and any interest thereon due and unpaid, by presenting such Notes in
order that there may be credited thereon the sum apportionable and applicable
thereto out of the net proceeds of such sale, and thereupon such purchaser or
purchasers shall be credited on account of such purchase price payable to him or
them with the sum apportionable and applicable out of such net proceeds to the
payment of or as a credit on the Notes so presented.
APPLICATION OF SALE PROCEEDS
The proceeds of any sale of the Trust Estate, together with any funds at
the time held by the Trustee and not otherwise appropriated, shall be applied by
the Trustee as set forth in the Indenture, and then to the Issuer or whomsoever
shall be lawfully entitled thereto.
ACCELERATED MATURITY
If an Event of Default shall have occurred and be continuing, the Trustee
may declare, or upon the written direction by the Registered Owners of at least
51% of the collective aggregate principal amount of the Outstanding Senior Notes
and each Swap Counterparty secured on a parity with the Senior Notes, if
required by the related Swap Agreement (or if no Senior Notes or Swap Agreements
secured on a parity with the Senior Notes are Outstanding under the Indenture,
then upon the written direction of the Registered Owners of at least 51% of the
collective aggregate principal amount of the Outstanding Subordinate Notes and
each Swap Counterparty secured on a parity with the Subordinate Notes, if
required by the related Swap Agreement) (or if no Senior Notes or Swap
Agreements secured on a parity with the Senior Notes or Subordinate Notes or
Swap Agreements secured on a parity with the Subordinate Notes are Outstanding
under the Indenture, then upon the written direction of the Registered Owners of
at least 51% of the collective aggregate principal amount of any Outstanding
Junior-Subordinate Notes and each Swap Counterparty secured on a parity with
such Junior-Subordinate Notes, if required by the related Swap Agreement), and
shall declare, the principal of all Notes issued under the Indenture, or any
supplement thereto, and then Outstanding, and the interest thereon, if not
previously due, immediately due and payable, anything in the Notes or in the
Indenture to the contrary notwithstanding; provided, however, that a declaration
of acceleration upon a default pursuant to subsection (g) under "Events of
Default" above, shall require the consent of 100% of the Registered Owners of
the collective aggregate principal amount of the appropriate series of Notes and
Swap Agreements, as described above.
REMEDIES NOT EXCLUSIVE
The remedies conferred upon or reserved to the Trustee or the Registered
Owners of Notes in the Indenture are not intended to be exclusive of any other
remedy, but each remedy therein provided shall be cumulative and shall be in
addition to every other remedy given under the Indenture or now or hereafter
existing, and every power and remedy given to the Trustee or to the Registered
Owners of Notes under the Indenture, or any supplement thereto, may be exercised
from time to time as often as may be deemed expedient. No delay or omission of
the
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Trustee or of any Registered Owner of Notes to exercise any power or right
arising from any default under the Indenture shall impair any such right or
power or shall be construed to be a waiver of any such default or to be
acquiescence therein.
DIRECTION OF TRUSTEE
Upon the happening of any Event of Default, the Registered Owners of at
least 51% of the collective aggregate principal amount of the Senior Notes and
each Swap Counterparty secured on a parity with the Senior Notes, if required by
the related Swap Agreement secured by the Indenture and then Outstanding (or, if
no Senior Notes or Swap Agreements secured on a parity with the Senior Notes are
Outstanding under the Indenture, then the Registered Owners of at least 51% of
the collective aggregate principal amount of the Subordinate Notes and each Swap
Counterparty secured on a parity with the Subordinate Notes, if required by the
related Swap Agreement secured by the Indenture and then Outstanding) (or, if no
Senior Notes or Swap Agreements secured on a parity with the Senior Notes or
Subordinate Notes or Swap Agreements secured on a parity with the Subordinate
Notes are Outstanding under the Indenture, then the Registered Owners of at
least 51% of the collective aggregate principal amount of any Junior-Subordinate
Notes and each Swap Counterparty secured on a parity with the Junior-Subordinate
Notes, if required by the related Swap Agreement secured by the Indenture and
then Outstanding) with the prior written consent of each Swap Counterparty, if
required by the related Swap Agreement, shall have the right by an instrument or
instruments in writing delivered to the Trustee to direct and control the
Trustee as to the method of taking any and all proceedings for any sale of any
or all of the Trust Estate, or for the appointment of a receiver, if permitted
by law, and may at any time cause any proceedings authorized by the terms of the
Indenture to be so taken or to be discontinued or delayed; provided, however,
that such Registered Owners and Swap Counterparty, if required by the related
Swap Agreement, shall not be entitled to cause the Trustee to take any
proceedings which in the Trustee's opinion would be unjustly prejudicial to non-
assenting Registered Owners of Notes, but the Trustee shall be entitled to
assume that the action requested by the Registered Owners of 51% of the
collective aggregate principal amount of the Senior Notes and each Swap
Counterparty secured on a parity with the Senior Notes, if required by the
related Swap Agreement hereby secured and then Outstanding (or, if no Senior
Notes or Swap Agreements secured on a parity with the Senior Notes are
Outstanding hereunder, then the Registered Owners of at least 51% of the
collective aggregate principal amount of the Subordinate Notes and each Swap
Counterparty secured on a parity with the Subordinate Notes, if required by the
related Swap Agreement secured by the Indenture and then Outstanding) (or, if no
Senior Notes or Swap Agreements secured on a parity with the Senior Notes or
Subordinate or Swap Agreements secured on a parity with the Subordinate Notes
are Outstanding under the Indenture, then the Registered Owners of at least 51%
of the collective aggregate principal amount of any Junior-Subordinate Notes
and each Swap Counterparty secured on a parity with such Junior-Subordinate
Notes, if required by the related Swap Agreement secured by the Indenture and
then Outstanding) will not be prejudicial to any non-assenting Registered Owner.
Provided, however, that anything in the Indenture to the contrary
notwithstanding, the Registered Owners of a majority of the collective aggregate
principal amount of the Senior Notes secured by the Indenture and then
Outstanding together with the Registered Owners of a majority of the collective
aggregate principal amount of the
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Subordinate Notes secured by the Indenture and then Outstanding and the
Registered Owners of a majority of the collective aggregate principal amount of
the Junior-Subordinate Notes, if any, secured by the Indenture and then
Outstanding shall and with the written consent of each Swap Counterparty, if
required by the Swap Agreement, have the right, at any time, by an instrument or
instruments in writing executed and delivered to the Trustee, to direct the
method and place of conducting all proceedings to be taken in connection with
the enforcement of the terms and conditions of the Indenture, or for the
appointment of a receiver or any other proceedings thereunder, provided that
such direction shall not be otherwise than in accordance with the provisions of
law and of the Indenture.
RIGHT TO ENFORCE IN TRUSTEE
No Registered Owner of any Note or Swap Counterparty shall have any right
as such Registered Owner or Swap Counterparty to institute any suit, action, or
proceedings for the enforcement of the provisions of the Indenture or for the
execution of any trust thereunder or for the appointment of a receiver or for
any other remedy under the Indenture, all rights of action under the Indenture
being vested exclusively in the Trustee, unless and until such Registered Owner
or Swap Counterparty shall have previously given to the Trustee written notice
of a default under the Indenture, and of the continuance thereof, and also
unless the Registered Owners of the requisite principal amount of the Notes then
Outstanding or Swap Counterparty shall have made written request upon the
Trustee and the Trustee shall have been afforded reasonable opportunity to
institute such action, suit or proceeding in its own name, and unless the
Trustee shall have been offered reasonable indemnity and security satisfactory
to it against the costs, expenses, and liabilities to be incurred therein or
thereby and the Trustee for 30 days after receipt of such notification, request,
or offer of indemnity, shall have failed to institute any such action, suit or
proceeding. It is understood and intended that no one or more Registered Owners
of the Notes or Swap Counterparty shall have the right in any manner whatever by
his or their action to affect, disturb, or prejudice the lien of the Indenture
or to enforce any right thereunder except in the manner herein provided and for
the equal benefit of the Registered Owners of not less than 60% of the
collective aggregate principal amount of the Notes then Outstanding or the Swap
Counterparty.
THE TRUSTEE
ACCEPTANCE OF TRUST
The Trustee accepts the trusts imposed upon it by the Indenture, and agrees
to perform said trusts, but only upon and subject to the following terms and
conditions:
(a) Except during the continuance of an Event of Default, (i) the
Trustee undertakes to perform such duties and only such duties as are
specifically set forth in the Indenture, and no implied covenants or
obligations shall be read into the Indenture against the Trustee; and (ii)
in the absence of bad faith on its part, the Trustee may conclusively rely,
as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the Trustee
and conforming
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to the requirements of the Indenture; but in the case of any such
certificates or opinions which by any provisions of the Indenture are
specifically required to be furnished to the Trustee, the Trustee shall be
under a duty to examine the same to determine whether or not they conform
as to form with the requirements of the Indenture and whether or not they
contain the statements required under the Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee, in exercising the rights and powers vested in it by the Indenture,
shall use the same degree of care and skill in its exercise as a prudent
man would exercise or use under the circumstances in the conduct of his own
affairs.
(c) Before taking any action under the Indenture requested by
Registered Owners, the Trustee may require that it be furnished an
indemnity note or other indemnity and security satisfactory to it by the
Registered Owners, as applicable, for the reimbursement of all expenses to
which it may be put and to protect it against all liability, except
liability which results from the gross negligence or willful misconduct of
the Trustee and negligence with respect to moneys deposited and applied
pursuant to the Indenture, by reason of any action so taken by the Trustee.
(d) No provision of the Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties thereunder, or in the exercise of any of
its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(e) The permissive right of the Trustee to do things enumerated in
the Indenture or under the other transaction documents shall not be
construed as a duty and the Trustee shall not be answerable for other than
its negligence or willful default.
(f) Whether or not expressly so provided, every provision of the
Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
the Indenture.
RECITALS OF OTHERS
The recitals, statements, and representations set forth herein and in the
Notes shall be taken as the statements of the Issuer, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the title of the Issuer in the Trust Estate or as to the
security afforded thereby and hereby, or as to the validity or sufficiency of
the Indenture or of the Notes issued under the Indenture, and the Trustee shall
incur no responsibility in respect of such matters.
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MAINTAIN AND ENFORCE AGREEMENTS; NO
AMENDMENTS ADVERSE TO REGISTERED OWNERS
The Trustee will, from and after it shall have either entered into, or
succeeded to the rights and interests of any Eligible Lender under any guarantee
agreement covering Financed Eligible Loans, maintain the same and diligently
enforce its rights thereunder, and not consent to or permit any rescission of or
consent to any amendment thereto or otherwise take any action under or in
connection therewith which in any manner would adversely affect the rights of
the Registered Owners or any Swap Counterpart.
The Trustee will maintain its agreements with the Secretary and Guarantee
Agency under the Guaranteed Student Loan Program, and the Trustee will
diligently enforce its rights thereunder and will not voluntarily consent to or
permit any rescission of or consent to any amendment to or otherwise take any
action under or in connection therewith which in any manner will adversely
affect the rights of the Registered Owners or any Swap Counterpart.
AS TO FILING OF INDENTURE
The Trustee shall be under no duty (a) to file or record, or cause to be
filed or recorded, the Indenture or any instrument supplemental thereto, (b) or
to procure any further order or additional instruments of further assurance, (c)
to see to the delivery to it of any personal property intended to be mortgaged
or pledged under the Indenture or thereunder, (d) or to do any act which may be
suitable to be done for the better maintenance or continuance of the lien or
security thereof, or (e) for giving notice of the existence of such lien, or for
extending or supplementing the same or to see that any rights to Revenue and
Funds intended now or hereafter to be transferred in trust under the Indenture
are subject to the lien thereof. The Trustee shall not be liable for failure of
the Issuer to pay any tax or taxes in respect of such property, or any part
thereof, or the income therefrom or otherwise, nor shall the Trustee be under
any duty in respect of any tax which may be assessed against it or the
Registered Owners of the Notes in respect of such property or pledged Revenue
and Funds.
TRUSTEE MAY ACT THROUGH AGENTS
The Trustee may execute any of the trusts or powers under the Indenture and
perform any duty thereunder, either itself or by or through its attorneys,
agents, or employees, and it shall not be answerable or accountable for any
default, neglect or misconduct of any such attorneys, agents or employees, if
reasonable care has been exercised in the appointment thereof.
ASSUMPTION OF LIABILITY AND INDEMNIFICATION OF TRUSTEE
The Trustee shall be under no obligation or duty to perform any act at the
request of Registered Owners of Notes or to institute or defend any suit in
respect thereof unless properly indemnified and provided with security to its
satisfaction as provided under subsection (c) of "--Acceptance of Trust" above.
The Trustee shall not be required to take notice, or be deemed to have
knowledge, of any default or Event of Default of the Issuer or the Board under
the
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Indenture and may conclusively assume that there has been no such default or
Event of Default (other than an Event of Default described in subsections (a),
(b), (c), (d), (e) or (f) under "Events of Default" above) unless and until it
shall have been specifically notified in writing of such default or Event of
Default by (a) the Registered Owners of the percentages in principal amount of
the Notes then Outstanding as specified in the Indenture or (b) an Authorized
Officer of the Issuer. The Issuer agrees to assume liability for and to
indemnify the Trustee for, and to hold it harmless against, any loss, liability,
or expenses incurred without negligence or bad faith on its part, arising out of
or in connection with the acceptance or administration of the trust or trusts
under the Indenture, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or performance of
any of its powers or duties thereunder or arising from the Trust Estate.
The Issuer agrees to assume liability for and to indemnify and hold
harmless the Trustee against any and all claims, demands, suits, actions or
other proceedings and all liabilities, costs and expenses whatsoever caused by
any untrue statement or misleading statement or alleged untrue statement or
alleged misleading statement of a material fact contained in the Preliminary
Private Placement Memorandum or the final Private Placement Memorandum in
connection with the issuance of the Notes or caused by any omission or alleged
omission from the Preliminary Private Placement Memorandum or the final Private
Placement Memorandum such information of any material fact required to be stated
therein or necessary in order to make the statements made therein in the light
of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, the Issuer does not assume any liability with
respect to the payment of the Notes except to the extent expressly provided in
the Indenture and in order to create the same prime liability as would apply to
a general partner of a limited partnership organized under the laws of the State
of Delaware.
TRUSTEE'S RIGHT TO RELIANCE
The Trustee shall be protected in acting upon any notice, resolution,
request, consent, order, certificate, report, servicer's report, appraisal,
opinion, Issuer Order or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties. The
Trustee may consult with experts and with counsel (who may be counsel for the
Issuer, the Trustee, or for a Registered Owner or who may be Note Counsel), and
the opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken or suffered, and in respect of any
determination made by it under the Indenture in good faith and in accordance
with the opinion of such counsel.
Whenever in the administration of the Indenture the Trustee shall deem it
desirable that a matter be proved or established prior to taking, suffering, or
omitting any action thereunder, the Trustee (unless other evidence be in the
Indenture specifically prescribed) may, in the absence of bad faith on its part,
rely upon a certificate signed by the President or the Secretary of the Issuer;
provided, however, that the Trustee may not delay any action required thereunder
because the Trustee has failed to receive such certificate.
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<PAGE>
The Trustee shall not be liable for any action taken, suffered, or omitted
by it in good faith and believed by it to be authorized or within the discretion
or rights or powers conferred upon it by the provisions of the Indenture;
provided, however, that the Trustee shall be liable for any negligence or
willful misconduct on its part in taking such action.
The Trustee is authorized, under the Indenture, subject to the provisions
of certain provisions set forth in the Indenture, to sell, assign, transfer,
convey, or repurchase Financed Eligible Loans in accordance with an Issuer
Order, provided that no such Financed Eligible Loan may be sold, assigned,
transferred, or conveyed to any Person who is not an Eligible Lender. The
Trustee is further authorized to enter into agreements with other Persons, in
its capacity as Trustee, in order to carry out or implement the terms and
provisions of the Indenture.
The Trustee shall not be liable with respect to any action taken, suffered
or omitted to be taken in good faith in accordance with the provisions of the
Indenture or any other transaction document or at the direction of the
Registered Owners evidencing the appropriate percentage of the aggregate
principal amount of the Outstanding Notes relating to the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under the Indenture or
any other transaction document.
COMPENSATION OF TRUSTEE
The Issuer shall pay to the Trustee from time to time reasonable
compensation for all services rendered by it under the Indenture, and also all
of its reasonable expenses, charges, and other disbursements and those of its
attorneys, agents, and employees incurred in and about the administration and
execution of the trusts thereby created. The Trustee may not change the amount
of its annual compensation without giving the Issuer at least 90 days' written
notice prior to the beginning of a Fiscal Year. In the event of a default in
such payments by the Issuer, and as security for such payment, the Trustee shall
have a lien therefor on the Trust Estate, the Operating Fund and the General
Fund prior to any rights of the Registered Owners of the Notes.
TRUSTEE MAY OWN NOTES
The Trustee, or any successor Trustee, in its individual or other capacity,
may become the owner or pledgee of Notes and may otherwise deal with the Issuer,
with the same rights it would have if it were not the Trustee. The Trustee may
act as depository for, and permit any of its officers or directors to act as a
member of, or act in any other capacity in respect to, any committee formed to
protect the rights of the Registered Owners of Notes or to effect or aid in any
reorganization growing out of the enforcement of the Notes or of the Indenture,
whether or not any such committee shall represent the Registered Owners of more
than 60% of the collective aggregate principal amount of the Outstanding Notes.
RESIGNATION OF TRUSTEE
The Trustee and any successor to the Trustee may resign and be discharged
from the trust created by the Indenture by giving to the President notice in
writing which notice shall specify
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<PAGE>
the date on which such resignation is to take effect; provided, however, that
such resignation shall take effect only on the day specified in such notice if a
successor Trustee shall have been appointed pursuant to the provisions of the
Indenture (and is qualified to be the Trustee under the requirements of the
provisions of the Indenture). If no successor Trustee has been appointed by the
date specified or within a period of 90 days from the receipt of the notice by
the Issuer, whichever period is longer, the Trustee may (a) appoint a temporary
successor Trustee having the qualifications provided in the Indenture or (b)
request a court of competent jurisdiction to (i) require the Issuer to appoint a
successor, as provided in the Indenture, within three days of the receipt of
citation or notice by the court, or (ii) appoint a Trustee having the
qualifications provided in the Indenture. In no event may the resignation of
the Trustee be effective until a qualified successor Trustee shall have been
selected and appointed. In the event a temporary successor Trustee is appointed
pursuant to (a) above, the Board may remove such temporary successor Trustee and
appoint a successor thereto pursuant to the provisions of the Indenture.
REMOVAL OF TRUSTEE
The Trustee or any successor Trustee may be removed (a) at any time by the
Registered Owners of a majority of the collective aggregate principal amount of
the Outstanding Senior Notes (or if no Senior Notes are then Outstanding, a
majority of the collective aggregate principal amount of the Outstanding
Subordinate Notes and if no Subordinate Notes are then Outstanding, a majority
of the collective aggregate principal amount of the Junior-Subordinate Notes, if
any) by an instrument or concurrent instruments in writing in duplicate by such
Registered Owners, (b) by the Issuer for cause or upon the sale or other
disposition of the Trustee or its trust functions or (c) by the Issuer without
cause so long as no Event of Default exists or has existed within the last 90
days, upon payment to the Trustee so removed of all money then due to it under
the Indenture and appointment of a successor thereto by the Issuer and
acceptance thereof by said successor. One copy of any such instrument shall be
filed with the Secretary of the Issuer and the other with the Trustee so
removed.
In the event a Trustee (or successor Trustee) is removed, by any person or
for any reason permitted under the provisions of the Indenture, such removal
shall not become effective until (a) in the case of removal by the Registered
Owners, such Registered Owners of Notes by instrument or concurrent instruments
in writing (signed and acknowledged by such Registered Owners or their
attorneys-in-fact) filed with the Trustee removed have appointed a successor
Trustee or otherwise the Issuer shall have appointed a successor, and (b) the
successor Trustee has accepted appointment as such.
SUCCESSOR TRUSTEE
In case at any time the Trustee or any successor Trustee shall resign, be
dissolved, or otherwise shall be disqualified to act or be incapable of acting,
or in case control of the Trustee or of any successor Trustee or of its officers
shall be taken over by any public officer or officers, a successor Trustee may
be appointed by the Board by an instrument in writing duly authorized by
resolution. In the case of any such appointment by the Board of a successor to
the Trustee, the Board shall forthwith cause notice thereof to be mailed to the
Registered Owners
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<PAGE>
at the address of each Registered Owner appearing on the note registration books
maintained by the Registrar.
Every successor Trustee appointed by the Registered Owners, by a court of
competent jurisdiction, or by the Board shall be a bank or trust company in good
standing, organized and doing business under the laws of the United States or of
a state therein, which has a reported capital and surplus of not less than
$50,000,000, be authorized under the law to exercise corporate trust powers, be
subject to supervision or examination by a federal or state authority, and be an
Eligible Lender. Every successor Trustee shall become a party to each and every
agreement described in the Indenture that the Trustee is a party to.
MANNER OF VESTING TITLE IN TRUSTEE
Any successor Trustee appointed under the Indenture shall execute,
acknowledge, and deliver to its predecessor Trustee, and also to the Issuer, an
instrument accepting such appointment thereunder, and thereupon such successor
Trustee, without any further act, deed, or conveyance shall become fully vested
with all the estate, properties, rights, powers, trusts, duties, and obligations
of its predecessors in trust under the Indenture (except that the predecessor
Trustee shall continue to have the benefits to indemnification thereunder
together with the successor Trustee), with like effect as if originally named as
Trustee therein; but the Trustee ceasing to act shall nevertheless, on the
written request of an Authorized Officer of the Issuer, or an authorized officer
of the successor Trustee, execute, acknowledge, and deliver such instruments of
conveyance and further assurance and do such other things as may reasonably be
required for more fully and certainly vesting and confirming in such successor
Trustee all the right, title, and interest of the Trustee which it succeeds, in
and to pledged Revenue and Funds and such rights, powers, trusts, duties, and
obligations, and the Trustee ceasing to act also, upon like request, shall pay
over, assign, and deliver to the successor Trustee any money or other property
or rights subject to the lien of the Indenture, including any pledged securities
which may then be in its possession. Should any deed or instrument in writing
from the Issuer be required by the successor Trustee for more fully and
certainly vesting in and confirming to such new Trustee such estate, properties,
rights, powers, and duties, any and all such deeds and instruments in writing
shall on request be executed, acknowledged and delivered by the Issuer.
In case any of the Notes to be issued under the Indenture have been
authenticated but not delivered, any successor Trustee may adopt the certificate
of authentication of the Trustee or of any successor to the Trustee; and in case
any of the Notes shall not have been authenticated, any successor to the Trustee
may authenticate such Notes in its own name; and in all such cases such
certificate shall have the full force which it has anywhere in the Notes or in
the Indenture.
RIGHT OF INSPECTION
The Registered Owner of a Note shall be permitted at reasonable times
during regular business hours and in accordance with reasonable regulations
prescribed by the Trustee to examine at the principal office of the Trustee a
copy of any report or instrument theretofore filed with the Trustee relating to
the condition of the Trust Estate.
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LIMITATION WITH RESPECT TO EXAMINATION OF REPORTS
Except as provided in the Indenture, the Trustee shall be under no duty to
examine any report or statement or other document required or permitted to be
filed with it by the Issuer.
ADDITIONAL COVENANTS OF TRUSTEE
The Trustee, by the execution of the Indenture, covenants, represents and
agrees that: (a) it will not exercise any of the rights, duties, or privileges
under the Indenture in such manner as would cause the Student Loans held or
acquired under the terms thereof to be transferred, assigned, or pledged as
security to any person or entity other than as permitted by the Indenture; (b)
it will comply with the Act and the Regulations and will, upon written notice
from an Authorized Officer of the Issuer, the Secretary, or the Guarantee
Agency, use its reasonable efforts to cause the Indenture to be amended (in
accordance with the provisions of the Indenture) if the Act or Regulations are
hereafter amended so as to be contrary to the terms of the Indenture; (c) it
will, from and after it shall have either entered into, or succeeded to the
rights and interests of any Eligible Lender under any guarantee agreement
covering Financed Eligible Loans, maintain the same and diligently enforce its
rights thereunder, and not consent to or permit any rescission of or consent to
any amendment thereto or otherwise take any action under or in connection
therewith which in any manner would adversely affect the rights of the
Registered Owners or any Swap Counterparty; and (d) it will maintain its
agreements with the Secretary and Guarantee Agency under the Guaranteed Student
Loan Program, and the Trustee will diligently enforce its rights thereunder and
will not voluntarily consent to or permit any rescission of or consent to any
amendment to or otherwise take any action under or in connection therewith which
in any manner will adversely affect the rights of the Registered Owners or any
Swap Counterparty.
TRUSTEE COVENANTS WITH
RESPECT TO "ELIGIBLE LENDER" STATUS
The Trustee covenants in the Indenture as follows: (a) the Trustee
represents and warrants that it satisfies the requirements to be an "eligible
lender" as that term is defined in the Act and covenants that it will remain an
"eligible lender" so long as the Trustee remains Trustee under the Indenture;
provided, however, that the Trustee shall have no responsibility or liability
under the Indenture if it fails to remain an "eligible lender" as a result of
the actions or inactions of the Issuer or any servicer; and (b) the Trustee
shall take such actions, but only such actions, with respect to being an
"eligible lender" as shall be reasonably requested by the Issuer; such actions
do not include taking steps or instituting suits, actions or proceedings
necessary or appropriate for the enforcement of all terms, covenants and
conditions of all Financed Eligible Loans and agreements in connection
therewith, including the prompt payment of all principal and interest payments
and all other amounts due thereunder, for which the Issuer is solely
responsible.
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TRUSTEE'S STATUS AS AN "ELIGIBLE LENDER"
For the purposes of the Indenture and all documents, agreements,
understandings and arrangements relating to the Indenture that are executed by
the Trustee have been executed by the Trustee with the understanding that it may
be deemed to be an "eligible lender" under the Act. The Issuer acknowledges the
fact that the Trustee may be deemed an "eligible lender" under the Act and thus
may be subject to certain liabilities because of such status and that the
Trustee is willing to accept the status of "eligible lender" thereunder as an
accommodation to the Issuer, and the Issuer agrees that it will indemnify and
hold harmless the Trustee and its officers, directors, employees and agents for
any and all liability which may be incurred because of Trustee's status as an
"eligible lender" or because of the Trustee's entering into the Indenture or any
of the other transaction documents that results from the actions or inactions of
the Issuer or any servicer from moneys available, if any, as described in the
Memorandum under "Security and Sources of Payment for the Notes--Revenue Fund,"
clause (l). The Issuer agrees that it will not seek recourse or commence any
action against the Trustee or its officers, directors, employees or agents or
any of their personal assets for the performance or payment of any obligation
under the Act. The Trustee shall have no liability or responsibility with
respect to any of the duties and obligations specifically undertaken by the
Issuer pursuant to the provisions of the Indenture.
TRUSTEE TO CAUSE INVESTMENTS TO BE MADE
As to any Funds held by the Trustee under the Indenture, the same shall be
invested by the Trustee as directed by an Issuer Order, within the limitations
prescribed in the Indenture.
DUTY OF TRUSTEE WITH RESPECT TO RATING AGENCY
It shall be the duty of the Trustee to notify each Rating Agency then
rating any series of the Notes of (a) any change, expiration, extension, or
renewal of the Indenture, (b) redemption or defeasance of any or all the Notes,
or (c) any change in the Trustee; provided, however, the provisions of this
section do not apply when such documents have been previously supplied to such
Rating Agency and the Trustee has received written evidence to such effect, all
as may be required by the Indenture. The Trustee shall also promptly deliver to
Fitch (if Fitch is then rating any of the Notes) duplicate copies of all
correspondence, notices, certificates, audits, reports or other communications
prepared by the Trustee and sent by the Trustee to the Registered Owners or the
Issuer in accordance with the Indenture.
SUPPLEMENTAL INDENTURES
SUPPLEMENTAL INDENTURES NOT
REQUIRING CONSENT OF REGISTERED OWNERS
The Issuer and the Trustee may, without the consent of or notice to any of
the Registered Owners or any Swap Counterparty enter into any indenture or
indentures supplemental to the Indenture for any one or more of the following
purposes:
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(a) To cure any ambiguity or formal defect or omission in the
Indenture;
(b) To grant to or confer upon the Trustee for the benefit of the
Registered Owners any additional benefits, rights, remedies, powers or
authorities that lawfully may be granted to or conferred upon the
Registered Owners or the Trustee;
(c) To subject to the Indenture additional revenues, properties or
collateral;
(d) To modify, amend or supplement the Indenture or any indenture
supplemental thereto in such manner as to permit the qualification of the
Indenture or any indenture supplemental thereto under the Trust Indenture
Act of 1939 or any similar federal statute hereafter in effect or to permit
the qualification of the Notes for sale under the securities laws of the
United States of America or of any of the states of the United States of
America, and, if they so determine, to add to the Indenture or any
indenture supplemental thereto such other terms, conditions and provisions
as may be permitted by said Trust Indenture Act of 1939 or similar federal
statute;
(e) To evidence the appointment of a separate or co-Trustee or a co-
registrar or transfer agent or the succession of a new Trustee under the
Indenture, or any additional or substitute Guarantee Agency or Servicer:
(f) To add such provisions to or to amend such provisions of the
Indenture as may, in Note Counsel's opinion, be necessary or desirable to
assure implementation of the Program in conformance with the Act if along
with such Supplemental Indenture there is filed a Note Counsel's opinion to
the effect that the addition or amendment of such provisions will in no way
impair the existing security of the Registered Owners of any Outstanding
Note;
(g) To make any change as shall be necessary in order to obtain
and/or maintain for any of the Notes an investment grade Rating from a
nationally recognized rating service, which changes, in the opinion of the
Trustee, which opinion may be supported by an opinion of counsel to the
Trustee, are not to the prejudice of the Registered Owner of any of the
Notes;
(h) To make any changes necessary to comply with the Act, the
Regulations or the Code and the regulations promulgated thereunder;
(i) To provide for the issuance of Additional Notes pursuant to the
provisions of the Indenture, including the creation of appropriate Funds
and Accounts with respect to such Additional Notes;
(j) To make the terms and provisions of the Indenture, including the
lien and security interest granted herein, applicable to a Swap Agreement;
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(k) To create any additional Funds or Accounts under the Indenture
deemed by the Trustee to be necessary or desirable;
(l) To make changes necessary to add a letter of credit to any
subseries of the Auction Rate Notes; or
(m) To make any other change which, in the judgment of the Trustee,
which judgment may be supported by an opinion of counsel to the Trustee, is
not to the material prejudice of the Registered Owners or any Swap
Counterparty.
SUPPLEMENTAL INDENTURES REQUIRING
CONSENT OF REGISTERED OWNERS
Exclusive of Supplemental Indentures not requiring the consent of
Registered Owners, and subject to the terms and provisions set forth below, and
not otherwise, the Registered Owners of not less than 2/3 of the collective
aggregate principal amount of the Notes then Outstanding which in the opinion of
the Trustee (which opinion may be supported by an opinion of counsel to the
Trustee) are affected shall have the right, from time to time, with the prior
written consent of each Swap Counterparty, if required by the related Swap
Agreement (so long as such Swap Counterparty is not in default of its
obligations under its Swap Agreement, all obligations of the Issuer under such
Swap Agreement have not been satisfied and such Swap Agreement has not been
terminated) anything contained in the Indenture to the contrary notwithstanding,
to consent to and approve the execution by the Issuer and the Trustee of such
other indenture or indentures supplemental thereto as shall be deemed necessary
and desirable by the Trustee for the purpose of modifying, altering, amending,
adding to or rescinding, in any particular, any of the terms or provisions
contained in the Indenture or in any Supplemental Indenture; provided, however,
that nothing in this section contained shall permit, or be construed as
permitting (a) without the consent of the Registered Owners of all then
Outstanding Notes, (i) an extension of the maturity date of the principal of or
the interest on any Note, or (ii) a reduction in the principal amount of any
Note or the rate of interest thereon, or (iii) a privilege or priority of any
Note or Notes over any other Note or Notes, or (iv) a reduction in the aggregate
principal amount of the Notes required for consent to such Supplemental
Indenture, or (v) the creation of any lien other than a lien ratably securing
all of the Notes at any time Outstanding under the Indenture or (b) any
modification of the trusts, powers, rights, obligations, duties, remedies,
immunities and privileges of the Trustee without the prior written approval of
the Trustee.
If at any time the Issuer shall request the Trustee to enter into any such
Supplemental Indenture for any of the purposes of this section, the Trustee
shall, upon being satisfactorily indemnified with respect to expenses, cause
notice of the proposed execution of such Supplemental Indenture to be mailed by
registered or certified mail to each Registered Owner of a Note at the address
shown on the registration books. Such notice shall briefly set forth the nature
of the proposed Supplemental Indenture and shall state that copies thereof are
on file at the principal corporate trust office of the Trustee for inspection by
all Registered Owners. If, within 60 days, or such longer period as shall be
prescribed by the Issuer, following the mailing
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of such notice, the Registered Owners representing the applicable percentage of
the collective aggregate principal amount of the Notes Outstanding required by
the Indenture at the time of the execution of any such Supplemental Indenture
shall have consented in writing to and approved the substance of the amendments
made by the Supplemental Indenture and the execution thereof as in the Indenture
provided, no Registered Owner of any Note shall have any right to object to any
of the terms and provisions contained therein, or the operation thereof, or in
any manner to question the propriety of the execution thereof, or to enjoin or
restrain the Trustee or the Issuer from executing the same or from taking any
action pursuant to the provisions thereof. Upon the execution of any such
Supplemental Indenture as in the Indenture permitted and provided, the Indenture
shall be and be deemed to be modified and amended in accordance therewith.
ADDITIONAL LIMITATION ON MODIFICATION OF INDENTURE
None of the provisions of the Indenture (including the provisions relating
to Supplemental Indentures) shall permit an amendment to the provisions of the
Indenture which permits the transfer of all or part of Guaranteed Student Loans
or granting of a security interest therein to any Person other than an Eligible
Lender or the Servicer, unless the Act or Regulations are hereafter modified so
as to permit the same.
No amendment to the Indenture or to the indentures supplemental thereto
shall be effective unless the Trustee receives an opinion of Note Counsel to the
effect that such amendment was adopted in conformance with the Indenture.
GENERAL PROVISIONS
NOTICES
Any notice, request or other instrument required by the Indenture to be
signed or executed by the Registered Owners of Notes may be executed by the
execution of any number of concurrent instruments of similar tenor, and may be
signed or executed by such Registered Owners of Notes in person or by agent
appointed in writing. As a condition for acting thereunder the Trustee may
demand proof of the execution of any such instrument and of the fact that any
person claiming to be the owner of any of said Notes is such owner and may
further require the actual deposit of such Note or Notes with the Trustee. The
fact and date of the execution of such instrument may be proved by the
certificate of any officer in any jurisdiction who by the laws thereof is
authorized to take acknowledgments of deeds within such jurisdiction, that the
person signing such instrument acknowledged before him the execution thereof, or
may be proved by any affidavit of a witness to such execution sworn to before
such officer.
The amount of Notes held by any person executing such instrument as a
Registered Owner of Notes and the fact, amount, and numbers of the Notes held by
such person and the date of his holding the same may be proved by a certificate
executed by any responsible trust company, bank, banker, or other depository in
a form approved by the Trustee, showing that at the date therein mentioned such
person had on deposit with such depository the Notes
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described in such certificate; provided, however, that at all times the Trustee
may require the actual deposit of such Note or Notes with the Trustee.
COVENANTS BIND ISSUER
The covenants, agreements, conditions, promises, and undertakings in the
Indenture shall extend to and be binding upon the successors and assigns of the
Issuer, and all of the covenants thereof shall bind such successors and assigns,
and each of them, jointly and severally. All the covenants, conditions, and
provisions thereof shall be held to be for the sole and exclusive benefit of the
parties thereto and their successors and assigns and of the Registered Owners
from time to time of the Notes.
No extension of time of payment of any of the Notes shall operate to
release or discharge the Issuer, it being agreed that the liability of the
Issuer, to the extent permitted by law, shall continue until all of the Notes
are paid in full, notwithstanding any transfer of Guaranteed Student Loans or
extension of time for payment.
LIEN CREATED
The Indenture shall operate effectually as (a) a grant of lien on and
security interest in, and (b) an assignment of, the Trust Estate.
SEVERABILITY OF LIEN
If the lien of the Indenture shall be or shall ever become ineffectual,
invalid, or unenforceable against any part of the Trust Estate, which are not
subject to the lien, because of want of power or title in the Issuer, the
inclusion of any such part shall not in any way affect or invalidate the pledge
and lien thereof against such part of the Trust Estate as the Issuer had the
right to pledge.
CONSENT OF REGISTERED OWNERS BINDS SUCCESSORS
Any request or consent of the Registered Owner of any Notes given for any
of the purposes of the Indenture shall bind all future Registered Owners of the
same Note or any Notes issued in exchange therefor or in substitution thereof in
respect of anything done or suffered to be done by the Issuer or the Trustee in
pursuance of such request or consent.
NONLIABILITY OF DIRECTORS; NO GENERAL OBLIGATION
It is expressly made a condition of the Indenture that any agreements,
covenants, or representations therein contained or contained in the Notes do not
and shall never constitute or give rise to a personal or pecuniary liability or
charge against the incorporators, officers, employees, agents, or Directors of
the Issuer, or against the general credit of the Issuer, and in the event of a
breach of any such agreement, covenant or representation, no personal or
pecuniary liability or charge payable directly or indirectly from the general
revenues of the
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Issuer shall arise therefrom. Nothing contained in the Indenture, however,
shall relieve the Issuer from the observance and performance of the several
covenants and agreements on its part therein contained.
NONPRESENTMENT OF NOTES OR INTEREST CHECKS
Should any of the Notes or interest checks not be presented for payment
when due, the Trustee shall retain from any money transferred to it for the
purpose of paying the Notes or interest checks so due, for the benefit of the
Registered Owners thereof, a sum of money sufficient to pay such Notes or
interest checks when the same are presented by the Registered Owners thereof for
payment. Such money shall not be required to be invested, except as directed by
the Issuer. All liability of the Issuer to the Registered Owners of such Notes
or interest checks and all rights of such Registered Owners against the Issuer
under the Notes or interest checks or under this Indenture shall thereupon cease
and determine, and the sole right of such Registered Owners shall thereafter be
against such deposit. If any Note or interest check shall not be presented for
payment within the period of four years following the final Stated Maturity of
the Notes, the Trustee shall return to the Issuer the money theretofore held by
it for payment of such Note or interest check, and such Note or interest check
shall (subject to the defense of any applicable statute of limitation)
thereafter be an unsecured obligation of the Issuer.
SECURITY AGREEMENT
The Indenture constitutes a Financing Statement and a Security Agreement
under the Uniform Commercial Code of the State of Nevada.
LAWS GOVERNING
It is the intent of the parties to the Indenture that the Indenture shall
in all respects be governed by the laws of the State.
SEVERABILITY
If any covenant, agreement, waiver or part thereof in the Indenture
contained be forbidden by any pertinent law or under any pertinent law be
effective to render the Indenture invalid or unenforceable or to impair the lien
thereof, then each such covenant, agreement, waiver, or part thereof shall
itself be and is declared to be wholly ineffective, and the Indenture shall bc
construed as if the same were not included therein.
PARTIES INTERESTED IN THE INDENTURE
Nothing in the Indenture expressed or implied is intended or shall be
construed to confer upon, or to give to, any person or entity, other than the
Trustee, the paying agent, if any, and the Registered Owners of the Notes, any
right, remedy or claim under or by reason of the Indenture or any covenant,
condition or stipulation thereof, and all covenants, stipulations,
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promises and agreements in the Indenture contained by and on behalf of the
Issuer shall be for the sole and exclusive benefit of the Trustee, the paying
agent, if any, and the Registered Owners of the Notes.
NOTES ARE LIMITED OBLIGATIONS
The Notes and any agreement of the Issuer mentioned in the Indenture are
special, limited obligations of the Issuer, secured by and payable solely from
the Trust Estate as therein provided. The Issuer shall not be obligated to pay
the Notes, the interest thereon, or any other obligation created by or arising
from the Indenture from any other source.
SWAP COUNTERPARTY RIGHTS
Notwithstanding any provision of the Indenture, no Swap Counterparty which
shall be in default under any Swap Agreement with the Issuer shall have any of
the rights granted to a Swap Counterparty under the Indenture.
SATISFACTION OF INDENTURE
TRUST IRREVOCABLE
The trust created by the terms and provisions of the Indenture is
irrevocable until the indebtedness secured thereby (the Notes and interest
thereon) is fully paid or provision has been made for its payment as provided in
the Indenture and the Issuer has paid all of the fees and expenses of the
Trustee and given notice to the Trustee to terminate the Indenture.
SATISFACTION OF INDENTURE
(a) If the Issuer shall pay, or cause to be paid, or there shall
otherwise be paid (i) to the Registered Owners, the principal of and
interest on the Notes, at the times and in the manner stipulated in the
Indenture and (ii) to each Swap Counterparty, all Issuer Swap Payments then
due, then the pledge of the Trust Estate, and all covenants, agreements,
and other obligations of the Issuer to the Registered Owners of Notes shall
thereupon cease, terminate, and become void and be discharged and
satisfied, except as otherwise provided in the Indenture. In such event,
the Trustee shall execute and deliver to the Issuer all such instruments as
may be desirable to evidence such discharge and satisfaction, and the
Trustee shall pay over or deliver all money held by it under the Indenture
to the party entitled to receive the same under the provisions of the
Indenture. If the Issuer shall pay or cause to be paid, or there shall
otherwise be paid, to the Registered Owners of any Outstanding Notes the
principal of and interest on such Notes and to each Swap Counterparty, all
Counterparty Swap Payments then due, at the times and in the manner
stipulated in the Indenture and in the Swap Agreement, such Notes and each
Swap Counterparty shall cease to be entitled to any lien, benefit, or
security under the Indenture, and all covenants, agreements, and
obligations of the Issuer to the
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Registered Owners thereof and each Swap Counterparty shall thereupon cease,
terminate, and become void and be discharged and satisfied.
(b) Notes or interest installments shall be deemed to have been paid
within the meaning of (a) above if money for the payment or redemption
thereof has been set aside and is being held in trust by the Trustee at the
Stated Maturity or earlier redemption date thereof. All Outstanding Notes
shall, prior to the Stated Maturity or earlier redemption thereof, be
deemed to have been paid within the meaning and with the effect expressed
in Section (a) above if (i) such Notes are to be redeemed on any date prior
to their Stated Maturity and (ii) the Issuer shall have given notice of
redemption as provided in the Indenture on said date, there shall have been
deposited with the Trustee either money (fully insured by the Federal
Deposit Insurance Issuer or fully collateralized by Governmental
Obligations) in an amount which shall be sufficient, or Governmental
Obligations (including any Governmental Obligations issued or held in book-
entry form on the books of the Department of Treasury of the United States
of America) the principal of and the interest on which when due will
provide money which, together with the money, if any, deposited with the
Trustee at the same time, shall be sufficient, to pay when due the
principal of and interest to become due on such Notes on and prior to the
redemption date or Stated Maturity thereof, as the case may be.
Notwithstanding anything in the Indenture to the contrary, however, no such
deposit shall have the effect specified in this subsection (b) if made
during the existence of an Event of Default, unless made with respect to
all of the Notes then Outstanding. Neither Governmental Obligations nor
money deposited with the Trustee pursuant to this subsection (b) nor
principal or interest payments on any such Governmental Obligations shall
be withdrawn or used for any purpose other than, and shall be held
irrevocably in trust in an escrow account for, the payment of the principal
of and interest on such Notes. Any cash received from such principal of
and interest on such Governmental Obligations deposited with the Trustee,
if not needed for such purpose, shall, to the extent practicable, be
reinvested in Governmental Obligations maturing at times and in amounts
sufficient to pay when due the principal of and interest on such Notes on
and prior to such redemption date or Stated Maturity thereof, as the case
may be, and interest earned from such reinvestments shall be paid over to
the Issuer, as received by the Trustee, free and clear of any trust, lien,
or pledge, subject to verification by a certified public accountant or firm
thereof that the remaining amounts in escrow are sufficient to pay the
principal of and interest on the Notes as aforesaid. Any payment for
Governmental Obligations purchased for the purpose of reinvesting cash as
aforesaid shall be made only against delivery of such Governmental
Obligations. For the purposes of this Section, "Governmental Obligations"
shall mean and include only non-callable direct obligations of the
Department of the Treasury of the United States of America, and such
Governmental Obligations shall be certified by an independent public
accounting firm of national reputation to be of such amounts, maturities,
and interest payment dates and to bear such interest as will, without
further investment or reinvestment of either the principal amount thereof
or the interest earnings therefrom, be sufficient to make the payments
required by the Indenture, and which obligations have been deposited in an
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escrow account which is irrevocably pledged as security for the Notes.
Such term shall not include mutual funds and unit investment trusts.
(c) Any Issuer Swap Payments are deemed to have been paid and the
applicable Swap Agreement terminated when payment of all Issuer Swap
Payments due and payable to each Swap Counterparty under its respective
Swap Agreement have been made or duly provided for to the satisfaction of
each Swap Counterparty and the respective Swap Agreement has been
terminated.
(d) In no event shall the Trustee deliver over to the Issuer any
Guaranteed Student Loans unless the Issuer is an Eligible Lender, if the
Act or Regulations then in effect require the owner or holder of Guaranteed
Student Loans to be an Eligible Lender.
(e) The provisions set forth above are applicable to the Notes and
the Issuer Swap Payments and any portion of the Notes.
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APPENDIX III
CERTAIN DEFINITIONS AND PROVISIONS RELATED
TO AUCTION RATE NOTES AND AUCTION PROCEDURES
The Definitions relating to Auction Rate Notes and certain of the Auction
Procedures are as set forth below, except as may otherwise be specified with
respect to a Series in the related Prospectus Supplement.
DEFINITIONS
"AFTER-TAX EQUIVALENT" means the "AA" Composite Commercial Paper Rate.
"ALL HOLD RATE" means the Applicable LIBOR-Based Rate less .20%; provided
that in no event shall the applicable All Hold Rate be greater than the
applicable Maximum Auction Rate.
"APPLICABLE LIBOR-BASED RATE" means, (a) for Auction Periods of 35 days or
less, One-Month LIBOR, (b) for Auction Periods of more than 35 days but less
than 91 days, Three-Month LIBOR, (c) for Auction Periods of more than 90 days
but less than 181 days, Six-Month LIBOR, and (d) for Auction Periods of more
than 180 days, One-Year LIBOR.
"AUCTION" means the implementation of the Auction Procedures on an Auction
Date.
"AUCTION AGENT" means the Initial Auction Agent under the Initial Auction
Agent Agreement unless and until a Substitute Auction Agent Agreement becomes
effective, after which "Auction Agent" shall mean the Substitute Auction Agent.
"AUCTION AGENT AGREEMENT" means the Initial Auction Agent Agreement unless
and until a Substitute Auction Agent Agreement is entered into, after which
"Auction Agent Agreement" shall mean such Substitute Auction Agent Agreement.
"AUCTION AGENT FEE" has the meaning set forth in the Auction Agent
Agreement.
"AUCTION DATE" means, with respect to any Offered Notes, the date specified
in the related Prospectus Supplement, and thereafter, the Business Day
immediately preceding the first day of each Auction Period for each respective
Class, other than:
(a) each Auction Period commencing after the ownership of the
applicable Auction Rate Notes is no longer maintained in Book-entry Form by
the Securities Depository;
(b) each Auction Period commencing after and during the continuance
of a Payment Default; or
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(c) each Auction Period commencing less than two Business Days after
the cure or waiver of a Payment Default.
Notwithstanding the foregoing, the Auction Date for one or more Auction Periods
may be changed pursuant to the Indenture.
"AUCTION NOTE INTEREST RATE" means each variable rate of interest per annum
borne by an Auction Note for each Auction Period and determined in accordance
with the provisions of the Indenture; provided, however, that in the event of a
Payment Default, the Auction Note Interest Rate shall equal the applicable Non-
Payment Rate; provided, further, however that such Auction Note Interest Rate
shall in no event exceed the applicable Maximum Auction Rate.
"AUCTION PERIOD" means the Interest Period applicable to the Auction Rate
Notes during which time the Interest Rate is determined pursuant to the
Indenture, which Auction Period (after the Initial Period for such Class)
initially shall consist generally of the number of days specified with respect
to any Series in the related Prospectus Supplement, as the same may be adjusted
pursuant to the Indenture.
"AUCTION PERIOD ADJUSTMENT" means an adjustment to the Auction Period as
provided in the Indenture.
"AUCTION PROCEDURES" means the procedures set forth in the Indenture by
which the Auction Rate is determined.
"AUCTION RATE" means the rate of interest per annum that results from
implementation of the Auction Procedures and is determined as described in the
Indenture.
"AUTHORIZED DENOMINATIONS" means $100,000 and any integral multiple
thereof.
"AVAILABLE AUCTION RATE NOTES" has the meaning set forth in the Indenture.
"BID" has the meaning set forth in the Indenture.
"BID AUCTION RATE" has the meaning set forth in the Indenture.
"BIDDER" has the meaning set forth in the Indenture.
"BOND EQUIVALENT YIELD" means, in respect of any security the rate for
which is quoted in THE WALL STREET JOURNAL on a bank discount basis, the "bond
equivalent yield" (expressed as a percentage) for such security which appears on
Telerate's United States Treasury and Money Market Composite Page 0223, rounded
up to the nearest one one-hundredth of one percent.
"BOOK-ENTRY FORM" or "BOOK-ENTRY SYSTEM" means a form or system under which
(a) the beneficial right to principal and interest may be transferred only
through a book entry, (b) physical securities in registered form are issued only
to a Securities Depository or its nominee
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as registered owner, with the securities "immobilized" to the custody of the
Securities Depository, and (c) the book entry is the record that identifies the
owners of beneficial interests in that principal and interest.
"BROKER-DEALER" means Smith Barney Inc. or any other broker or dealer (each
as defined in the Securities Exchange Act of 1934, as amended), commercial bank
or other entity permitted by law to perform the functions required of a Broker-
Dealer set forth in the Auction Procedures that (a) is a Participant (or an
affiliate of a Participant), (b) has been appointed as such by the Issuer
pursuant to the Indenture and by Smith Barney Inc., if applicable, and (c) has
entered into a Broker-Dealer Agreement that is in effect on the date of
reference.
"BROKER-DEALER AGREEMENT" means each agreement between the Auction Agent
and a Broker-Dealer, and approved by the Issuer, pursuant to which the Broker-
Dealer agrees to participate in Auctions as set forth in the Auction Procedures,
as from time to time amended or supplemented. Each Broker-Dealer Agreement
shall be in substantially the form of the Broker-Dealer Agreement dated as of
March 1, 1996 among the Issuer, Bankers Trust Company, as Auction Agent, and
Smith Barney Inc., as Broker-Dealer.
"BROKER-DEALER FEE" has the meaning set forth in the Auction Agent
Agreement.
"BROKER-DEALER FEE RATE" has the meaning set forth in the Auction Agent
Agreement.
"BUSINESS DAY" means a day of the year on which (a) banks located in the
city in which the Principal Office of the Trustee is located are not required or
authorized to remain closed, (b) banks located in the city in which the
Principal Office of the Auction Agent, as set forth in and for purposes of the
Auction Agent Agreement, is located are not required or authorized to remain
closed and (c) The New York Stock Exchange is not closed.
"CARRY-OVER AMOUNT" means the excess, if any, of (a) the amount of interest
on an Auction Note that would have accrued with respect to the related Interest
Period at the applicable Auction Rate over (b) the amount of interest on such
Auction Note actually accrued with respect to such Auction Note with respect to
such Interest Period based on the applicable Maximum Auction Rate (without
regard to the last two clauses of the definition thereof) together with the
unreduced portion of any such excess from prior Interest Periods; provided that
any reference to "principal" or "interest" in the Indenture and the Auction Rate
Notes shall not include within the meanings of such words any Carry-over Amount
or any interest accrued on any Carry-over Amount.
"CLOSING DATE" means, with respect to any Series, the Date of Issuance of
such Series.
"COMMERCIAL PAPER DEALER" means Smith Barney Inc., its successors and
assigns, and any other commercial paper dealer appointed pursuant to the
Indenture.
"ELIGIBLE CARRY-OVER MAKE-UP AMOUNT" means, with respect to each Interest
Period relating to the Auction Rate Notes as to which, as of the first day of
such Interest Period, there
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is any unpaid Carry-over Amount, an amount equal to the lesser of (a) interest
computed on the principal balance of the Auction Rate Notes in respect to such
Interest Period at a per annum rate equal to the excess, if any, of applicable
Maximum Auction Rate (without regard to the last two clauses of the definition
thereof) over the Auction Rate, together with the unreduced portion of any such
excess from prior Interest Periods and (b) the aggregate Carry-over Amount
remaining unpaid as of the first day of such Interest Period together with
interest accrued and unpaid thereon through the end of such Interest Period.
"EXISTING OWNER" means (a) with respect to and for the purpose of dealing
with the Auction Agent in connection with an Auction, a Person who is a Broker-
Dealer listed in the Existing Owner Registry at the close of business on the
Business Day immediately preceding the Auction Date for such Auction and (b)
with respect to and for the purpose of dealing with the Broker-Dealer in
connection with an Auction, a Person who is a beneficial owner of Auction Rate
Notes.
"EXISTING OWNER REGISTRY" means the registry of Persons who are owners of
the Auction Rate Notes, maintained by the Auction Agent as provided in the
Auction Agent Agreement.
"HOLD ORDER" has the meaning set forth in the Indenture.
"INITIAL AUCTION AGENT" means Bankers Trust Company, a New York
corporation, its successors and assigns.
"INITIAL AUCTION AGENT AGREEMENT" means the Amended and Restated Auction
Agent Agreement dated as of June 15, 1996, by and among the Issuer, the Trustee
and the Initial Auction Agent, including any amendment thereof or supplement
thereto.
"INITIAL PERIOD" means, as to Auction Rate Notes, the period commencing on
the Closing Date and continuing through the day immediately preceding the
Initial Rate Adjustment Date for such Auction Rate Notes.
"INITIAL RATE" means, with respect to a Class of any Series, the rate per
annum specified in the related Prospectus Supplement.
"INITIAL RATE ADJUSTMENT DATE" means, with respect to the Class of any
Series, the date specified in the related Prospectus Supplement.
"INTEREST PAYMENT DATE" means (a) so long as the Auction Rate Notes bear
interest at an Auction Note Interest Rate for an Interest Period of not greater
than 180 days, the Business Day immediately following the expiration of the
Initial Period for such Class, and each related Auction Period thereafter and
(b) if and for so long as the Auction Rate Notes bear interest at an Auction
Note Interest Rate for an Interest Period of greater than 180 days, each January
1 and July 1.
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"INTEREST PERIOD" means, with respect to the Auction Rate Notes, the
Initial Period and each period commencing on an Interest Rate Adjustment Date
for such Class and ending on the day before (a) the next Interest Rate
Adjustment Date for such Class or (b) the Stated Maturity of such Class, as
applicable.
"INTEREST RATE ADJUSTMENT DATE" means the date on which an Auction Note
Interest Rate is effective, and means, with respect to the Auction Rate Notes,
the date of commencement of each Auction Period.
"INTEREST RATE DETERMINATION DATE" means, with respect to the Auction Rate
Notes, the Auction Date, or if no Auction Date is applicable to such Class, the
Business Day immediately preceding the date of commencement of an Auction
Period.
"MARKET AGENT" means Smith Barney Inc., New York, New York, in such
capacity hereunder, or any successor to it in such capacity hereunder.
"MAXIMUM AUCTION RATE" means the least of (a) either (i) the Applicable
LIBOR-Based Rate plus 1.50% (if the ratings assigned by each Rating Agency to
the Auction Rate Notes are "Aa3" and "AA-," respectively, or better) or (ii) the
Applicable LIBOR-Based Rate plus 2.50% (if any one of the ratings assigned by
each Rating Agency to the Auction Rate Notes is less than "Aa3" or "AA-,"
respectively), (b) the Net Loan Rate, (c) 18% and (d) the highest rate the
Issuer may legally pay, from time to time, as interest on the Auction Rate
Notes. For purposes of the Auction Agent and the Auction Procedures, the
ratings referred to in this definition shall be the last ratings of which the
Auction Agent has been given written notice pursuant to the Auction Agent
Agreement.
"NET LOAN RATE" means, with respect to the Auction Rate Notes, the rate of
interest per annum (rounded to the next highest one one-hundredth of one
percent) equal to the applicable United States Treasury Security Rate plus
1.50%. For Auction Periods of 180 days or less, the applicable United States
Treasury Security Rate is for 91-day United States Treasury securities, and for
Auction Periods of more than 180 days, the applicable United States Treasury
Security Rate is for one-year United States Treasury securities.
"NON-PAYMENT RATE" means One-Month LIBOR plus 1.50%.
"ONE-MONTH LIBOR," "THREE-MONTH LIBOR," "SIX-MONTH LIBOR" or "ONE-YEAR
LIBOR," means the rate of interest per annum equal to the rate per annum at
which United States dollar deposits having a maturity of one month, three
months, six months or one year, respectively, are offered to prime banks in the
London interbank market which appear on the Reuters Screen LIBOR Page as of
approximately 11:00 a.m., London time, on the Interest Rate Determination Date.
If at least two such quotations appear, One-Month LIBOR, Three-Month LIBOR, Six-
Month LIBOR or One-Year LIBOR, respectively, will be the arithmetic mean
(rounded upwards, if necessary, to the nearest one-hundredth of one percent) of
such offered rates. If fewer than two such quotes appear, One-Month LIBOR,
Three-Month LIBOR, Six-Month LIBOR or One-Year LIBOR, respectively, with respect
to such Interest Period will be determined at
III-5
<PAGE>
approximately 11:00 a.m., London time, on such Interest Rate Determination Date
on the basis of the rate at which deposits in United States dollars having a
maturity of one month, three months, six months or one year, respectively, are
offered to prime banks in the London interbank market by four major banks in the
London interbank market selected by (a) the Auction Agent or (b) the Trustee, as
applicable, and in a principal amount of not less than U.S. $1,000,000 and that
is representative for a single transaction in such market at such time. The
Auction Agent or the Trustee, as applicable, will request the principal London
office of each of such banks to provide a quotation of its rate. If at least
two quotations are provided, One-Month LIBOR, Three-Month LIBOR, Six-Month LIBOR
or One-Year LIBOR, respectively, will be the arithmetic mean (rounded upwards,
if necessary, to the nearest one-hundredth of one percent) of such offered
rates. If fewer than two quotations are provided, One-Month LIBOR, Three-Month
LIBOR, Six-Month LIBOR or One-Year LIBOR, respectively, with respect to such
Interest Period will be the arithmetic mean (rounded upwards, if necessary, to
the nearest one-hundredth of one percent) of the rates quoted at approximately
11:00 a.m., New York City time on such Interest Rate Determination Date by three
major banks in New York, New York selected by (i) the Auction Agent or (ii) the
Trustee, as applicable, for loans in United States dollars to leading European
banks having a maturity of one month, three months, six months or one year,
respectively, and in a principal amount equal to an amount of not less than U.S.
$1,000,000 and that is representative for a single transaction in such market at
such time; provided, however, that if the banks selected as aforesaid are not
quoting as mentioned in this sentence, One-Month LIBOR, Three-Month LIBOR, Six-
Month LIBOR or One-Year LIBOR, respectively, in effect for the applicable
Interest Period will be One-Month LIBOR, Three-Month LIBOR, Six-Month LIBOR or
One-Year LIBOR, respectively, in effect for the immediately preceding Interest
Period.
"ORDER" has the meaning set forth in the Indenture.
"PAYMENT DEFAULT" means, with respect to a Class of the Auction Rate Notes,
(a) a default in the due and punctual payment of any installment of interest on
such Class, or (b) a default in the due and punctual payment of any interest on
and principal of such Class at their maturity.
"POTENTIAL OWNER" means any Person (including an Existing Owner that is (a)
a Broker-Dealer when dealing with the Auction Agent and (b) a potential
beneficial owner when dealing with a Broker-Dealer) who may be interested in
acquiring Auction Rate Notes (or, in the case of an Existing Owner thereof, an
additional principal amount of Auction Rate Notes).
"PSA" means the Public Securities Association, its successors and assigns.
"QUARTERLY AVERAGE AUCTION RATE" means the simple average of the Auction
Rates for the Auction Dates preceding the current Auction Date by 91 days or
less, including the current Auction Date.
III-6
<PAGE>
"QUARTERLY AVERAGE T-BILL RATE" means the simple average of the Bond
Equivalent Yields of 91-day Treasury bills auctioned in the 91 days preceding
(but not including) the current Auction Date.
"REGULAR RECORD DATE" means the Business Day next preceding the applicable
Auction Date.
"REUTERS SCREEN LIBOR PAGE" means the display designated as page "LIBOR" on
the Reuters Monitor Money Rates Service (or such other page as may replace the
LIBOR page for the purposes of displaying London interbank offered rates of
major banks).
"S&P" means Standard & Poor's Ratings Services, a Division of The McGraw-
Hill Companies, Inc., its successors and assigns.
"SELL ORDER" has the meaning set forth in the Indenture.
"SUBMISSION DEADLINE" means 12:30 p.m., eastern time, on any Auction Date
or such other time on any Auction Date by which Broker-Dealers are required to
submit Orders to the Auction Agent as specified by the Auction Agent from time
to time.
"SUBMITTED BID" has the meaning set forth in the Indenture.
"SUBMITTED HOLD ORDER" has the meaning set forth in the Indenture.
"SUBMITTED ORDER" has the meaning set forth in the Indenture.
"SUBMITTED SELL ORDER" has the meaning set forth in the Indenture.
"SUBSTITUTE AUCTION AGENT" means the Person with whom the Issuer and the
Trustee enter into a Substitute Auction Agent Agreement.
"SUBSTITUTE AUCTION AGENT AGREEMENT" means an auction agent agreement
containing terms substantially similar to the terms of the Initial Auction Agent
Agreement, whereby a Person having the qualifications required by the Indenture
agrees with the Trustee and the Issuer to perform the duties of the Auction
Agent under the Indenture.
"SUFFICIENT BIDS" has the meaning set forth in the Indenture.
"UNITED STATES TREASURY SECURITY RATE" means, for purposes of calculating
the Net Loan Rate applicable to the Auction Rate Notes, that rate of interest
per annum equal to the Bond Equivalent Yield on the applicable United States
Treasury securities sold at the last auction thereof that immediately precedes
the Interest Rate Adjustment Date for the Auction Rate Notes.
"VARIABLE RATE" means the variable rate of interest per annum, including
the Initial Rate, borne by each Class of Auction Rate Notes during the Initial
Period for such Class, and each
III-7
<PAGE>
Interest Period thereafter as such rate of interest is determined in accordance
with the provisions of the Indenture.
AUCTION PROCEDURES
INTRODUCTION
The Initial Rate Adjustment Date for the Notes shall be specified in the
related Prospectus Supplement.
During the Initial Period, each Class of the Auction Rate Notes shall bear
interest at the Initial Rate for such Class. Thereafter, and except with
respect to an Auction Period Adjustment, the Auction Rate Notes of any Class
shall bear interest at an Auction Note Interest Rate based on the Auction Period
for such Class, as determined below.
For each Class of the Auction Rate Notes during the Initial Period for such
Class and each Auction Period thereafter, interest at the applicable Auction
Rate Notes Interest Rate shall accrue daily and shall be computed for the actual
number of days elapsed on the basis of a year consisting of 360 days.
The Auction Rate Notes Interest Rate to be borne by each Class of the
Auction Rate Notes after such Initial Period for each Auction Period until an
Auction Period Adjustment, if any, shall be determined as described below. Each
such Auction Period after the Initial Period shall commence on and include the
day following the expiration of the immediately preceding Auction Period and
terminate on and include the first Business Day of the week in which the
immediately following Auction Period occurs; provided, however, that in the case
of the Auction Period that immediately follows the Initial Period for a Class of
the Auction Rate Notes, such Auction Period shall commence on the Initial Rate
Adjustment Date for such Class. The Auction Note Interest Rate on each Class of
the Auction Rate Notes for each Auction Period shall be the Auction Rate in
effect for such Auction Period as determined in accordance with "Auction Note
Interest--Determining the Auction Note Interest Rate" below; provided that if,
on any Interest Rate Determination Date, an Auction is not held for any reason,
then the Auction Note Interest Rate on such Auction Rate Notes for the next
succeeding Auction Period shall be the applicable Maximum Auction Rate.
Notwithstanding the foregoing:
(i) if the ownership of an Auction Note is no longer maintained in
Book-entry Form, the Auction Note Interest Rate on the Auction Rate Notes
of such Class for any Interest Period commencing after the delivery of
certificates representing Auction Rate Notes of such Class pursuant to the
Indenture shall equal the applicable Maximum Auction Rate on the Business
Day immediately preceding the first day of such subsequent Interest Period;
or
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<PAGE>
(ii) if a Payment Default shall have occurred, the Auction Note
Interest Rate on a Class of the Auction Rate Notes for the Interest Period
for such Class commencing on or immediately after such Payment Default, and
for each Interest Period thereafter, to and including the Interest Period,
if any, during which, or commencing less than two Business Days after, such
Payment Default is cured, shall equal the applicable Non-Payment Rate on
the first day of each such Interest Period.
The Auction Agent shall promptly give written notice to the Trustee and the
Issuer of each Auction Note Interest Rate (unless the Auction Note Interest Rate
is the applicable Non-Payment Rate) and the Maximum Auction Rate when such rate
is not the Auction Note Interest Rate, applicable to each Class of the Auction
Rate Notes. The Trustee shall notify the Registered Owners of Auction Rate
Notes of the applicable Auction Note Interest Rate applicable to each such Class
of Auction Rate Notes for each Auction Period not later than the third Business
Day of such Auction Period.
Notwithstanding any other provision of the Auction Rate Notes or the
Indenture and except for the occurrence of a Payment Default, interest payable
on each Class of the Auction Rate Notes for an Auction Period shall never exceed
for such Auction Period the amount of interest payable at the applicable Maximum
Auction Rate in effect for such Auction Period.
If the Auction Rate for a Class of Auction Rate Notes is greater than the
applicable Maximum Auction Rate, then the Variable Rate applicable to such
Auction Rate Notes for that Interest Period will be the applicable Maximum
Auction Rate. If the Variable Rate applicable to such Auction Rate Notes for
any Interest Period is the applicable Maximum Auction Rate (without regard to
the last two clauses of the definition thereof), the Trustee shall determine the
Carry-over Amount, if any, with respect to such Auction Rate Notes for such
Interest Period. Such determination of the Carry-over Amount shall be made
separately for each Class of the Auction Rate Notes. Such Carry-over Amount
shall bear interest calculated at a rate equal to One-Month LIBOR (as determined
by the Auction Agent, provided the Trustee has received notice of One-Month
LIBOR from the Auction Agent, and if the Trustee shall not have received such
notice from the Auction Agent, then as determined by the Trustee) from the
Interest Payment Date for the Interest Period with respect to which such Carry-
over Amount was calculated, until paid. Any payment in respect of Carry-over
Amount shall be applied, first, to any accrued interest payable thereon and,
second, in reduction of such Carry-over Amount. Any reference to "principal" or
"interest" herein shall not include within the meaning of such words Carry-over
Amount or any interest accrued on any such Carry-over Amount. Such Carry-over
Amount shall be separately calculated for each Auction Note of such Class by the
Trustee during such Interest Period in sufficient time for the Trustee to give
notice to each Registered Owner of such Carry-over Amount as required in the
next succeeding sentence. Not less than four days before the Interest Payment
Date for an Interest Period with respect to which such Carry-over Amount has
been calculated by the Trustee, the Trustee shall give written notice to each
Registered Owner of the Carry-over Amount applicable to each Registered Owner's
Auction Note of such Class, which written notice may accompany the payment of
interest by check made to each such Registered Owner on such Interest Payment
Date or otherwise shall be mailed on such Interest Payment Date by first-class
mail, postage prepaid, to each such Registered Owner
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<PAGE>
at such Registered Owner's address as it appears on the registration records
maintained by the Registrar. Such notice shall state, in addition to such
Carry-over Amount, that, unless and until an Auction Note of such Class has been
redeemed (other than by optional redemption), after which all accrued Carry-over
Amounts (and all accrued interest thereon) that remains unpaid shall be canceled
and no Carry-over Amount (and interest accrued thereon) shall be paid with
respect to an Auction Note of such Class, (a) the Carry-over Amount (and
interest accrued thereon calculated at a rate equal to One-Month LIBOR) shall be
paid by the Trustee on a Auction Note of such Class on the earliest of (i) the
date of defeasance of any of the Auction Rate Notes of such Class or (ii) the
first occurring Interest Payment Date (or on the date of any such optional
redemption) if and to the extent that (A) the Eligible Carry-over Make-Up Amount
with respect to such subsequent Interest Period is greater than zero, and (B)
moneys are available pursuant to the terms of this Appendix A in an amount
sufficient to pay all or a portion of such Carry-over Amount (and interest
accrued thereon), and (b) interest shall accrue on the Carry-over Amount at a
rate equal to One-Month LIBOR until such Carry-over Amount is paid in full or is
cancelled.
The Carry-over Amount (and interest accrued thereon) for a Class of Auction
Rate Notes shall be paid by the Trustee on Outstanding Auction Rate Notes of
such Class on the earliest of (a) the date of defeasance of any of the Auction
Rate Notes of such Class or (b) the first occurring Interest Payment Date if and
to the extent that (i) the Eligible Carry-over Make-Up Amount with respect to
such Interest Period is greater than zero, and (ii) on such Interest Payment
Date there are sufficient moneys in the Senior Interest Account of the Revenue
Fund to pay all interest due on the Auction Rate Notes on such Interest Payment
Date. Any Carry-over Amount (and any interest accrued thereon) on any Auction
Note which is due and payable on an Interest Payment Date, which Auction Note is
to be redeemed (other than by optional redemption) on said Interest Payment
Date, shall be paid to the Registered Owner thereof on said Interest Payment
Date to the extent that moneys are available therefor in accordance with the
provisions of this Appendix A; provided, however, that any Carry-over Amount
(and any interest accrued thereon) which is not yet due and payable on said
Interest Payment Date shall be cancelled with respect to said Auction Note that
is to be redeemed (other than by optional redemption) on said Interest Payment
Date and shall not be paid on any succeeding Interest Payment Date. To the
extent that any portion of the Carry-over Amount (and any interest accrued
thereon) remains unpaid after payment of a portion thereof, such unpaid portion
shall be paid in whole or in part as required hereunder until fully paid by the
Trustee on the earliest of (a) the date of defeasance of any of the Auction Rate
Notes of such Class or (b) the next occurring Interest Payment Date or Dates, as
necessary, if and to the extent that the conditions in the second preceding
sentence are satisfied. On any Interest Payment Date on which the Trustee pays
only a portion of the Carry-over Amount (and any interest accrued thereon) on
Auction Rate Notes of such Class, the Trustee shall give written notice in the
manner set forth in the immediately preceding paragraph to the Registered Owner
of such Auction Note receiving such partial payment of the Carry-over Amount
remaining unpaid on such Auction Note.
The Interest Payment Date or other date on which such Carry-over Amount (or
any interest accrued thereon) for a Class of Auction Rate Notes shall be paid
shall be determined by the Trustee in accordance with the provisions of the
immediately preceding paragraph, and the
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<PAGE>
Trustee shall make payment of the Carry-over Amount (and any interest accrued
thereon) in the same manner as, and from the same Account from which, it pays
interest on the Auction Rate Notes on an Interest Payment Date. Any payment of
Carry-over Amounts (and interest accrued thereon) shall reduce the amount of
Eligible Carry-Over Make-Up Amount.
In the event that the Auction Agent no longer determines, or fails to
determine, when required, the Auction Note Interest Rate with respect to a Class
of Auction Rate Notes, or, if for any reason such manner of determination shall
be held to be invalid or unenforceable, the Auction Note Interest Rate for the
next succeeding Interest Period, which Interest Period shall be an Auction
Period, for such Class of Auction Rate Notes shall be the applicable Maximum
Auction Rate as determined by the Auction Agent for such next succeeding Auction
Period, and if the Auction Agent shall fail or refuse to determine the Maximum
Auction Rate, the Maximum Auction Rate shall be determined by the securities
dealer appointed by the Issuer capable of making such a determination in
accordance with the provisions hereof and written notice of such determination
shall be given by such securities dealer to the Trustee.
AUCTION NOTE INTEREST RATE
DETERMINING THE AUCTION NOTE INTEREST RATE. By purchasing Auction
Rate Notes, whether in an Auction or otherwise, each purchaser of the
Auction Rate Notes, or its Broker-Dealer, must agree and shall be deemed by
such purchase to have agreed (x) to participate in Auctions on the terms
described herein, (y) to have its beneficial ownership of the Auction Rate
Notes maintained at all times in Book-entry Form for the account of its
Participant, which in turn will maintain records of such beneficial
ownership and (z) to authorize such Participant to disclose to the Auction
Agent such information with respect to such beneficial ownership as the
Auction Agent may request.
So long as the ownership of a Class of Auction Rate Notes is
maintained in Book-entry Form by the Securities Depository, an Existing
Owner may sell, transfer or otherwise dispose of Auction Rate Notes of such
Class only pursuant to a Bid or Sell Order placed in an Auction or
otherwise sell, transfer or dispose of Auction Rate Notes through a Broker-
Dealer, provided that, in the case of all transfers other than pursuant to
Auctions, such Existing Owner, its Broker-Dealer or its Participant advises
the Auction Agent of such transfer. Auctions shall be conducted on each
Auction Date, if there is an Auction Agent on such Auction Date, in the
following manner (such procedures to be applicable separately to each Class
of the Auction Rate Notes):
(i) (A) Prior to the Submission Deadline on each Auction Date;
(1) each Existing Owner of Auction Rate Notes may
submit to a Broker-Dealer by telephone or otherwise any
information as to:
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<PAGE>
a. the principal amount of Outstanding Auction
Rate Notes, if any, owned by such Existing Owner which
such Existing Owner desires to continue to own without
regard to the Auction Note Interest Rate for the next
succeeding Auction Period;
b. the principal amount of Outstanding Auction
Rate Notes, if any, which such Existing Owner offers to
sell if the Auction Note Interest Rate for the next
succeeding Auction Period shall be less than the rate
per annum specified by such Existing Owner; and/or
c. the principal amount of Outstanding Auction
Rate Notes, if any, owned by such Existing Owner which
such Existing Owner offers to sell without regard to
the Auction Note Interest Rate for the next succeeding
Auction Period;
and
(2) one or more Broker-Dealers may contact Potential
Owners to determine the principal amount of Auction Rate
Notes which each Potential Owner offers to purchase, if the
Auction Note Interest Rate for the next succeeding Auction
Period shall not be less than the rate per annum specified
by such Potential Owner.
The statement of an Existing Owner or a Potential Owner referred to in
(1) or (2) of this paragraph (A) is herein referred to as an "Order," and
each Existing Owner and each Potential Owner placing an Order is herein
referred to as a "Bidder"; an Order described in clause (1)a is herein
referred to as a "Hold Order"; an Order described in clauses (1)b and (2)
is herein referred to as a "Bid"; and an Order described in clause (1)c is
herein referred to as a "Sell Order."
(B) (1) Subject to the provisions of (a)(ii) hereof, a Bid
by an Existing Owner shall constitute an irrevocable offer
to sell:
a. the principal amount of Outstanding Auction
Rate Notes specified in such Bid if the Auction Note
Interest Rate determined as provided in this Section
(a) shall be less than the rate specified therein; or
b. such principal amount, or a lesser principal
amount of Outstanding Auction Rate Notes to be
determined as set forth in (a)(iv)(A)(4) hereof, if the
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<PAGE>
Auction Note Interest Rate determined as provided in
this Section (a) shall be equal to the rate specified
therein; or
c. such principal amount, or a lesser principal
amount of Outstanding Auction Rate Notes to be
determined as set forth in (a)(iv)(B)(3) hereof, if the
rate specified therein shall be higher than the
applicable Maximum Auction Rate and Sufficient Bids
have not been made.
(2) Subject to the provisions of (a)(ii) hereof, a
Sell Order by an Existing Owner shall constitute an
irrevocable offer to sell:
a. the principal amount of Outstanding Auction
Rate Notes specified in such Sell Order; or
b. such principal amount, or a lesser principal
amount of Outstanding Auction Rate Notes set forth in
(a)(iv)(B)(3) hereof, if Sufficient Bids have not been
made.
(3) Subject to the provisions of (a)(ii) hereof, a Bid
by a Potential Owner shall constitute an irrevocable offer
to purchase:
a. the principal amount of Outstanding Auction
Rate Notes specified in such Bid if the Auction Note
Interest Rate determined as provided in this Section
(a) shall be higher than the rate specified in such
Bid; or
b. such principal amount, or a lesser principal
amount of Outstanding Auction Rate Notes set forth in
(a)(iv)(A)(5) hereof, if the Auction Note Interest Rate
determined as provided in this Section (a) shall be
equal to the rate specified in such Bid.
(ii) (A) Each Broker-Dealer shall submit in writing to the
Auction Agent prior to the Submission Deadline on each Auction
Date all Orders obtained by such Broker-Dealer and shall specify
with respect to each such Order:
(1) the name of the Bidder placing such Order;
(2) the aggregate principal amount of Auction Rate
Notes that are the subject of such Order;
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<PAGE>
(3) to the extent that such Bidder is an Existing
Owner:
a. the principal amount of Auction Rate Notes,
if any, subject to any Hold Order placed by such
Existing Owner;
b. the principal amount of Auction Rate Notes,
if any, subject to any Bid placed by such Existing
Owner and the rate specified in such Bid; and
c. the principal amount of Auction Rate Notes,
if any, subject to any Sell Order placed by such
Existing Owner;
and
(4) to the extent such Bidder is a Potential Owner,
the rate specified in such Potential Owner's Bid.
(B) If any rate specified in any Bid contains more than
three figures to the right of the decimal point, the Auction
Agent shall round such rate up to the next higher one thousandth
of 1%.
(C) If an Order or Orders covering all Outstanding Auction
Rate Notes owned by an Existing Owner is not submitted to the
Auction Agent prior to the Submission Deadline, the Auction Agent
shall deem a Hold Order to have been submitted on behalf of such
Existing Owner covering the principal amount of Outstanding
Auction Rate Notes owned by such Existing Owner and not subject
to an Order submitted to the Auction Agent.
(D) Neither the Issuer, the Trustee nor the Auction Agent
shall be responsible for any failure of a Broker-Dealer to submit
an Order to the Auction Agent on behalf of any Existing Owner or
Potential Owner.
(E) If any Existing Owner submits through a Broker-Dealer
to the Auction Agent one or more Orders covering in the aggregate
more than the principal amount of Outstanding Auction Rate Notes
owned by such Existing Owner, such Orders shall be considered
valid as follows and in the following order of priority:
(1) All Hold Orders shall be considered valid, but
only up to the aggregate principal amount of Outstanding
Auction Rate Notes owned by such Existing Owner, and if the
aggregate principal amount of Auction Rate Notes subject to
such Hold
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<PAGE>
Orders exceeds the aggregate principal amount of Auction
Rate Notes owned by such Existing Owner, the aggregate
principal amount of Auction Rate Notes subject to each such
Hold Order shall be reduced pro rata so that the aggregate
principal amount of Auction Rate Notes subject to such Hold
Order equals the aggregate principal amount of Outstanding
Auction Rate Notes owned by such Existing Owner.
(2) a. Any Bid shall be considered valid up to an
amount equal to the excess of the principal amount of
Outstanding Auction Rate Notes owned by such Existing
Owner over the aggregate principal amount of Auction
Rate Notes subject to any Hold Order referred to in
clause (A) of this paragraph (v);
b. subject to subclause (1) of this clause (B),
if more than one Bid with the same rate is submitted on
behalf of such Existing Owner and the aggregate
principal amount of Outstanding Auction Rate Notes
subject to such Bids is greater than such excess, such
Bids shall be considered valid up to an amount equal to
such excess;
c. subject to subclauses (1) and (2) of this
clause (B), if more than one Bid with different rates
are submitted on behalf of such Existing Owner, such
Bids shall be considered valid first in the ascending
order of their respective rates until the highest rate
is reached at which such excess exists and then at such
rate up to the amount of such excess; and
d. in any such event, the amount of Outstanding
Auction Rate Notes, if any, subject to Bids not valid
under this clause (B) shall be treated as the subject
of a Bid by a Potential Owner at the rate therein
specified; and
(3) All Sell Orders shall be considered valid up to an
amount equal to the excess of the principal amount of
Outstanding Auction Rate Notes owned by such Existing Owner
over the aggregate principal amount of Auction Rate Notes
subject to Hold Orders referred to in clause (1) of this
paragraph (v) and valid Bids referred to in clause (2) of
this paragraph (E).
(F) If more than one Bid for Auction Rate Notes is
submitted on behalf of any Potential Owner, each Bid submitted
shall be a separate Bid with the rate and principal amount
therein specified.
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<PAGE>
(G) An Existing Owner that offers to purchase additional
Auction Rate Notes is, for purposes of such offer, treated as a
Potential Owner.
(H) Any Bid or Sell Order submitted by an Existing Owner
covering an aggregate principal amount of Auction Rate Notes not
equal to an Authorized Denomination shall be rejected and shall
be deemed a Hold Order. Any Bid submitted by a Potential Owner
covering an aggregate principal amount of Auction Rate Notes not
equal to an Authorized Denomination shall be rejected.
(I) Any Bid specifying a rate higher than the applicable
Maximum Auction Rate will (1) be treated as a Sell Order if
submitted by an Existing Owner and (2) not be accepted if
submitted by a Potential Owner.
(J) Any Order submitted in an Auction by a Broker-Dealer to
the Auction Agent prior to the Submission Deadline on any Auction
Date shall be irrevocable.
(iii) (A) Not earlier than the Submission Deadline on each
Auction Date, the Auction Agent shall assemble all valid Orders
submitted or deemed submitted to it by the Broker-Dealers (each
such Order as submitted or deemed submitted by a Broker-Dealer
being herein referred to individually as a "Submitted Hold
Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order," and collectively as
"Submitted Hold Orders," "Submitted Bids" or "Submitted Sell
Orders," as the case may be, or as "Submitted Orders") and shall
determine:
(1) the excess of the total principal amount of
Outstanding Auction Rate Notes over the sum of the aggregate
principal amount of Outstanding Auction Rate Notes subject
to Submitted Hold Orders (such excess being herein referred
to as the "Available Auction Rate Notes"), and
(2) from the Submitted Orders whether:
a. the aggregate principal amount of Outstanding
Auction Rate Notes subject to Submitted Bids by
Potential Owners specifying one or more rates equal to
or lower than the applicable Maximum Auction Rate;
exceeds or is equal to the sum of:
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<PAGE>
b. the aggregate principal amount of Outstanding
Auction Rate Notes subject to Submitted Bids by
Existing Owners specifying one or more rates higher
than the applicable Maximum Auction Rate; and
c. the aggregate principal amount of Outstanding
Auction Rate Notes subject to Submitted Sell Orders;
(in the event such excess or such equality exists, other
than because all of the Outstanding Auction Rate Notes are
subject to Submitted Hold Orders, such Submitted Bids
described in subclause a. above shall be referred to
collectively as "Sufficient Bids"); and
(3) if Sufficient Bids exist, the Bid Auction Rate,
which shall be the lowest rate specified in such Submitted
Bids such that if:
a. (x) each Submitted Bid from Existing Owners
specifying such lowest rate and (y) all other Submitted
Bids from Existing Owners specifying lower rates were
rejected, thus entitling such Existing Owners to
continue to own the principal amount of Auction Rate
Notes subject to such Submitted Bids; and
b. (x) each such Submitted Bid from Potential
Owners specifying such lowest rate and (y) all other
Submitted Bids from Potential Owners specifying lower
rates were accepted;
the result would be that such Existing Owners described in
subclause a. above would continue to own an aggregate principal
amount of Outstanding Auction Rate Notes which, when added to the
aggregate principal amount of Outstanding Auction Rate Notes to
be purchased by such Potential Owners described in subclause b.
above, would equal not less than the Available Auction Rate
Notes.
(B) Promptly after the Auction Agent has made the
determinations pursuant to (a)(iii)(A), the Auction Agent shall
advise the Trustee, the Broker-Dealers and the Issuer of the
Maximum Auction Rate and the All Hold Rate and the components
thereof on the Auction Date and, based on such determinations,
the Auction Rate for the next succeeding Interest Period as
follows:
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<PAGE>
(1) if Sufficient Bids exist, that the Auction Rate
for the next succeeding Interest Period shall be equal to
the Bid Auction Rate so determined;
(2) if Sufficient Bids do not exist (other than
because all of the Outstanding Auction Rate Notes are
subject to Submitted Hold Orders), that the Auction Rate for
the next succeeding Interest Period shall be equal to the
applicable Maximum Auction Rate; or
(3) if all Outstanding Auction Rate Notes are subject
to Submitted Hold Orders, that the Auction Rate for the next
succeeding Interest Period shall be equal to the applicable
All Hold Rate.
(C) Promptly after the Auction Agent has determined the
Auction Rate, the Auction Agent shall determine and advise the
Trustee of the Auction Note Interest Rate, which rate shall be
the Auction Rate; provided, however, that in no event shall the
Auction Note Interest Rate exceed the applicable Maximum Auction
Rate.
(iv) Existing Owners shall continue to own the principal amount
of Auction Rate Notes that are subject to Submitted Hold Orders. If
Sufficient Bids have been received by the Auction Agent, the Bid
Auction Rate will be the Auction Note Interest Rate, and Submitted
Bids and Submitted Sell Orders will be accepted or rejected and the
Auction Agent will take such other action as described below in
subparagraph (A).
If the Auction Rate is greater than the applicable Maximum
Auction Rate, the Auction Note Interest Rate shall be equal to the
applicable Maximum Auction Rate. If the Auction Agent has not
received Sufficient Bids (other than because all of the Outstanding
Auction Rate Notes are subject to Submitted Hold Orders), the Auction
Note Interest Rate will be the applicable Maximum Auction Rate. In
any of the cases described above, Submitted Orders will be accepted or
rejected and the Auction Agent will take such other action as
described below in subparagraph (B).
(A) If Sufficient Bids have been made and if the applicable
Maximum Auction Rate does not apply (in which case the Auction
Note Interest Rate shall be the Bid Auction Rate), all Submitted
Sell Orders shall be accepted and, subject to the provisions of
clauses (4) and (5) of this (a)(iv), Submitted Bids shall be
accepted or rejected as follows in the following order of
priority, and all other Submitted Bids shall be rejected:
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<PAGE>
(1) Existing Owners' Submitted Bids specifying any
rate that is higher than the Auction Note Interest Rate
shall be accepted, thus requiring each such Existing Owner
to sell the aggregate principal amount of Auction Rate Notes
subject to such Submitted Bids;
(2) Existing Owners' Submitted Bids specifying any
rate that is lower than the Auction Note Interest Rate shall
be rejected, thus entitling each such Existing Owner to
continue to own the aggregate principal amount of Auction
Rate Notes subject to such Submitted Bids;
(3) Potential Owners' Submitted Bids specifying any
rate that is lower than the Auction Note Interest Rate shall
be accepted;
(4) Each Existing Owners' Submitted Bid specifying a
rate that is equal to the Auction Note Interest Rate shall
be rejected, thus entitling such Existing Owner to continue
to own the aggregate principal amount of Auction Rate Notes
subject to such Submitted Bid, unless the aggregate
principal amount of Outstanding Auction Rate Notes subject
to all such Submitted Bids shall be greater than the
principal amount of Auction Rate Notes (the "remaining
principal amount") equal to the excess of the Available
Auction Rate Notes over the aggregate principal amount of
Auction Rate Notes subject to Submitted Bids described in
clauses (2) and (3) of this (a)(iv)(D)(1), in which event
such Submitted Bid of such Existing Owner shall be rejected
in part, and such Existing Owner shall be entitled to
continue to own the principal amount of Auction Rate Notes
subject to such Submitted Bid, but only in an amount equal
to the aggregate principal amount of Auction Rate Notes
obtained by multiplying the remaining principal amount by a
fraction, the numerator of which shall be the principal
amount of Outstanding Auction Rate Notes owned by such
Existing Owner subject to such Submitted Bid and the
denominator of which shall be the sum of the principal
amount of Outstanding Auction Rate Notes subject to such
Submitted Bids made by all such Existing Owners that
specified a rate equal to the Auction Note Interest Rate,
subject to the provisions of (a)(iv)(D) hereof; and
(5) Each Potential Owner's Submitted Bid specifying a
rate that is equal to the Auction Note Interest Rate shall
be accepted, but only in an amount equal to the principal
amount of Auction Rate Notes obtained by multiplying the
excess of the
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<PAGE>
aggregate principal amount of Available Auction Rate Notes
over the aggregate principal amount of Auction Rate Notes
subject to Submitted Bids described in clauses (2), (3) and
(4) of (a)(iv)(A) hereof by a fraction the numerator of
which shall be the aggregate principal amount of Outstanding
Auction Rate Notes subject to such Submitted Bid and the
denominator of which shall be the sum of the principal
amount of Outstanding Auction Rate Notes subject to
Submitted Bids made by all such Potential Owners that
specified a rate equal to the Auction Note Interest Rate,
subject to the provisions of (a)(iv)(D) hereof.
(B) If Sufficient Bids have not been made (other than
because all of the Outstanding Auction Rate Notes are subject to
submitted Hold Orders), or if the applicable Maximum Auction Rate
applies, subject to the provisions of (a)(iv)(D) hereof,
Submitted Orders shall be accepted or rejected as follows in the
following order of priority and all other Submitted Bids shall be
rejected:
(1) Existing Owners' Submitted Bids specifying any
rate that is equal to or lower than the Auction Note
Interest Rate shall be rejected, thus entitling such
Existing Owners to continue to own the aggregate principal
amount of Auction Rate Notes subject to such Submitted Bids;
(2) Potential Owners' Submitted Bids specifying (x)
any rate that is equal to or lower than the Auction Note
Interest Rate shall be accepted and (y) any rate that is
higher than the Auction Note Interest Rate shall be
rejected; and
(3) each Existing Owner's Submitted Bid specifying any
rate that is higher than the Auction Note Interest Rate and
the Submitted Sell Order of each Existing Owner shall be
accepted, thus entitling each Existing Owner that submitted
any such Submitted Bid or Submitted Sell Order to sell the
Auction Rate Notes subject to such Submitted Bid or
Submitted Sell Order, but in both cases only in an amount
equal to the aggregate principal amount of Auction Rate
Notes obtained by multiplying the aggregate principal amount
of Auction Rate Notes subject to Submitted Bids described in
clause (2)(x) of this (a)(iv)(B) by a fraction the numerator
of which shall be the aggregate principal amount of
Outstanding Auction Rate Notes owned by such Existing Owner
subject to such submitted Bid or Submitted Sell Order and
the denominator of which shall be the aggregate principal
amount of Outstanding Auction Rate Notes subject to all such
Submitted Bids and Submitted Sell Orders.
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<PAGE>
(C) If all Auction Rate Notes are subject to Submitted Hold
Orders, all Submitted Bids shall be rejected.
(D) If, as a result of the procedures described in
paragraph (A) or (B) of this Section (a)(iv), any Existing Owner
would be entitled or required to sell, or any Potential Owner
would be entitled or required to purchase, a principal amount of
Auction Rate Notes that is not equal to an Authorized
Denomination, the Auction Agent shall, in such manner as in its
sole discretion it shall determine, round up or down the
principal amount of Auction Rate Notes to be purchased or sold by
any Existing Owner or Potential Owner so that the principal
amount of Auction Rate Notes purchased or sold by each Existing
Owner or Potential Owner shall be equal to an Authorized
Denomination.
(E) If, as a result of the procedures described in
paragraph (B) of this (a)(iv), any Potential Owner would be
entitled or required to purchase less than an Authorized
Denomination of Auction Rate Notes, the Auction Agent shall, in
such manner as in its sole discretion it shall determine,
allocate Auction Rate Notes for purchase among Potential Owners
so that only Auction Rate Notes in Authorized Denominations are
purchased by any Potential Owner, even if such allocation results
in one or more of such Potential Owners not purchasing any
Auction Rate Notes.
(v) Based on the result of each Auction, the Auction Agent shall
determine the aggregate principal amount of Auction Rate Notes to be
purchased and the aggregate principal amount of Auction Rate Notes to
be sold by Potential Owners and Existing Owners on whose behalf each
Broker-Dealer submitted Bids or Sell Orders and, with respect to each
Broker-Dealer, to the extent that such aggregate principal amount of
Auction Rate Notes to be sold differs from such aggregate principal
amount of Auction Rate Notes to be purchased, determine to which other
Broker-Dealer or Broker-Dealers acting for one or more purchasers such
Broker-Dealer shall deliver, or from which other Broker-Dealer or
Broker-Dealers acting for one or more sellers such Broker-Dealer shall
receive, as the case may be, Auction Rate Notes.
(vi) Any calculation by the Auction Agent or the Trustee, as
applicable, of the Auction Note Interest Rate, the Maximum Auction
Rate, the All Hold Rate and the Non-Payment Rate shall, in the absence
of manifest error, be binding on all other parties.
(vii) Notwithstanding anything to the contrary, (A) no
Auction for the Auction Rate Notes for an Auction Period of less than
180 days will be held on any Auction Date hereunder on which there are
insufficient moneys in the Senior Interest Account of the Revenue Fund
and the Senior Redemption Account of the Note Redemption Fund to pay,
or otherwise held by the Trustee under the
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<PAGE>
Indenture and available to pay, the principal of and interest due on
the Auction Rate Notes on the Interest Payment Date immediately
following such Auction Date, and (B) no Auction will be held on any
Auction Date hereunder during the continuance of a Payment Default.
The Trustee shall promptly notify the Auction Agent of any such
occurrence.
APPLICATION OF INTEREST PAYMENTS FOR THE AUCTION RATE NOTES.
(i) The Trustee shall determine not later than 2:00 p.m.,
eastern time, on the Business Day next succeeding an Interest Payment
Date, whether a Payment Default has occurred. If a Payment Default
has occurred, the Trustee shall, not later than 2:15 p.m., eastern
time, on such Business Day, send a notice thereof to the Auction Agent
by telecopy or similar means and, if such Payment Default is cured,
the Trustee shall immediately send a notice to the Auction Agent by
telecopy or similar means.
(ii) Not later than 2:00 p.m., eastern time, on each anniversary
of the Closing Date, the Trustee shall pay to the Auction Agent, in
immediately available funds out of amounts in the Revenue Fund, an
amount equal to the Auction Agent Fee as set forth in the Auction
Agent Agreement. Not later than 2:00 p.m., eastern time, on each
Auction Date, the Trustee shall pay to the Auction Agent, in
immediately available funds out of amounts in the Revenue Fund, an
amount equal to the Broker-Dealer Fee as calculated in the Auction
Agent Agreement. The Trustee shall, from time to time at the request
of the Auction Agent and at the direction of an Authorized Officer,
reimburse the Auction Agent for its reasonable expenses as provided in
the Auction Agent Agreement, such expenses to be paid out of amounts
in the Revenue Fund.
CALCULATION OF MAXIMUM AUCTION RATE, ALL HOLD RATE AND NON-PAYMENT RATE.
The Auction Agent shall calculate the applicable Maximum Auction Rate and
All Hold Rate, as the case may be, on each Auction Date and shall notify the
Trustee and the Broker-Dealers of the applicable Maximum Auction Rate and All
Hold Rate, as the case may be, as provided in the Auction Agent Agreement;
provided, that if the ownership of the Auction Rate Notes is no longer
maintained in Book-entry Form, or if a Payment Default has occurred, then the
Trustee shall determine the applicable Maximum Auction Rate, All Hold Rate and
Non-Payment Rate for each such Interest Period. The Market Agent shall
calculate the Index (if the Index is other than the PSA Municipal Swap Index) on
each Interest Rate Determination Date and shall notify the Trustee and the
Auction Agent of the Index prior to 9:30 a.m., eastern time, on each Interest
Rate Determination Date. If the ownership of the Auction Rate Notes is no
longer maintained in Book-entry Form by the Securities Depository, the Trustee
shall calculate the applicable Maximum Auction Rate on the Business Day
immediately preceding the first day of each Interest Period after the delivery
of certificates representing the Auction Rate Notes pursuant to the Indenture.
If a Payment Default shall have occurred, the Trustee shall calculate the Non-
Payment Rate on the Interest Rate Determination Date for (i) each Interest
Period
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<PAGE>
commencing after the occurrence and during the continuance of such Payment
Default and (ii) any Interest Period commencing less than two Business Days
after the cure of any Payment Default. The determination by the Trustee or the
Auction Agent, as the case may be, of the applicable Maximum Auction Rate, All
Hold Rate and Non-Payment Rate shall (in the absence of manifest error) be final
and binding upon all parties. If calculated or determined by the Auction Agent,
the Auction Agent shall promptly advise the Trustee of the applicable Maximum
Auction Rate and All Hold Rate. The determination by the Market Agent of the
Index shall (in the absence of manifest error) be final and binding upon all
parties.
If the Federal Reserve Bank of New York does not make available its 30-day
commercial paper rate for purposes of determining the "AA" Composite Commercial
Paper Rate, the Auction Agent shall notify the Trustee of such fact and the
Trustee shall thereupon request that an Authorized Officer promptly appoint at
least two Commercial Paper Dealers (in addition to Smith Barney Inc.) to provide
commercial paper quotes for purposes of determining the "AA" Composite
Commercial Paper Rate. Pending appointment of both such additional Commercial
Paper Dealers, Smith Barney Inc. and any other Commercial Paper Dealer appointed
and serving as such shall provide the required quotations, and such quotations
shall be used for purposes of this Exhibit III. Smith Barney Inc. has been
appointed as a Commercial Paper Dealer to provide commercial paper quotes for
purposes of determining the "AA" Composite Commercial Paper Rate as provided
above.
NOTIFICATION OF RATES, AMOUNTS AND PAYMENT DATES.
By 12:00 noon, eastern time, on the Business Day following each Regular
Record Date, the Trustee shall determine the aggregate amounts of interest
distributable on the next succeeding Interest Payment Date to the beneficial
owners of Auction Rate Notes.
At least four days prior to any Interest Payment Date, the Trustee shall:
(a) confirm with the Auction Agent, so long as no Payment Default has
occurred and is continuing and the ownership of the Auction Rate Notes is
maintained in Book-entry Form by the Securities Depository, (i) the date of
such next Interest Payment Date and (ii) the amount payable to the Auction
Agent on the Auction Date pursuant to "Application of Interest Payments for
the Auction Rate Notes" above.
(b) advise the Registered Owners of a Class of Auction Rate Notes of
any Carry-over Amount accruing on such Auction Rate Notes; and
(c) advise the Securities Depository, so long as the ownership of the
Auction Rate Notes is maintained in Book-entry Form by the Securities
Depository, upon request, of the aggregate amount of interest distributable
on such next Interest Payment Date to the beneficial owners of each Class
of the Auction Rate Notes.
If any day scheduled to be an Interest Payment Date shall be changed
after the Trustee shall have given the notice or confirmation referred to
above, the Trustee shall,
III-23
<PAGE>
not later than 11:15 a.m., eastern time, on the Business Day next preceding
the earlier of the new Interest Payment Date or the old Interest Payment
Date, by such means as the Trustee deems practicable, give notice of such
change to the Auction Agent, so long as no Payment Default has occurred and
is continuing and the ownership of the Auction Rate Notes is maintained in
Book-entry Form by the Securities Depository.
AUCTION AGENT.
Bankers Trust Company has been appointed as Initial Auction Agent to serve
as agent for the Issuer in connection with Auctions. The Trustee and the Issuer
will, and the Trustee is hereby directed to, enter into the Initial Auction
Agent Agreement with Bankers Trust Company, as the Initial Auction Agent. Any
Substitute Auction Agent shall be (a) a bank, national banking association or
trust company duly organized under the laws of the United States of America or
any state or territory thereof having its principal place of business in the
Borough of Manhattan, New York, or such other location as approved by the
Trustee in writing and having a combined capital stock or surplus of at least
$50,000,000, or (b) a member of the National Association of Securities Dealers,
Inc., having a capitalization of at least $50,000,000, and, in either case,
authorized by law to perform all the duties imposed upon it hereunder and under
the Auction Agent Agreement. The Auction Agent may at any time resign and be
discharged of the duties and obligations created by the Indenture by giving at
least 90 days' notice to the Trustee, the Market Agent and the Issuer. The
Auction Agent may be removed at any time by the Trustee upon the written
direction of an Authorized Officer or the Registered Owners of 51% of the
aggregate principal amount of the Auction Rate Notes then Outstanding, and if by
such Registered Owners, by an instrument signed by such Registered Owners or
their attorneys and filed with the Auction Agent, the Issuer and the Trustee
upon at least 90 days' notice. Neither resignation nor removal of the Auction
Agent pursuant to the preceding two sentences shall be effective until and
unless a Substitute Auction Agent has been appointed and has accepted such
appointment. If required by the Issuer, a Substitute Auction Agent Agreement
shall be entered into with a Substitute Auction Agent. Notwithstanding the
foregoing, the Auction Agent may terminate the Auction Agent Agreement if,
within 25 days after notifying the Trustee, the Market Agent and the Issuer in
writing that it has not received payment of any Auction Agent Fee due it in
accordance with the terms of the Auction Agent Agreement, the Auction Agent does
not receive such payment.
If the Auction Agent shall resign or be removed or be dissolved, or if the
property or affairs of the Auction Agent shall be taken under the control of any
state or federal court or administrative body because of bankruptcy or
insolvency, or for any other reason, the Trustee at the direction of an
Authorized Officer, shall use its best efforts to appoint a Substitute Auction
Agent.
The Auction Agent is acting as agent for the Issuer in connection with
Auctions. In the absence of bad faith, negligent failure to act or negligence
on its part, the Auction Agent shall not be liable for any action taken,
suffered or omitted or any error of judgment made by it in the performance of
its duties under the Auction Agent Agreement and shall not be liable for any
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<PAGE>
error of judgment made in good faith unless the Auction Agent shall have been
negligent in ascertaining (or failing to ascertain) the pertinent facts.
BROKER-DEALERS.
The Auction Agent will enter into a Broker-Dealer Agreement with Smith
Barney Inc., as the initial Broker-Dealer. An Authorized Officer may, from time
to time, approve one or more additional persons to serve as Broker-Dealers under
Broker-Dealer Agreements and shall be responsible for providing such Broker-
Dealer Agreements to the Trustee and the Auction Agent, provided, however that
while Smith Barney Inc. is serving as a Broker-Dealer, Smith Barney Inc. shall
have the right to consent to the approval of any additional Broker-Dealers,
which consent will not be unreasonably withheld. Any Broker-Dealer may be
removed at any time, at the request of an Authorized Officer, but there shall,
at all times, be at least one Broker-Dealer appointed and acting as such.
CHANGES IN AUCTION PERIOD OR PERIODS AND CERTAIN PERCENTAGES.
While any of the Auction Rate Notes are Outstanding, the Issuer may, from
time to time, change the length of one or more Auction Periods (an "Auction
Period Adjustment"), in order to conform with then current market practice with
respect to similar securities or to accommodate economic and financial factors
that may affect or be relevant to the length of the Auction Period and the
interest rate borne by the Auction Rate Notes. The Issuer shall not initiate an
Auction Period Adjustment unless it shall have received the written consent of
the Market Agent, which consent shall not be unreasonably withheld, not later
than nine days prior to the Auction Date for such Auction Period. The Issuer
shall initiate the Auction Period Adjustment by giving written notice by Issuer
Order to the Trustee, the Auction Agent, the Market Agent, each Rating Agency
and the Securities Depository at least 10 days prior to the Auction Date for
such Auction Period. Any such adjusted Auction Period shall not be less than 7
days nor more than 366 days.
An Auction Period Adjustment shall take effect only if (A) the Trustee and
the Auction Agent receive, by 11:00 a.m., eastern time, on the Business Day
before the Auction Date for the first such Auction Period, an Issuer Certificate
authorizing the Auction Period Adjustment specified in such certificate along
with a copy of the written consent of the Market Agent and, (B) Sufficient Bids
exist as of the Auction on the Auction Date for such first Auction Period. If
the condition referred to in (A) above is not met, the applicable Auction Note
Interest Rate for the next Auction Period shall be determined pursuant to the
above provisions and the Auction Period shall be the Auction Period determined
without reference to the proposed change. If the condition referred to in (A)
is met but the condition referred in (B) above is not met, the applicable
Auction Note Interest Rate for the next Auction Period shall be the applicable
Maximum Auction Rate and the `Auction Period shall be the Auction Period
determined without reference to the proposed change. In connection with any
Auction Period Adjustment, the Auction Agent shall provide such further notice
to such parties as is specified in the Auction Agent Agreement.
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<PAGE>
CHANGES IN THE AUCTION DATE.
The Market Agent, with the written consent of an Authorized Officer and, if
applicable, upon receipt of the opinion of Note Counsel as required below, may
specify an earlier Auction Date (but in no event more than five Business Days
earlier) than the Auction Date that would otherwise be determined in accordance
with the definition of "Auction Date" herein with respect to one or more
specified Auction Periods in order to conform with then current market practice
with respect to similar securities or to accommodate economic and financial
factors that may affect or be relevant to the day of the week constituting an
Auction Date and the interest rate borne on the Auction Rate Notes. The Market
Agent shall deliver a written request for consent to such change in the length
of the Auction Date to the Issuer at least 14 days prior to the effective date
of such change. If the Issuer shall have delivered such written consent to the
Market Agent, the Market Agent shall provide notice of its determination to
specify an earlier Auction Date for one or more Auction Periods by means of a
written notice delivered at least 10 days prior to the proposed changed Auction
Date to the Trustee, the Auction Agent, the Issuer, each Rating Agency and the
Securities Depository. In connection with any change described in the preceding
paragraph, the Auction Agent shall provide such further notice to such parties
as is specified in the Auction Agent Agreement.
ADDITIONAL PROVISIONS REGARDING THE INTEREST RATES ON THE AUCTION RATE
NOTES.
The determination of a Variable Rate by the Auction Agent or any other
Person shall be conclusive and binding on the Registered Owners of the Class of
Auction Rate Notes to which such Variable Rate applies, and the Issuer and the
Trustee may rely thereon for all purposes.
In no event shall the cumulative amount of interest paid or payable on a
Class of Auction Rate Notes (including interest calculated as provided herein,
plus any other amounts that constitute interest on the Auction Rate Notes of
such Class under applicable law, which are contracted for, charged, reserved,
taken or received pursuant to the Auction Rate Notes of such Class or related
documents) calculated from the date of issuance of the Auction Rate Notes of
such Class through any subsequent day during the term of the Auction Rate Notes
of such Class or otherwise prior to payment in full of the Auction Rate Notes of
such Class exceed the amount permitted by applicable law. If the applicable law
is ever judicially interpreted so as to render usurious any amount called for
under the Auction Rate Notes of such Class or related documents or otherwise
contracted for, charged, reserved, taken or received in connection with the
Auction Rate Notes of such Class, or if the redemption or acceleration of the
maturity of the Auction Rate Notes of such Class results in payment to or
receipt by the Registered Owner or any former Registered Owner of the Auction
Rate Notes of such Class of any interest in excess of that permitted by
applicable law, then, notwithstanding any provision of the Auction Rate Notes of
such Class or related documents to the contrary, all excess amounts theretofore
paid or received with respect to the Auction Rate Notes of such Class shall be
credited on the principal balance of the Auction Rate Notes of such Class (or,
if the Auction Rate Notes of such Class have been paid or would thereby be paid
in full, refunded by the recipient thereof), and the provisions of the Auction
Rate Notes of such Class and related documents shall automatically and
immediately be deemed reformed and the amounts thereafter collectible hereunder
and thereunder reduced,
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<PAGE>
without the necessity of the execution of any new document, so as to comply with
the applicable law, but so as to permit the recovery of the fullest amount
otherwise called for under the Auction Rate Notes of such Class and under the
related documents.
QUALIFICATIONS OF MARKET AGENT.
The Market Agent shall be a member of the National Association of
Securities Dealers, Inc., have a capitalization of at least $50,000,000 and be
authorized by law to perform all the duties imposed upon it by the Indenture.
The Market Agent may resign and be discharged of the duties and obligations
created by this Appendix A by giving at least 30 days notice to the Issuer and
the Trustee, provided that such resignation shall not be effective until the
appointment of a successor market agent by the Issuer and the acceptance of such
appointment by such successor market agent. The Market Agent may be replaced at
the direction of the Issuer, by an instrument signed by an Authorized Officer,
filed with the Market Agent and the Trustee at least 30 days before the
effective date of such replacement, provided that such replacement shall not be
effective until the appointment of a successor market agent by the Issuer and
the acceptance of such appointment by such successor market agent.
In the event that the Market Agent shall be removed or be dissolved, or if
the property or affairs of the Market Agent shall be taken under the control of
any state or federal court or administrative body because of bankruptcy or
insolvency, or for any other reason, and there is no Market Agent and the Issuer
shall not have appointed its successor as Market Agent, the Trustee,
notwithstanding the provisions of the preceding paragraph, shall be deemed to be
the Market Agent for all purposes of the Indenture until the appointment by the
Issuer of the successor Market Agent. Nothing in the Indenture shall be
construed as conferring on the Trustee additional duties other than as set forth
in the Indenture.
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APPENDIX IV
SETTLEMENT PROCEDURES
Capitalized terms used herein shall have the respective meanings specified
in Appendix III of this Prospectus. These settlement procedures apply to all
Auction Rate Notes except as may otherwise be specified with respect to a Series
in the related Prospectus Supplement.
(a) Not later than 3:00 p.m. on each Auction Date, the Auction Agent
is required to notify by telephone the Broker-Dealers that participated in
the Auction held on such Auction Date and submitted an Order on behalf of
any Existing Holder or Potential Holder of:
(i) the Auction Rate fixed for the next Interest Period;
(ii) whether there were Sufficient Clearing Bids in such Auction;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer") submitted
a Bid or a Sell Order on behalf of an Existing Holder, whether such
Bid or Sell Order was accepted or rejected, in whole or in part, and
the principal amount of Auction Rate Notes, if any, to be sold by such
Existing Holder;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted
a Bid on behalf of a Potential Holder, whether such Bid was accepted
or rejected, in whole or in part, and the principal amount of Auction
Rate Notes, if any, to be purchased by such Potential Holder;
(v) if the aggregate principal amount of Auction Rate Notes to
be sold by all Existing Holders on whose behalf such Broker-Dealer
submitted Bids or Sell Orders is different than the aggregate
principal amount of Auction Rate Notes to be purchased by all
Potential Holders on whose behalf such Broker-Dealer submitted a Bid,
the name or names of one or more other Buyer's Broker-Dealers (and the
Participant, if any, of each such other Buyer's Broker-Dealer) acting
for one or more purchasers of such excess principal amount of Auction
Rate Notes and the principal amount of Auction Rate Notes to be
purchased from one or more Existing Holders on whose behalf such
Broker-Dealer acted by one or more Potential Holders on whose behalf
each of such other Buyer's Broker-Dealers acted; and
(vi) if the principal amount of Auction Rate Notes to be
purchased by all Potential Holders on whose behalf such Broker-Dealer
submitted a Bid exceeds the amount of Auction Rate Notes to be sold by
all Existing Holders on whose behalf such Broker-Dealer submitted a
Bid or a Sell Order, the name or names of one or more Seller's
Broker-Dealers (and the name of the agent member, if
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any, of each such Seller's Broker-Dealer) acting for one or more
sellers of such excess principal amount of Auction Rate Notes and the
principal amount of Auction Rate Notes to be sold to one or more
Potential Holders on whose behalf such Broker-Dealer acted by one or
more Existing Holders on whose behalf each of such Seller's Broker-
Dealers acted;
(vii) unless previously provided, a list of all Applicable Auction
Rate Notes Rates and related Interest Periods (or portions thereof)
since the last Interest Payment Date; and
(viii) the Auction Date for the next succeeding Auction.
(b) On each Auction Date, each Broker-Dealer that submitted an Order
on behalf of any Existing Holder or Potential Holder shall:
(i) advise each Existing Holder and Potential Holder on whose
behalf such Broker-Dealer submitted a Bid or Sell Order in the Auction
on such Auction Date whether such Bid or Sell Order was accepted or
rejected, in whole or in part;
(ii) instruct each Potential Holder on whose behalf such Broker-
Dealer submitted a Bid that was accepted, in whole or in part, to
instruct such Bidder's Participant to pay to such Broker-Dealer (or
its Participant) through the Securities Depository the amount
necessary to purchase the principal amount of Auction Rate Notes to be
purchased pursuant to such Bid against receipt of such principal
amount of Auction Rate Notes;
(iii) in the case of a Broker-Dealer that is a Seller's Broker-
Dealer, instruct each Existing Holder on whose behalf such Broker-
Dealer submitted a Sell Order that was accepted, in whole or in part,
or a Bid that was accepted, in whole or in part, to instruct such
Existing Holder's Participant to deliver to such Broker-Dealer (or its
Participant) through the Securities Depository the principal amount of
Auction Rate Notes to be sold pursuant to such Bid or Sell Order
against payment therefor;
(iv) advise each Existing Holder on whose behalf such Broker-
Dealer submitted an Order and each Potential Holder on whose behalf
such Broker-Dealer submitted a Bid of the Auction Rate for the next
Interest Period;
(v) advise each Existing Holder on whose behalf such Broker-
Dealer submitted a Bid that was accepted, in whole or in part, of the
next Auction Date.
(c) On the basis of the information provided to it pursuant to
paragraph (a) above, each Broker-Dealer that submitted a Bid or Sell Order
in an Auction is required to allocate any funds received by it pursuant to
paragraph (b)(ii) above, and any Auction
IV-2
<PAGE>
Rate Notes received by it pursuant to paragraph (b)(iii) above, among the
Potential Holders, if any, on whose behalf such Broker-Dealer submitted
Bids, the Existing Holders, if any, on whose behalf such Broker-Dealer
submitted Bids or Sell Orders in such Auction, and any Broker-Dealers
identified to it by the Auction Agent following such Auction pursuant to
paragraph (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Holder and Existing Holder with an Order in
the Auction on such Auction Date shall instruct its Participant as
provided in (b)(ii) or (b)(iii) above, as the case may be;
(ii) each Seller's Broker-Dealer that is not a Participant in the
Securities Depository shall instruct its Participant to (A) pay
through the Securities Depository to the Participant of the Existing
Holder delivering Auction Rate Notes to such Broker-Dealer following
such Auction pursuant to (b)(iii) above the amount necessary,
including accrued interest, if any, to purchase such Auction Rate
Notes against receipt of such Auction Rate Notes, and (B) deliver such
Auction Rate Notes through the Securities Depository to a Buyer's
Broker-Dealer (or its Participant) identified to such Seller's Broker-
Dealer pursuant to (a)(v) above against payment therefor; and
(iii) each Buyer's Broker-Dealer that is not a Participant in the
Securities Depository shall instruct its Participant to (A) pay
through the Securities Depository to a Seller's Broker-Dealer (or its
Participant) identified following such Auction pursuant to (a)(vi)
above the amount necessary, including accrued interest, if any, to
purchase the Auction Rate Notes to be purchased pursuant to (b)(ii)
above against receipt of such Auction Rate Notes, and (B) deliver such
Auction Rate Notes through the Securities Depository to the
Participant of the purchaser thereof against payment therefor.
(e) On the first Business Day of the Interest Period next succeeding
each Auction Date:
(i) each Participant for a Bidder in the Auction on such Auction
Date referred to in (d)(i) above shall instruct the Securities
Depository to execute the transactions described under (b)(ii) or
(b)(iii) above for such Auction, and the Securities Depository shall
execute such transactions;
(ii) each Seller's Broker-Dealer or its Participant shall
instruct the Securities Depository to execute the transactions
described in (d)(ii) above for such Auction, and the Securities
Depository shall execute such transactions; and
IV-3
<PAGE>
(iii) each Buyer's Broker-Dealer or its Participant shall instruct
the Securities Depository to execute the transactions described in
(d)(iii) above for such Auction, and the Securities Depository shall
execute such transactions.
(f) If an Existing Holder selling Auction Rate Notes in an Auction
fails to deliver such Auction Rate Notes (by authorized book-entry), a
Broker-Dealer may deliver to the Potential Holder on behalf of which it
submitted a Bid that was accepted a principal amount of Auction Rate Notes
that is less than the principal amount of Auction Rate Notes that otherwise
was to be purchased by such Potential Holder. In such event, the principal
amount of Auction Rate Notes to be so delivered shall be determined solely
by such Broker-Dealer. Delivery of such lesser principal amount of Auction
Rate Notes shall constitute good delivery. Notwithstanding the foregoing
terms of this paragraph (f), any delivery or nondelivery of Auction Rate
Notes which shall represent any departure from the results of an Auction,
as determined by the Auction Agent, shall be of no effect unless and until
the Auction Agent shall have been notified of such delivery or nondelivery
in accordance with the provisions of the Auction Agent and the Broker-
Dealer Agreement.
IV-4
<PAGE>
APPENDIX V
CERTAIN DEFINITIONS AND PROVISIONS
RELATED TO LIBOR RATE NOTES
The Definitions and provisions relating to LIBOR Rate Notes are, unless
otherwise specified with respect to a Series in the related Prospectus
Supplement, set forth below.
DEFINITIONS
"APPLICABLE RATE" shall mean, with respect to the LIBOR Rate Notes of any
Class for the first Interest Period, the rate per annum specified in the related
Prospectus Supplement and, with respect to the LIBOR Rate Notes of any Class for
each subsequent Interest Period, the LIBOR-Based Rate as determined by the
Calculation Agent on the LIBOR Determination Date; provided, however, that the
Applicable Rate cannot exceed the Maximum Interest Rate.
"AUTHORIZED DENOMINATIONS" shall mean $100,000 and any multiple thereof.
"BOND-EQUIVALENT YIELD" shall mean, in respect of any security with a
maturity of six months or less the rate for which is quoted in THE WALL STREET
JOURNAL on a bank discount basis, a yield (expressed as a percentage) calculated
in accordance with the following formula and rounded up to the nearest one
one-hundredth of one percent:
Q x N
Bond Equivalent Yield = -------------------- x 100
360 - (T x Q)
where "Q" refers to the per annum rate for the security quoted on a bank
discount basis and expressed as a decimal, "N" refers to 365 or 366 (days), as
the case may be, and "T" refers to the number of days to maturity.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday, holiday or
day on which banks in New York, New York, or the New York Stock Exchange, the
Trustee or the Calculation Agent, are authorized or permitted by law or
executive order to close.
"CALCULATION AGENT" shall mean any person appointed as such pursuant to the
Indenture.
"DEPOSITORY" or "SECURITIES DEPOSITORY" shall mean The Depository Trust
Company or any successor securities depository selected or approved by the
Issuer.
"HOLDER" as used in this Appendix V shall mean the beneficial owner of any
Class B-2 Note.
"INITIAL INTEREST PAYMENT DATE" shall mean the date specified in the
related Prospectus Supplement.
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<PAGE>
"INITIAL INTEREST PERIOD" shall mean the period from and including the date
of delivery of the LIBOR Rate Notes of any Class and ending on the date
specified in the related Prospectus Supplement.
"INITIAL PERIOD INTEREST" shall mean, with respect to any Class, the
interest rate per annum on the LIBOR Rate Notes of such Class specified in the
related Prospectus Supplement.
"INTEREST AMOUNT" shall mean the amount of interest distributable in
respect of each $100,000 in principal amount (taken, without rounding, to .0001
of one cent) of LIBOR Rate Notes for any Interest Period or part thereof, as
calculated in accordance with the Indenture.
"INTEREST PAYMENT DATE" means the date specified in the related Prospectus
Supplement and the first day of each month thereafter, and the maturity date for
any LIBOR Note, or if any such date is not a Business Day, the next succeeding
Business Day (but only for interest accrued through the last day of the calendar
month next preceding such Interest Payment Date).
"INTEREST PERIOD" means the Initial Interest Period for the LIBOR Rate
Notes of any Class and the period beginning on the first day of each month and
ending on the last day of each month.
"LIBOR DETERMINATION DATE" shall mean the Business Day immediately
preceding the first day of each Interest Period.
"LIBOR-BASED RATE" shall mean One-Month LIBOR plus an amount specified in
the related Prospectus Supplement.
"MAXIMUM INTEREST RATE" shall mean the lesser of (a) 16% per annum or (b)
the maximum rate of interest permitted under State law for student loan revenue
bonds of the Issuer.
"ONE-MONTH LIBOR" means the rate of interest per annum equal to the rate
per annum at which United States dollar deposits having a maturity of three
months are offered to prime banks in the London interbank market which appear on
the Telerate Service LIBOR Page as of approximately 11:00 a.m., London time, on
the LIBOR Determination Date. If at least two such quotations appear, One-Month
LIBOR will be the arithmetic mean (rounded upwards, if necessary, to the nearest
one-hundredth of one percent) of such offered rates. If fewer than two such
quotes appear, One-Month LIBOR with respect to such Interest Period will be
determined at approximately 11:00 a.m., London time, on such LIBOR Determination
Date on the basis of the rate at which deposits in United States dollars having
a maturity of three months are offered to prime banks in the London interbank
market by four major banks in the London interbank market selected by (i) the
Calculation Agent (if the Calculation Agent is other than the Trustee) or (ii)
the Trustee, and in a principal amount of not less than U.S. $1,000,000 and that
is representative for a single transaction in such market at such time. The
Calculation Agent or the Trustee, as applicable, will request the principal
London office of each of such banks to provide a quotation of its rate. If at
least two quotations are provided, One-Month LIBOR will be the arithmetic mean
(rounded upwards, if necessary, to the nearest one-hundredth of one
V-2
<PAGE>
percent) of such offered rates. If fewer than two quotations are provided, One-
Month LIBOR with respect to such Interest Period will be the arithmetic mean
(rounded upwards, if necessary, to the nearest one-hundredth of one percent) of
the rates quoted at approximately 11:00 a.m., New York City time on such LIBOR
Determination Date by three major banks in New York, New York selected by (x)
the Calculation Agent or (y) the Trustee, as applicable, for loans in United
States dollars to leading European banks having a maturity of three months and
in a principal amount equal to an amount of not less than U.S. $1,000,000 and
that is representative for a single transaction in such market at such time;
provided, however, that if the banks selected as aforesaid are not quoting as
mentioned in this sentence, One-Month LIBOR in effect for the applicable
Interest Period, will be One-Month LIBOR in effect for the immediately preceding
Interest Period.
"PARTICIPANT" shall mean a member of or participant in, the Depository.
"PAYMENT DEFAULT" shall mean failure to make payment of interest on,
premium, if any, and principal of the LIBOR Rate Notes when due, by the Issuer.
"PERSON" means and includes, unless otherwise specified, an individual,
corporation, company, trust, estate partnership or association.
"RECORD DATE" shall mean the Business Day immediately preceding the
Interest Payment Date.
"REDEMPTION DATE," when used with respect to any LIBOR Rate Notes to be
redeemed, shall mean the date fixed for such redemption.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
INTEREST ON LIBOR RATE NOTES
(a) Interest on the LIBOR Rate Notes shall accrue for each Interest
Period and shall be payable in arrears, on each Interest Payment Date.
(b) The rate of interest on the LIBOR Rate Notes of any Class for the
first Interest Period shall be Initial Period Interest specified in the
related Prospectus Supplement. The rate of interest on the LIBOR Rate
Notes for each subsequent Interest Period shall be determined by the
Calculation Agent on the LIBOR Determination Date and shall be the LIBOR-
Based Rate.
If a Payment Default occurs, the Applicable Rate (as defined below) with
respect to the LIBOR Rate Notes of any Class shall be the same rate per annum as
if no such Payment Default had occurred.
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<PAGE>
The rate per annum at which interest is payable on the LIBOR Rate Notes of
any Class for any Interest Period is herein referred to as the "Applicable
Rate." Notwithstanding anything herein to the contrary, the Applicable Rate
cannot exceed the Maximum Interest Rate.
PAYMENTS
So long as the LIBOR Rate Notes of any Class are registered in the name of
the Depository or the nominee thereof, payment of interest (other than at
maturity) and premium, if any, on, and of principal at redemption of, such LIBOR
Rate Notes shall be made to the Depository by wire transfer provided proper wire
instructions are received. Each Holder of LIBOR Rate Notes, by such Holder's
purchase of LIBOR Rate Notes, appoints the Trustee as its agent in connection
with the payment by such Holder of its share, if any, of the amounts payable to
the Calculation Agent.
NOTICE OF PAYMENT DEFAULTS AND CURES
By 12:30 p.m. on the Business Day immediately succeeding each Interest
Payment Date, the Trustee will determine if a Payment Default has occurred. If
a Payment Default has occurred, the Trustee shall, if the Calculation Agent is
other than the Trustee, notify the Calculation Agent by 1:00 p.m. of such
Payment Default. If a Payment Default has been cured, the Trustee shall, if the
Calculation Agent is other than the Trustee, so notify the Calculation Agent by
5:00 p.m. on the day such Payment Default is cured.
CALCULATION OF RATES;
TERMINATION OF BOOK ENTRY SYSTEM
The Calculation Agent shall calculate the LIBOR-Based Rate on the Business
Day immediately preceding the first day of each Interest Period. The
determination by the Calculation Agent of the Applicable Rate will (in the
absence of manifest error) be final and binding upon the Owners of the LIBOR
Rate Notes and all other parties.
If the ownership of the LIBOR Rate Notes of any Class is no longer
maintained in book-entry form such LIBOR Rate Notes may be exchanged for other
LIBOR Rate Notes, in Authorized Denominations, and of a like aggregate principal
amount, upon surrender of such LIBOR Rate Notes to be exchanged at the principal
office of the Trustee. LIBOR Rate Notes, upon surrender thereof at the
principal office of the Trustee, duly endorsed for transfer or accompanied by an
assignment duly executed by the Holder of its attorney duly authorized in
writing, will be transferred to a transferee or transferees, in the form of one
or more new fully registered LIBOR Rate Notes of such Class , in Authorized
Denomination, and of a like aggregate principal amount having the same interest
rate and bearing numbers not previously assigned.
In all cases in which the privilege of exchanging or transferring LIBOR
Rate Notes is exercised, the Issuer will cause to be executed and delivered
LIBOR Rate Notes in accordance with the provisions of the Indenture. For every
such exchange or transfer of LIBOR Rate
V-4
<PAGE>
Notes, the Trustee will require payment by the Holder of any tax or other
governmental charge required to be paid with respect to such exchange or
transfer. All expenses, other than any tax or other government charge, incurred
by the Trustee or the Issuer with respect to each such transfer or exchange will
be paid by the Issuer.
The Trustee will not be required to transfer any LIBOR Note during the
period of five Business Days next preceding the mailing of notice of redemption
as described herein. After giving of such notice of redemption, the Trustee
will not be required to transfer or exchange any LIBOR Note, which LIBOR Note or
portion thereof has been called for redemption.
COMPUTATION OF INTEREST
The amount of interest distributable to Holders of LIBOR Rate Notes of any
Class in respect of each $100,000 in principal amount thereof for any Interest
Period or part thereof shall be calculated by applying the Applicable Rate for
such Interest Period or part thereof to the principal amount of $100,000,
multiplying such product by the actual number of days in the Interest Period or
part thereof concerned divided by 360, and truncating the resultant figure to
the nearest one cent. Interest on the LIBOR Rate Notes shall be computed by the
Trustee on the basis of a 360-day year for the number of days actually elapsed.
In the event an Interest Payment Date occurs in any Interest Period on a date
other than the first day of such Interest Period, the Trustee, after confirming
the calculation required above, shall calculate the portion of the Interest
Amount payable on such Interest Payment Date and the portion payable on the next
succeeding Interest Payment Date.
NOTIFICATION OF RATES, AMOUNTS AND PAYMENT DATES
(a) The Trustee shall determine the aggregate amount of interest
distributable on the next succeeding Interest Payment Date to the Holders
of the LIBOR Rate Notes. So long as the ownership of the LIBOR Rate Notes
of any Class is maintained in book-entry form by the Depository, the
Trustee shall advise the Depository of each Record Date for the LIBOR Rate
Notes at least two Business Days prior thereto.
(b) Promptly after the Date of Issue and each Interest Payment Date,
and in any event at least 10 days prior to each Interest Payment Date
following the Initial Interest Payment Date, the Trustee shall:
(i) so long as no Payment Default has occurred and is continuing
and the ownership of the LIBOR Rate Notes of any Class is maintained
in book-entry form by the Depository, confirm the Calculation Agent's
determination of (1) the date of such next Interest Payment Date and
(2) the amount payable to the Calculation Agent and notify the
Calculation Agent of any discrepancy therein; and
(ii) advise the Depository, so long as the ownership of the LIBOR
Rate Notes of any Class is maintained in book-entry form by the
Depository, of
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<PAGE>
the Applicable Rate and the Interest Amount in respect of the next
succeeding Interest Period.
CALCULATION AGENT
(a) Smith Barney Inc. shall serve as the initial Calculation Agent
for the LIBOR Rate Notes. The Calculation Agent shall be (i) a bank or
trust company duly organized under the laws of the United States of America
or any state or territory thereof, and having a combined capital stock,
surplus and undivided profits of at least $15,000,000 or (ii) a member of
the National Association of Securities Dealers, Inc., having a
capitalization of at least $15,000,000 and, in either case, authorized by
law to perform all the duties imposed upon it hereunder. The Calculation
Agent may resign and be discharged of the duties and obligations created
hereunder by giving at least 90 days' written notice to the Issuer and the
Trustee (30 days' written notice if the Calculation Agent has not been paid
its fee for more than 30 days). The Calculation Agent may be removed at any
time by the Trustee if the Calculation Agent is an entity other than the
Trustee, acting at the direction of the Issuer or the holders of 51% of the
aggregate principal amount of the LIBOR Rate Notes, by an instrument signed
by the Trustee and filed with the Calculation Agent and the Issuer upon at
least 90 days' notice. If the Calculation Agent and the Trustee are the
same entity, the Calculation Agent may be removed as described above, with
the Issuer acting in lieu of the Trustee.
(b) In the event that the Calculation Agent shall resign or be
removed or dissolved, or if the property or affairs of the Calculation
Agent shall be taken under the control of any state or federal court or
administrative body because of bankruptcy or insolvency, or for any other
reason, the Issuer shall use its best efforts to appoint a successor as
Calculation Agent, and the Trustee shall thereupon enter into an agreement
with such successor to perform the duties of the Calculation Agent as
described herein.
(c) The Calculation Agent (if other than the Trustee) shall be acting
as agent for the Trustee, as trustee, registrar and paying agent for the
LIBOR Rate Notes, in connection with its duties hereunder. In the absence
of bad faith or negligence on its part, the Calculation Agent shall not be
liable for any action taken, suffered or omitted or for any error of
judgment made by it in the performance of its duties hereunder and shall
not be liable for any error of judgment made in good faith unless the
Calculation Agent shall have been negligent in ascertaining (or failing to
ascertain) the pertinent facts necessary to make such judgment.
CREDIT RATINGS
The Issuer shall take all reasonable action necessary to enable at least
one nationally recognized statistical rating organization (as that term is used
in the rules and regulations of the SEC under the Securities Exchange Act) to
provide credit ratings for the LIBOR Rate Notes of any Class.
V-6
<PAGE>
NOTICE
The Issuer shall use its best efforts to provide the Trustee and, so long
as no Payment Default has occurred and is continuing and the ownership of the
LIBOR Rate Notes is maintained in book-entry form by the Depository, the
Calculation Agent with notice of any change in the maximum rate permitted by law
on the LIBOR Rate Notes.
NOTICE OF PAYMENT DEFAULT
(a) If the Issuer determines that a Payment Default has occurred the
Issuer shall promptly notify the Trustee thereof.
(b) So long as the ownership of the LIBOR Rate Notes of any Class is
maintained in book-entry form by the Depository, upon the occurrence of a
Payment Default the Trustee shall immediately send a notice thereof to the
Calculation Agent by telecopy or similar means.
(c) So long as the ownership of the LIBOR Rate Notes of any Class is
maintained in book-entry form by the Depository, the Trustee shall
immediately send notice to the Calculation Agent by telecopy or similar
means if a Payment Default is cured.
V-7
<PAGE>
APPENDIX VI
FORM OF MASTER PURCHASER'S LETTER
TO BE SUBMITTED TO YOUR BROKER-DEALER
Relating to Securities Involving Rate Settings
Through Auctions or Remarketings
To: The Company
Remarketing Agent
The Trust Company
A Broker-Dealer
An Agent Member
Other Persons
Dear Sirs:
1. This letter is designed to apply to publicly or privately offered debt
or equity securities ("Securities") of any issuer (the "Company") which are
described in any final prospectus, private placement memorandum, offering
circular or other offering materials relating to such Securities as the same may
be amended or supplemented (collectively, with respect to the particular
Securities concerned, the "Prospectus") and which involve periodic rate auctions
("Auctions") or remarketing procedures ("Remarketing"). This letter shall be
for the benefit of the Company and of any trust company, auction agent, paying
agent (collectively, "trust company"), remarketing agent, broker-dealer, agent
member, securities depository or other interested person in connection with any
Securities and related Auctions or Remarketings (it being understood that such
persons may be required to execute specified agreements and nothing herein shall
alter such requirements). The terminology used herein is intended to be general
in its application and not to exclude any Securities in respect of which (in the
Prospectus or otherwise) alternative terminology is used.
2. We may from time to time offer to purchase, purchase, offer to sell
and/or sell Securities of the Company as described in the Prospectus relating
thereto. We agree that this letter shall apply to all such purchases, sales and
offers and to Securities owned by us. We understand that the dividend/interest
rate on Securities may be based from time to time on the results of Auctions or
Remarketings as set forth in the Prospectus.
3. We agree that any bid or sell order placed by us in an Auction or a
Remarketing shall constitute an irrevocable offer (except as otherwise described
in the Prospectus) by us to purchase or sell the Securities subject to such bid
or sell order, or such lesser amount of Securities as we shall be required to
sell or purchase as a result of such Auction or Remarketing, at the applicable
price, all as set forth in the Prospectus, and that if we fail to place a bid or
sell order with respect to Securities owned by us with a broker-dealer on any
Auction or Remarketing date, or a broker-dealer to which we communicate a bid or
sell order fails to
VI-1
<PAGE>
submit such bid or sell order to the trust company or remarketing agent
concerned, we shall be deemed to have placed a hold order with respect to such
Securities as described in the Prospectus. We authorize any broker-dealer that
submits a bid or sell order as our agent in Auctions or Remarketings to execute
contracts for the sale of Securities covered by such bid or sell order. We
recognize that the payment by such broker-dealer with respect to Securities
purchased on our behalf shall not relieve us of any liability to such broker-
dealer for payment for such Securities.
4. We understand that in a Remarketing, the dividend or interest rate or
rates on the Securities and the allocation of Securities tendered for sale
between dividend or interest periods of different lengths will be based from
time to time on the determinations of one or more remarketing agent(s), and we
agree to be conclusively bound by such determinations. We further agree to the
payment of different dividend or interest rates to different holders of
Securities depending on the length of the dividend or interest period elected by
such holders. We agree that any notice given by us to a remarketing agent (or
to a broker-dealer for transmission to a remarketing agent) of our desire to
tender Securities in a Remarketing shall constitute an irrevocable (except to
the limited extent set forth in the Prospectus) offer by us to sell the
Securities specified in such notice, or such lesser number of Securities as we
shall be required to sell as a result of such Remarketing, in accordance with
the terms set forth in the Prospectus, and we authorize the remarketing agent to
sell, transfer or otherwise dispose of such Securities as set forth in the
Prospectus.
5. We agree that, during the applicable period as described in the
Prospectus, dispositions of Securities can be made only in the denominations set
forth in the Prospectus and we will sell, transfer or otherwise dispose of any
Securities held by us from time to time only pursuant to a bid or sell order
placed in an Auction, in a Remarketing, to or through a broker-dealer or, when
permitted in the Prospectus, to a person that has signed and delivered to the
applicable trust company or remarketing agent a letter substantially in the form
of this letter (or other applicable purchaser's letter), provided that in the
case of all transfers, other than pursuant to Auctions, the form of this letter
(or other applicable purchaser's letter), provided that in the case of all
transfers other than pursuant to Auctions or Remarketings we or our broker-
dealer or our agent member shall advise such trust company or remarketing agent
of such transfer. We understand that a restrictive legend will be placed on
certificates representing the Securities and stop-transfer instructions will be
issued to the transfer agent and/or registrar, all as set forth in the
Prospectus.
6. We agree that, during the applicable period as described in the
Prospectus, ownership of Securities shall be represented by one or more global
certificates registered in the name of the applicable securities depository or
its nominee, that we will not be entitled to receive any certificate
representing the Securities and that our ownership of any Securities will be
maintained in book-entry form by the securities depository for the account of
our agent member, which in turn will maintain records of our beneficial
ownership. We authorize and instruct our agent member to disclose to the
applicable trust company or remarketing agent such information concerning our
beneficial ownership of Securities as such trust company shall request.
VI-2
<PAGE>
7. We acknowledge that partial deliveries of Securities purchased in
Auctions or Remarketings may be made to us and such deliveries shall constitute
good delivery as set forth in the Prospectus.
8. This letter is not a commitment by us to purchase any Securities.
9. This letter supersedes any prior-dated version of this master
purchaser's letter, and supplements any prior or postdated purchaser's letter
specific to any particular Securities, and this letter may only be revoked by a
signed writing delivered to the original recipients hereof.
10. The descriptions of Auction or Remarketing Procedures set forth in
each applicable Prospectus are incorporated by reference herein and in case of
any conflict between this letter, any purchaser's letter specific to particular
Securities and any such description, such description shall control.
11. Any xerographic or other copy of this letter shall be deemed of equal
effect as a signed original.
12. In the case of each offer to purchase, purchase, offer to sell or sale
by us of Securities not registered under the Securities Act of 1933, as amended
(the "Securities Act"), we represent and agree as follows:
(a) We understand and expressly acknowledge that the Securities have
not been and will not be registered under the Securities Act and,
accordingly, that the Securities may not be reoffered, resold or otherwise
pledged, hypothecated or transferred unless an applicable exemption from
the registration requirements of the Securities Act is available.
(b) We hereby confirm that any purchase of Securities made by us will
be for our own account, or for the account of one or more parties for which
we are acting as trustee or agent with complete investment discretion and
with authority to bind such parties, and not with a view to any public
resale or distribution thereof. We and each other party for which we are
acting which will acquire Securities will be "accredited investors" within
the meaning of Regulation D under the Securities Act with respect to the
Securities to be purchased by us or such party, as the case may be, will
have previously invested in similar types of instruments and will be able
and prepared to bear the economic risk of investing in and holding such
Securities.
(c) We acknowledge that prior to purchasing any Securities we have
had access to such financial and other information as we deem necessary in
connection with our decision to purchase Securities.
(d) We recognize that the Company and broker-dealers or remarketing
agents will rely upon the truth and accuracy of the foregoing investment
representations and
VI-3
<PAGE>
agreements, and we agree that each of our purchases of Securities now or in
the future shall be deemed to constitute our concurrence in, and
affirmation of, all of the foregoing, which shall be binding on us and each
party for which we are acting as set forth in subparagraph (b) above.
Date:
------------------------------ ------------------------------------
(Name of Institution, if applicable)
By
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
[Placement Agent] [Underwriter]
Account Number
--------------------------------------
--------------------------------------
--------------------------------------
VI-4
<PAGE>
[OUTSIDE BACK COVER]
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus Supplement or the
Prospectus and, if given or made, such information or representations must not
be relied upon. This Prospectus Supplement and the Prospectus do not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
the Notes offered hereby, nor an offer of the Notes in any state or jurisdiction
in which, or to any person to whom, such offer would be unlawful. The delivery
of this Prospectus Supplement or any Prospectus at any time does not imply that
information herein or therein is correct as of any time subsequent to its date;
however, if any material change occurs while this Prospectus Supplement or the
Prospectus is required by law to be delivered, this Prospectus Supplement or the
Prospectus will be amended or supplemented accordingly.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT Page
----
Terms of the Offering. . . . . . . . . . . . . . . . . . . . . . . . S-2
Previously Issued Notes. . . . . . . . . . . . . . . . . . . . . . . S-10
Credit Enhancement . . . . . . . . . . . . . . . . . . . . . . . . . S-10
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . S-10
[Legal Matters]. . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
[Other Information]. . . . . . . . . . . . . . . . . . . . . . . . . S-11
Annex A--Certain Characteristics of the Financial Eligible Loans . . A-1
Annex B--Certain Information Relating to the Guarantors. . . . . . . B-1
[Annex C--Certain Information Relating to the Series 199__-__
Auction Rate Notes] . . . . . . . . . . . . . . . . . . . . . . C-1
[Annex D--Certain Information Relating to the Series 199__-__
[LIBOR] [Index] Rate Notes] . . . . . . . . . . . . . . . . . . D-1
PROSPECTUS
SUMMARY OF THE OFFERING. . . . . . . . . . . . . . . . . . . . . . . . . iv
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DESCRIPTION OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . 11
BOOK ENTRY REGISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . 17
ADDITIONAL NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SELLER REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . 20
SECURITY AND SOURCES OF PAYMENT FOR THE NOTES. . . . . . . . . . . . . . 25
DESCRIPTION OF CREDIT ENHANCEMENT. . . . . . . . . . . . . . . . . . . . 40
THE ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
THE ISSUER'S STUDENT LOAN PURCHASE PROGRAM . . . . . . . . . . . . . . . 44
GUARANTEE AGENCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . 48
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 53
CERTAIN RELATIONSHIPS AMONG FINANCING PARTICIPANTS . . . . . . . . . . . 54
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 55
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 56
RATINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
INDEX TO AND GLOSSARY OF TERMS . . . . . . . . . . . . . . . . . . . . . 57
APPENDIX I-- DESCRIPTION OF THE FEDERAL FAMILY EDUCATION
LOAN PROGRAM . . . . . . . . . . . . . . . . . . . . . . I-1
APPENDIX II-- GLOSSARY OF TERMS AND SUMMARY OF CERTAIN
PROVISIONS OF THE INDENTURE. . . . . . . . . . . . . . .II-1
APPENDIX III-- CERTAIN DEFINITIONS AND PROVISIONS RELATED
TO AUCTION RATE NOTES AND AUCTION PROCEDURES . . . . . III-1
APPENDIX IV-- SETTLEMENT PROCEDURES. . . . . . . . . . . . . . . . . .IV-1
APPENDIX V-- CERTAIN DEFINITIONS AND PROVISIONS RELATED TO
LIBOR RATE NOTES . . . . . . . . . . . . . . . . . . . . V-1
APPENDIX VI-- FORM OF MASTER PURCHASER'S LETTER. . . . . . . . . . . .VI-1
<PAGE>
UNION FINANCIAL SERVICES-1, INC.
ISSUER
TAXABLE STUDENT LOAN ASSET-BACKED NOTES
SERIES 199__-__
$_________ [AUCTION] [INDEX] RATE NOTES, CLASS
------------
$_________ [AUCTION] [INDEX] RATE NOTES, CLASS
------------
$_________ [AUCTION] [INDEX] RATE NOTES, CLASS
------------
-------------------------
PROSPECTUS SUPPLEMENT
-------------------------
[NAME OF [UNDERWRITER][PLACEMENT AGENT]]
[DATE]
[OUTSIDE BACK COVER]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be borne by the registrant,
other than the underwriting discounts and commissions, in connection with the
issuance and distribution of the Notes hereunder.
SEC registration fee. . . . . . . . . $344.83
*Accounting fees and expenses. . . . . (1)
*Legal fees and expenses. . . . . . . . (1)
*Printing costs . . . . . . . . . . . . (1)
*Blue Sky fees and expenses . . . . . . (1)
*Trustee's fees . . . . . . . . . . . . (1)
*Rating Agency fees . . . . . . . . . . (1)
*Miscellaneous. . . . . . . . . . . . . (1)
-------
Total . . . . . . . . . . . . . . . $ (1)
-------
-------
- -------------
* Estimates based on the offering of a single Series of Notes in the aggregate
principal amount of $100 million.
(1) To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Chapter 78, Section 78.751 of the Nevada Revised Statutes gives Nevada
corporations broad powers to indemnify their present and former directors and
officers, and those of affiliated corporations and other enterprises, against
expenses, including attorneys fees, judgments, fines and amounts paid in
settlement actually incurred in the defense or settlement of any legal
proceeding to which they are made parties by reason of being such directors or
officers, subject to specified conditions and exclusions. Section 78.751 also
gives a director or officer who successfully defends an action the right to be
so indemnified. Section 78.752 authorizes a Nevada corporation to buy
directors' and officers' liability insurance.
The registrant has adopted a bylaw which makes indemnification mandatory
under certain circumstances for a person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, by reason of the fact that he is or was a director or officer of the
registrant or of affiliated corporations or other entities. Such persons must
be indemnified against reasonably incurred expenses (including attorneys' fees),
judgments, penalties, fines and amounts paid in settlement if it is determined
in accordance with the procedures set forth in the bylaws that such person
II-1
<PAGE>
conducted himself in good faith and that he reasonably believed (a) in the case
of conduct in his official capacity with the registrant, that his conduct was in
the registrant's best interest, or (b) in all other cases (except criminal
cases), that his conduct was at least not opposed to the registrant's best
interests, or (c) in the case of any criminal proceeding, that he had no
reasonable cause to believe his conduct was unlawful. The registrant must also
indemnify any such person who was wholly successful in defense of any action,
suit, or proceeding as to which he was entitled to indemnification against
expenses (including attorneys' fees) reasonably incurred by him in connection
with the proceeding. No indemnification shall be made to such persons with
respect to any claim, issue or matter in connection with a proceeding by or in
the right of the registrant in which the person is adjudged liable to the
registrant, or in connection with any proceeding charging that the person
derived an improper personal benefit in which he was adjudged liable on the
basis that he derived an improper personal benefit.
Pursuant to agreements which the registrant may enter into with
underwriters or agents (forms of which are included as exhibits to this
Registration Statement), officers and directors of the registrant, and
affiliates thereof, may be entitled to indemnification by such underwriters or
agents against certain liabilities, including liabilities under the Securities
Act of 1933, as amended, arising from information which has been furnished to
the registrant by such underwriters or agents that appears in the Registration
Statement or any Prospectus.
ITEM 16. EXHIBITS.
The following is a complete list of exhibits filed as part of the
Registration Statement. Exhibit numbers correspond to the numbers in the
Exhibit Table of Item 601 of Regulation S-K.
Exhibit No. Description
- ----------- -----------
1.1 Form of [Underwriting] [Distribution] Agreement
4.1 Form of Second Amended and Restated Indenture
4.2 Form of Supplemental Indenture
5.1 Opinion of Kutak Rock as to the validity of the Notes*
8.1 Opinion of Kutak Rock Regarding Tax Matters*
23.1 Consent of Kutak Rock (included in Exhibits 5.1 and 8.1
hereto)*
24.1 Power of Attorney (included on page II-6 of the Registration
Statement)
25.1 Statement of Eligibility of Trustee on Form T-1*
*To be filed by amendment.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(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 paragraphs (a)(1)(i) and (a)(1)(ii) above do not
apply if the registration statement is on Form S-3, Form S-8, or Form F-3, and
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(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) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where
II-3
<PAGE>
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(e) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(f) The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Denver, State of Colorado, on July 25, 1996.
UNION FINANCIAL SERVICES-1, INC.,
a Nevada corporation
By /s/ Ronald W. Page
------------------------------------------
Ronald W. Page, Vice-President and
Secretary
II-5
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen F. Butterfield and Ronald W. Page, his
true and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement on Form S-3 and file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, to all intents and purposes and
as full as they might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents, or their substitutes may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Michael S. Dunlap Chairman of the Board July 25, 1996
- ---------------------------- (Principal Executive Officer)
Michael S. Dunlap
/s/ Stephen F. Butterfield President and Director July 25, 1996
- ----------------------------
Stephen F. Butterfield
/s/ Ronald W. Page Vice-President, Secretary, July 25, 1996
- ---------------------------- Treasurer and Director
Ronald W. Page (Principal Financial and
Accounting Officer)
/s/ Ross Wilcox Director July 25, 1996
- ----------------------------
Ross Wilcox
/s/ Dr. Paul Hoff Director July 25, 1996
- ----------------------------
Dr. Paul Hoff
II-6
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
1.1 Form of [Underwriting] [Distribution] Agreement
4.1 Form of Second Amended and Restated Indenture
4.2 Form of Supplemental Indenture
5.1 Opinion of Kutak Rock as to the validity of the Notes*
8.1 Opinion of Kutak Rock Regarding Tax Matters*
23.1 Consent of Kutak Rock (included in Exhibits 5.1 and 8.1 hereto)*
24.1 Power of Attorney (included on page II-6 of the Registration
Statement)
25.1 Statement of Eligibility of Trustee on Form T-1*
*To be filed by amendment.
<PAGE>
UNION FINANCIAL SERVICES-1, INC.
$___________ TAXABLE STUDENT LOAN ASSET-BACKED NOTES
(ISSUABLE IN SERIES)
FORM OF
UNDERWRITING AGREEMENT
_____________, 199__
Name and Address of
Underwriter
Dear Sirs:
Union Financial Services-1, Inc., a Nevada corporation (the "Company"),
proposes to sell to __________________ (the "Underwriter"), pursuant to the
terms of this Underwriting Agreement, up to $___________ of Taxable Student
Loan Asset-Backed Notes (the "Notes") in various series, and, within each
series, in various classes, in one or more offerings on terms to be
determined at the time of sale. Norwest Bank Minnesota, National
Association, a national banking association, will act as eligible lender (the
"Eligible Lender") on behalf of the Company. The Notes will be issued under
an Amended and Restated Indenture of Trust dated as of June 15, 1996 (the
"Master Indenture") between the Company and Norwest Bank Minnesota, National
Association, a national banking association, as indenture trustee
("Trustee"), which will be supplemented with respect to each series of Notes
by an indenture supplement (each, an "Indenture Supplement" and collectively
with the Master Indenture, the "Indenture"). Upon issuance, each series of
Notes will be secured by, among other things, Financed Eligible Loans (as
defined in the Sale Agreements referred to below) pledged to the Indenture
Trustee and described in the Prospectus (as defined in Section 3 below). The
Financed Student Loans are to be serviced by ________________________ (in
this capacity, the "Servicer") pursuant to a Servicing Agreement dated as of
________________, 199__ (the "Servicing Agreement") between the Servicer and
the Company. The Servicer has entered into a subservicing agreement with
____________________________ (in this capacity, the "Subservicer") dated as
of _____________, 199__ (the "Subservicing Agreement") pursuant to which the
Subservicer will act as subservicer or, upon inability of the Servicer to do
so, as servicer with respect to the Financed Student Loans. This Agreement,
the Sale Agreements, the Servicing Agreement, the
<PAGE>
Subservicing Agreement and the Indenture shall collectively hereinafter be
referred to as the "Basic Documents." Capitalized terms used herein without
definition shall have the meanings ascribed to them in the Indenture or the
Prospectus.
The Company proposes, upon the terms and conditions set forth herein, to
sell to the Underwriter on the Initial Closing Date (as hereinafter defined)
$___________ aggregate principal amount of the Notes.
[Whenever the Company determines to issue and sell a series of Notes
(including on the Initial Closing Date), it shall, upon the terms and conditions
set forth herein, enter into an agreement (each, a "Terms Agreement") providing
for the sale of such Notes to the Underwriter. The Terms Agreement relating to
each sale of Notes shall specify, among other matters, the principal amount of
Notes to be sold, the series and class designations, the interest rate for each
such class and, if variable, the initial interest rate and the interest rate
adjustment dates, any terms not otherwise specified in the Master Indenture, the
price at which the Notes are to be purchased by the Underwriter or the method by
which the price at which the Notes are to be purchased will be determined. The
Terms Agreement, which shall be substantially in the form of Exhibit A hereto,
may take the form of an exchange of any standard form of written
telecommunication between the Underwriter and the Company.]
The Company wishes to confirm as follows this agreement with the
Underwriter in connection with the purchase and resale of the Notes.
Section 1. AGREEMENTS TO SELL, PURCHASE AND RESELL.
(a) The Company hereby agrees, subject to all the terms and
conditions set forth herein [and in the related Terms Agreement], to sell
to the Underwriter and, upon the basis of the representations, warranties
and agreements of the Company herein contained and subject to all the
terms and conditions set forth herein [and in the related Terms Agreement],
the Underwriter agrees to purchase from the Company such principal amount
of each series and class of Notes at such respective purchase prices [as
may be described in the Terms Agreement with respect thereto executed by
the Company and the Underwriter pursuant to the terms hereof].
(b) It is understood that the Underwriter proposes to offer the Notes
for sale to the public (which may include selected dealers) as set forth in
the Prospectus.
Section 2. DELIVERY OF THE NOTES AND PAYMENT THEREFOR. Delivery to the
Underwriter of and payment for any series of Notes to be sold [pursuant to the
initial Terms Agreement] shall be made at the office of _______________________,
at [11:00 a.m.], [local] time, on __________, 199_ (the "Initial Closing Date").
The place of such closing and the Initial Closing Date may be varied by
agreement between the Underwriter and the Company.
2
<PAGE>
Delivery to the Underwriter of and payment for any additional series of
Notes to be purchased by the Underwriter shall be made at the aforementioned
office at such time and on such dates (each, a "Subsequent Closing Date"), as
shall be specified in [the related Terms Agreements]. The place of such a
closing and a Subsequent Closing Date for such additional series of Notes may
be varied by agreement between the Underwriter and the Company.
The Notes will be delivered to the Underwriter against payment of the
purchase price therefor to the Company in Federal Funds, by wire, or such
other form of payment as to which the parties may agree. Unless otherwise
agreed to by the Company and the Underwriter, each Class of Notes will be
evidenced by a single global security in definitive form and/or by additional
definitive securities, and will be registered, in the case of the global
Classes of Notes, in the name of Cede & Co. as nominee of The Depository
Trust Company ("DTC"), and in the other cases, in such names and in such
denominations as the Underwriter shall request prior to [1:00 p.m.],
__________________________ time, no later than the business day preceding the
Closing Date or any Subsequent Closing Date, as the case may be. The Notes
to be delivered to the Underwriter shall be made available to the Underwriter
in __________________ for inspection and packaging not later than [9:30 a.m.],
__________________ time, on the business day next preceding the Initial
Closing Date or a Subsequent Closing Date, as the case may be.
Section 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Underwriter that:
(a) A registration statement on Form S-3 (No. 333-_____), including
a prospectus and such amendments thereto as may have been required to the
date hereof, relating to the Notes and the offering thereof from time to
time in accordance with Rule 415 under the Securities Act of 1933, as
amended (the "Act"), has been filed with the Securities and Exchange
Commission (the "SEC" or "Commission") and such registration statement, as
amended, has become effective; such registration statement, as amended, and
the prospectus relating to the sale of the Notes offered thereby
constituting a part thereof, as from time to time amended or supplemented
(including the base prospectus and any prospectus supplement filed with the
Commission pursuant to Rule 424(b) under the Act, are respectively referred
to herein as the "Registration Statement" and the "Prospectus") and the
conditions to the use of a registration statement on Form S-3 under the
Act, as set forth in the General Instructions to Form S-3, and the
conditions of Rule 415 under the Act, have been satisfied with respect to
the Registration Statement.
(b) On the effective date of the Registration Statement, the
Registration Statement and the Prospectus conformed in all respects to the
requirements of the Act, the rules and regulations of the SEC (the "Rules
and Regulations") and the Trust Indenture Act of 1939, as amended, and the
rules and regulations thereunder (the "Trust Indenture Act"), and did not
include any untrue statement of a material fact or, in the case of the
Registration Statement, omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading
and, in the case of the Prospectus, omit to state any material fact
necessary to make the statements therein, in
3
<PAGE>
the light of the circumstances under which they were made, not misleading,
and on the date of this Agreement [and each Terms Agreement], the
Registration Statement and the Prospectus will conform in all respects to
the requirements of the Act, the Rules and Regulations and the Trust
Indenture Act, and neither of such documents included or will include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that the foregoing does not apply to
statements in or omissions from the Registration Statement or the
Prospectus based upon written information furnished to the Company by the
Underwriter specifically for use therein.
(c) The Commission has not issued and, to the best knowledge of
the Company, is not threatening to issue any order preventing or suspending
the use of the Registration Statement.
(d) As of each Closing Date, each consent, approval, authorization
or order of, or filing with, any court or governmental agency or body which
is required to be obtained or made by the Company or its affiliates for the
consummation of the transactions contemplated by this Agreement [and each
Terms Agreement] shall have been obtained, except as otherwise provided in
the Basic Documents.
(e) The Master Indenture and the Indenture Supplement relating to
the Notes to be sold on the initial Closing Date (the "Initial Indenture
Supplement") have been and each additional Indenture Supplement will be
duly and validly authorized by the Company and, upon their execution and
delivery by the Company and assuming due authorization, execution and
delivery by the Trustee, will be valid and binding agreements of the
Company, enforceable in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally and conform in all material respects
to the description thereof in the Prospectus.
(f) The Notes have been duly authorized by the Company and the
Notes to be issued on the Initial Closing Date, when executed by the
Company and authenticated by the Trustee in accordance with the Indenture,
and delivered to the Underwriter against payment therefor in accordance
with the terms hereof, will have been validly issued and delivered, and
will constitute valid and binding obligations of the Company entitled to
the benefits of the Indenture and enforceable in accordance with their
terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, moratorium, fraudulent conveyance or other similar laws
relating to or affecting creditors' rights generally and court decisions
with respect thereto, and the Notes will conform in all material respects
to the description thereof in the Prospectus.
(g) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada with full
corporate power and authority to own, lease and operate its properties and
to conduct its business as conducted on the
4
<PAGE>
date hereof, and is duly registered and qualified to conduct its business
and is in good standing in each jurisdiction or place where the nature of
its properties or the conduct of its business requires such registration
or qualification, except where the failure so to register or qualify does
not have a material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company.
(h) Other than as contemplated by this Agreement or as disclosed in
the Prospectus, there is no broker, finder or other party that is entitled
to receive from the Company or any of its affiliates any brokerage or
finder's fee or other fee or commission as a result of any of the
transactions contemplated by this Agreement.
(i) There are no legal or governmental proceedings pending or, to the
knowledge of the Company threatened, against the Company, or to which the
Company or any of its properties is subject, that are not disclosed in the
Prospectus or that will not be disclosed in any subsequent amendment or
supplement to the Prospectus and which, if adversely decided, are
reasonably likely to materially affect the issuance of the Notes or the
consummation of the transactions contemplated hereby or by the Basic
Documents.
(j) Neither the offer, sale or delivery of the Notes by the Company
nor the execution, delivery or performance of this Agreement [and the Terms
Agreements] by the Company, nor the consummation by the Company of the
transactions contemplated hereby or thereby (i) requires or will require
any consent, approval, authorization or other order of, or registration or
filing with, any court, regulatory body, administrative agency or other
governmental body, agency or official (except for compliance with the
securities or Blue Sky laws of various jurisdictions, the qualification of
the Indenture under the Trust Indenture Act and such other consents,
approvals or authorizations as shall have been obtained prior to the
Initial Closing Date) or conflicts or will conflict with or constitutes or
will constitute a breach of, or a default under, the organizational
documents or bylaws of the Company or (ii) conflicts or will conflict with
or constitutes or will constitute a breach of, or a default under, in any
material respect, any material agreement, indenture, lease or other
instrument to which the Company is a party or by which the Company or any
of its properties may be bound, or violates or will violate, in any
material respect, any statute, law, regulation or filing or judgment,
injunction, order or decree applicable to the Company or any of its
properties, or will result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company pursuant
to the terms of any agreement or instrument to which it is a party or by
which it may be bound or to which any of its properties is subject other
than as contemplated by the Basic Documents.
(k) The Company has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement [and each Terms
Agreement]; the execution and delivery of, and the performance by the
Company of its obligations under, this Agreement have been duly and validly
authorized by the Company [(and the execution,
5
<PAGE>
delivery of, and the performance by the Company of its obligations under,
each Terms Agreement will be duly and validly authorized by the Company)]
and this Agreement has been [and each Terms Agreement will be], duly
executed and delivered by the Company and constitutes [or in the case of
each Terms Agreement, will constitute,] the valid and legally binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except as the enforcement hereof may be limited by
bankruptcy, insolvency, moratorium, fraudulent conveyance or other similar
laws relating to or affecting creditors' rights generally and court
decisions with respect thereto and subject to the applicability of general
principles of equity, and except as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles
of public policy.
(l) Each Seller's assignment and delivery of Financed Eligible Loans
to the order of the Trustee on behalf of the Company as of the applicable
Closing Date and of Additional Acquired Student Loans from time to time
thereafter pursuant to the applicable Sale Agreement will vest in the
Trustee on behalf of the Company all of such Seller's right, title and
interest therein, subject to no prior lien, mortgage, security interest,
pledge, adverse claim, charge or other encumbrance.
(m) The Company's assignment of the Financed Student Loans to the
Trustee pursuant to the Indenture will vest in the Trustee, for the benefit
of the Noteholders, a first priority perfected security interest therein,
subject to no prior lien, mortgage, security interest, pledge, adverse
claim, charge or other encumbrance.
(n) The Company is not, nor as a result of the issuance and sale
of the Notes as contemplated hereunder will it become, subject to
registration as an "investment company" under the Investment Company Act
of 1940, as amended (the "1940 Act").
(o) The representations and warranties made by the Company in any
Basic Document to which the Company is a party and made in any Officer's
Certificate of the Company will be true and correct at the time made and on
and as of the applicable Closing Date.
Section 4. AGREEMENTS OF THE COMPANY. The Company agrees with the
Underwriter as follows:
(a) In connection with the execution [of each Terms Agreement],
the Company will prepare a supplement to the Prospectus setting forth the
amount of the Notes covered thereby and the terms thereof not otherwise
specified in the Prospectus, the price at which the Notes are to be
purchased by the Underwriter, either the initial public offering price or
the method by which the price at which the Notes are to be sold will be
determined, the selling concessions and reallowances, if any, and such
other information as the Underwriter and the Company deem appropriate in
connection with the offering of the Notes, and the Company will timely file
such supplement to the prospectus with
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the SEC pursuant to Rule 424(b) under the Act, but the Company will not
file any amendments to the Registration Statement as in effect with respect
to the Notes or any amendments or supplements to the Prospectus, unless it
shall first have delivered copies of such amendments or supplements to the
Underwriter, or if the Underwriter shall have reasonably objected thereto
promptly after receipt thereof; the Company will immediately advise the
Underwriter or the Underwriter's counsel (i) when notice is received from
the SEC that any post-effective amendment to the Registration Statement has
become or will become effective and (ii) of any order or communication
suspending or preventing, or threatening to suspend or prevent, the offer
and sale of the Notes or of any proceedings or examinations that may lead
to such an order or communication, whether by or of the SEC or any
authority administering any state securities or Blue Sky law, as soon as
the Company is advised thereof, and will use its best efforts to prevent
the issuance of any such order or communication and to obtain as soon as
possible its lifting, if issued.
(b) If, at any time when a Prospectus relating to a series of
Notes is required to be delivered under the Act, any event occurs as a
result of which such Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend or supplement the Prospectus to comply with
the Act or the Rules and Regulations, the Company promptly will prepare and
file with the SEC, an amendment or supplement to such Prospectus that will
correct such statement or omission or an amendment that will effect such
compliance.
(c) The Company will immediately inform the Underwriter (i) of the
receipt by the Company of any communication from the SEC or any state
securities authority concerning the offering or sale of the Notes and (ii)
of the commencement of any lawsuit or proceeding to which the Company is a
party relating to the offering or sale of the Notes.
(d) The Company will furnish to the Underwriter, without charge,
copies of the Registration Statement (including all documents and exhibits
thereto or incorporated by reference therein), the Prospectus, and all
amendments and supplements to such documents relating to the Notes, in each
case in such quantities as the Underwriter may reasonably request.
(e) No amendment or supplement will be made to the Registration
Statement or Prospectus which the Underwriter shall not previously have
been advised or to which it shall reasonably object after being so advised.
(f) The Company will cooperate with the Underwriter and with its
counsel in connection with the qualification of, or procurement of
exemptions with respect to, the Notes for offering and sale by the
Underwriter and by dealers under the securities or Blue Sky laws of such
jurisdictions as the Underwriter may designate and will file such
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consents to service of process or other documents necessary or appropriate
in order to effect such qualification or exemptions; provided that in no
event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which
would subject it to service of process in suits, other than those arising
out of the offering or sale of the Notes, in any jurisdiction where it is
not now so subject.
(g) The Company consents to the use, in accordance with the
securities or Blue Sky laws of such jurisdictions in which the Notes are
offered by the Underwriter and by dealers, of the Prospectus furnished by
the Company.
(h) To the extent, if any, that the rating or ratings provided
with respect to a series of Notes by the rating agency or agencies that
initially rate a series of Notes is conditional upon the furnishing of
documents or the taking of any other actions by the Company, the Company
shall cause to be furnished such documents and such other actions to be
taken.
(i) So long as any of the Notes are outstanding, the Company will
furnish to the Underwriter (i) as soon as available, a copy of each
document relating to the Notes required to be filed with the SEC pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or any order of the SEC thereunder, and (ii) such other information
concerning the Company as the Underwriter may request from time to time.
(j) If this Agreement shall terminate or shall be terminated after
execution and delivery pursuant to any provisions hereof (otherwise than by
notice given by the Underwriter terminating this Agreement pursuant to
Section 8 or Section 9 hereof) or if this Agreement shall be terminated by
the Underwriter because of any failure or refusal on the part of the
Company to comply with the terms or fulfill any of the conditions of this
Agreement, the Company agrees to reimburse the Underwriter for all
out-of-pocket expenses (including fees and expenses of its counsel)
reasonably incurred by it in connection herewith, but without any further
obligation on the part of the Company for loss of profits or otherwise.
In the event any such termination occurs after the Initial Closing Date,
the out-of-pocket expenses shall relate only to those incurred in
connection with the series of Notes then contemplated to be issued and
purchased by the Underwriter.
(k) The net proceeds from the sale of the Notes hereunder will be
applied substantially in accordance with the description set forth in the
Prospectus.
(l) Except as stated in this Agreement and in the Prospectus, the
Company has not taken, nor will it take, directly or indirectly, any action
designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Notes to facilitate the
sale or resale of the Notes.
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(m) For a period from the date of this Agreement until the retirement
of the Notes, the Company will deliver to you the annual statements of
compliance and the annual independent certified public accountants' reports
furnished to the Trustee or the Company pursuant to the Servicing Agreement
as soon as such statements and reports are furnished to the Trustee or the
Company.
(n) On or before each Closing Date, the Company shall mark its
accounting and other records, if any, relating to the Initial Financed
Student Loans and shall cause the Servicer and Subservicer to mark their
respective computer records relating to the Initial Financed Student Loans
to show the absolute ownership by the Trustee, as eligible lender of, and
the interest of the Company in, the Initial Financed Student Loans, and
from and after each Closing Date the Company will take, or cause the
Servicer and Subservicer to take, as the case may be, such actions with
respect to the respective records of each with regard to any Additional
Acquired Student Loans at the time of the acquisition thereof by the
Trustee on behalf of the Company and the Company shall not take, or shall
permit any other person to take, any action inconsistent with the ownership
of, and the interest of the Company in, the Financed Student Loans, other
than as permitted by the Basic Documents.
(o) For the period beginning on the date of this Agreement and ending
90 days after ________________, none of the Company and any entity
originated, directly or indirectly, by the Company will, without the prior
written notice to the Underwriter, offer to sell or sell notes (other than
the Notes) collateralized by FFELP Loans; provided, however, that this
shall not be construed to prevent the sale of FFELP Loans by the Company.
Section 5. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the Underwriter
and each person, if any, who controls the Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, from and against
any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectus, or in any amendment or supplement
thereto, or any preliminary prospectus, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with the information relating
to the Underwriter furnished in writing to the Company by or on behalf of
the Underwriter expressly for use in connection therewith; provided,
however, that the indemnification contained in this paragraph (a) with
respect to any preliminary prospectus shall not inure to the benefit of the
Underwriter (or to the benefit of any person
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controlling the Underwriter) on account of any such loss, claim, damage,
liability or expense arising from the sale of the series of Notes covered
thereby by the Underwriter to any person if the untrue statement or alleged
untrue statement or omission or alleged omission of a material fact
contained in such preliminary prospectus was corrected in the final
Prospectus relating to such series of Notes and the Underwriter sold Notes
of such series to that person without sending or giving at or prior to the
written confirmation of such sale, a copy of the final Prospectus (as then
amended or supplemented) if the Company has previously furnished sufficient
copies thereof to the Underwriter. The foregoing indemnity agreement shall
be in addition to any liability which the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against the
Underwriter or any person controlling the Underwriter in respect of which
indemnity may be sought against the Company, the Underwriter or such
controlling person shall promptly notify the parties against whom
indemnification is being sought (the "indemnifying parties"), but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party except to the extent
that the indemnifying party is materially prejudiced by such omission. In
case any such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party).
The Underwriter or any such controlling person shall have the right to
employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the Underwriter or such controlling
person unless (i) the indemnifying parties have agreed in writing to pay
such fees and expenses, (ii) the indemnifying parties have failed to assume
the defense and employ counsel, or (iii) the named parties to any such
action, suit or proceeding (including any impleaded parties) include both
the Underwriter or such controlling person and the indemnifying parties and
the Underwriter or such controlling person shall have been advised by its
counsel that there may be one or more legal defenses available to it which
are different from or additional to or in conflict with those available to
the indemnifying parties and in the reasonable judgment of such counsel it
is advisable for the Underwriter or such controlling person to employ
separate counsel (in which case the indemnifying party shall not have the
right to assume the defense of such action, suit or proceeding on behalf of
the Underwriter or such controlling person). It is understood, however,
that the indemnifying parties shall, in connection with any one such
action, suit or proceeding or separate but substantially similar or related
actions, suits or proceedings in the same jurisdiction arising out of the
same general allegations or circumstances, be liable for the reasonable
fees and expenses of only one separate firm of attorneys (in addition to
any local counsel) at any time for the Underwriter and controlling persons
not having actual or potential differing interests with the Underwriter or
among themselves, which firm shall be designated in writing by the
Underwriter, and that all such fees and
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expenses shall be reimbursed on a monthly basis as provided in paragraph
(a) hereof. An indemnifying party will not, without the prior written
consent of the indemnified party, settle or compromise or consent to the
entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified
parties are actual or potential parties to such claim or action) unless
such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim,
action, suit or proceeding.
(c) The Underwriter agrees to indemnify and hold harmless the Company
and its directors and officers, and any person who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act, to the same extent as the indemnity from the Company to the
Underwriter set forth in paragraph (a) hereof, but only with respect to
information relating to the Underwriter furnished in writing by or on
behalf of the Underwriter expressly for use in the Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus. If any action, suit or proceeding shall be brought
against the Company, any of its directors or officers, or any such
controlling person based on the Registration Statement, the Prospectus, or
any amendment or supplement thereto, or any related preliminary prospectus
and in respect of which indemnity may be sought against the Underwriter
pursuant to this paragraph (c), the Underwriter shall have the rights and
duties given to the Company by paragraph (b) above (except that if the
Company shall have assumed the defense thereof the Underwriter shall not be
required to do so, but may employ separate counsel therein and participate
in the defense thereof, but the fees and expenses of such counsel shall be
at the Underwriter's expense), and the Company, its directors and officers,
and any such controlling person shall have the rights and duties given to
the Underwriter by paragraph (b) above. The foregoing indemnity agreement
shall be in addition to any liability which the Underwriter may otherwise
have.
(d) If the indemnification provided for in this Section 5 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities
or expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the
Underwriter on the other hand from the offering of the Notes, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company on the one hand and the Underwriter on the other in connection with
the statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Notes (before
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deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriter. The relative fault
of the Company on the one hand and the Underwriter on the other hand shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company on the one hand or by the Underwriter on the other hand and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
(e) The Company and the Underwriter agree that it would not be just
and equitable if contribution pursuant to this Section 5 were determined by
a pro rata allocation or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (d)
above. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities and expenses referred to in
paragraph (d) above shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating any claim or defending
any such action, suit or proceeding. Notwithstanding the provisions of this
Section 5, the Underwriter shall not be required to contribute any amount
in excess of the amount by which the total underwriting discounts and
commissions received by the Underwriter exceed the amount of any damages
which the Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 5 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 5 and the
representations and warranties of the Company and the Underwriter set forth
in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of the
Underwriter, the Company or any person controlling any of them or their
respective directors or officers, (ii) acceptance of any Notes and payment
therefor hereunder, and (iii) any termination of this Agreement. A
successor to the Underwriter, the Company or any person controlling any of
them or their respective directors or officers, shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 5.
Section 6. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations
of the Underwriter to purchase the Notes hereunder are subject to the
following conditions:
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(a) With respect to the Notes to be purchased on the Initial Closing Date:
(i) All actions required to be taken and all filings required to
be made by the Company under the Act prior to the sale of the Notes
shall have been duly taken or made. At and prior to the Closing Date,
no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose
shall have been instituted or, to the knowledge of the Company or the
Underwriters, shall be contemplated by the Commission.
(ii) Subsequent to the effective date of this Agreement, there
shall not have occurred (A) any change, or any development involving
a prospective change, in or affecting the condition (financial or
other), business, properties, net worth, or results of operations of
the Company, a Seller, the Servicer or Subservicer not contemplated by
the Registration Statement, which in the opinion of the Underwriter,
would materially adversely affect the market for the Notes, (B) any
downgrading in the rating of any debt securities of the Company, a
Seller, the Servicer or Subservicer by any nationally recognized
statistical rating organization or any public announcement that any
such organization has under surveillance or review its rating of any
debt securities of the Company, a Seller, the Servicer or Subservicer
(other than an announcement with positive implications of a possible
upgrading, and no implication of a possible downgrading, of such
rating), or (C) any event or development which makes any statement
made in the Registration Statement or Prospectus untrue or which, in
the opinion of the Company and its counsel or the Underwriter and its
counsel, requires the filing of any amendment to or change in the
Registration Statement or Prospectus in order to state a material fact
required by any law to be stated therein or necessary in order to make
the statements therein not misleading, if amending or supplementing
the Registration Statement or Prospectus to reflect such event or
development would, in the opinion of the Underwriter, materially
adversely affect the market for the Notes.
(iii) You shall have received an opinion addressed to you of
____________, in its capacity as counsel to the Company, dated the
Initial Closing Date, in form and substance satisfactory to you and
your counsel with respect to the status of the Company, to each of the
Sale Agreement, Servicing Agreement, Indenture, Custodian Agreement,
[Amended and Restated] Auction Agency Agreement, [Amended and
Restated] Broker-Dealer Agreement and this Agreement and to the
validity of the Notes and such related matters as you shall reasonably
request. In addition, you shall have received an opinion addressed to
you of _________________, in its capacity as counsel for the Company,
in form and substance satisfactory to you and your counsel, concerning
"non-consolidation" and "first perfected security interest" and
certain other issues with respect to the transfer of the Financed
Student Loans from the Seller to the Company and from the Company to
the Trustee.
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(iv) You shall have received an opinion addressed to you of
_________________, in its capacity as counsel for the Company, dated
the Initial Closing Date, in form and substance satisfactory to you
and your counsel with respect to the Prospectus which opinion shall
address the statements in the Prospectus as a whole and shall also be
to the effect that the statements under the headings "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES" and "ERISA CONSIDERATIONS," to the extent
that they constitute statements of matters of law or legal conclusions
with respect thereto, have been prepared or reviewed by such counsel
and are correct in all material respects.
(v) You shall have received an opinion addressed to you of
________________, in its capacity as counsel for the Company, dated
the Initial Closing Date, in form and substance satisfactory to you
and your counsel with respect to the character of the Notes for
federal tax purposes.
(vi) You shall have received an opinion addressed to you of
______________________, in its capacity as Underwriter's Counsel,
dated the Initial Closing Date, in form and substance satisfactory
to you.
(vii) You shall have received a certificate addressed to you of
each Guarantor, dated the Initial Closing Date, and in form and
substance satisfactory to you and your counsel, to the effect that:
(A) The Guarantor has been duly incorporated and is validly
existing as a non-profit corporation or state agency in good
standing under the laws of the state of its organization with
full power and authority (corporate and other) to own its
properties and conduct its business, as presently conducted by
it, and to enter into and perform its obligations under the
applicable Guarantee Agreement (and the agreements with the
Department under Section 428 of the Higher Education Act to the
extent relevant to the Guarantor's obligations under such
Guarantee Agreement, copies of which agreements are attached
thereto), and had at all relevant times, and now has, the power,
authority and legal right to guarantee the Financed Student Loans
covered by such Guarantee Agreement and to receive, subject to
compliance with all applicable conditions, restrictions and
limitations of the Higher Education Act and any rules,
regulations and interpretations thereunder, reinsurance payments
from the Department with respect to claims paid by it on such
Financed Student Loans.
(B) The Guarantor is duly qualified to do business and is
in good standing, and has obtained all necessary licenses and
approvals in each jurisdiction in which failure to qualify or to
obtain such license or approval would render the Guarantor's
obligation under the Guarantee
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Agreement to guarantee the Financed Student Loans covered thereby
unenforceable by or on behalf of the Company or the Trustee.
(C) The Guarantee Agreement (and the agreements with the
Department under Section 428 of the Higher Education Act to the
extent relevant to the Guarantor's obligations under such
Guarantee Agreement) have been duly authorized, executed and
delivered by the Guarantor and are the legal, valid and binding
obligation of the Guarantor enforceable against the Guarantor in
accordance with their terms, except (1) the enforceability
thereof may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and (2) the remedy of specific
performance and injunctive and other forms of equitable relief
may be subject to equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought.
(D) Neither the execution and delivery by the Guarantor of
the Guarantee Agreement, nor the consummation by the Guarantor of
the transactions contemplated therein nor the fulfillment of the
terms thereof by the Guarantor will conflict with, result in a
breach, violation or acceleration of, or constitute a default
under, any terms or provision of the charter or bylaws of the
Guarantor or of any indenture or other agreement or instrument
to which the Guarantor is a party or by which the Guarantor is
bound, or result in a violation of or contravene the terms of
any statute, order or regulation applicable to the Guarantor of
any court, regulatory body, administrative agency or governmental
body having jurisdiction over the Guarantor.
(E) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge after due
inquiry, threatened against the Guarantor before or by any
governmental authority that might materially and adversely
affect the performance by the Guarantor of its obligations under,
or the validity or enforceability of, the Guarantee Agreement.
(viii) You shall have received an opinion addressed to you of
_______________________, in their capacity as counsel to the Servicer,
dated the Initial Closing Date and satisfactory in form and substance
to you and your counsel, to the effect that:
(A) The Servicer has been duly organized and is validly
existing as a __________________ bank and trust company in good
standing under the laws of the State of _______________ with full
power and authority (corporate and other) to own its properties
and conduct its business, as
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presently conducted by it, and to enter into and perform its
obligations under each of the Servicing Agreement, the Sale
Agreement and the Subservicing Agreement, and had at all
relevant times, and now has, the power, authority and legal
right to transfer and cause the servicing of the Financed Student
Loans and to cause the Subservicer to receive, subject to
compliance with all applicable conditions, restrictions and
limitations of the Higher Education Act, reinsurance payments
from the Department with respect to claims paid by it on the
Financed Student Loans.
(B) The Servicing Agreement, the Sale Agreement and the
Subservicing Agreement have been duly authorized, executed and
delivered by the Servicer and are the legal, valid and binding
obligations of the Servicer enforceable against the Servicer
in accordance with their terms, except (1) the enforceability
thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and (2)
remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and
to the discretion of the court before which any proceeding
therefor may be brought.
(C) Neither the execution and delivery by the Servicer of
the Servicing Agreement, the Sale Agreement or the Subservicing
Agreement, nor the consummation by the Servicer of the
transactions contemplated therein nor the fulfillment of the
terms thereof by the Servicer will conflict with, result in a
breach, violation or acceleration of, or constitute a default
under, any term or provision of the bylaws of the Servicer or
of any indenture or other agreement or instrument to which the
Servicer is a party or by which the Servicer is bound, or
result in a violation of or contravene the terms of any
statute, order or regulation applicable to the Servicer of any
court, regulatory body, administrative agency or governmental
body having jurisdiction over the Servicer.
(D) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge after due
inquiry and reasonable investigation, threatened against the
Servicer before or by any governmental authority that might
materially and adversely affect the performance by the Servicer
of its obligations under, or the validity or enforceability of,
the Servicing Agreement, the Sale Agreement or the Subservicing
Agreement.
(E) Nothing has come to such counsel's attention that would
lead such counsel to believe that the representations and
warranties of the Servicer contained in the Servicing Agreement,
the Sale Agreement or the Subservicing Agreement are other than
as stated therein.
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(F) No authorization, approval, or other action by, and no
notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and
performance by the Servicer of the Servicing Agreement, the
Subservicing Agreement, the Sale Agreement or for the perfection
of the Company's and the Trustee's interest in the Student Loans
sold pursuant to the Sale Agreement or the exercise by the
Company (or it permitted assigns) and the Trustee of their rights
and remedies under the Sale Agreement, including specifically the
filings of any Uniform Commercial Code ("UCC") financing
statements, except for the execution and delivery of the
Guarantee Agreements.
(G) The Sale Agreement together with the related bill of
sale and blanket endorsement effects a valid sale to the Trustee
of the Student Loans included in the initial Portfolio and, upon
delivery of additional bills of sale and blanket endorsements,
the Sale Agreement together with the related bills of sale and
blanket endorsements will effect a valid sale of the Student
Loans included in the Portfolios purported to be sold thereby,
in each case enforceable against creditors of, and purchasers
from, the Servicer.
(H) As of the date specified in a schedule to such opinion,
there were no (1) UCC financing statements naming the Servicer as
debtor or seller and covering any Student Loan to be sold under
the Sale Agreement or interest therein or (2) notices of the
filing of any federal tax lien (filed pursuant to Section 6323
of the Internal Revenue Code) or lien of the Pension Benefit
Guaranty Corporation (filed pursuant to Section 4068 of ERISA)
covering any Student Loan to be sold under the Sale Agreement or
interest therein, listed in the available records in the
respective offices set forth in such schedule opposite each such
date (which are all of the offices that are prescribed under
either the internal law of the conflict of law rules of the
Nebraska UCC as the offices in which filings should be made to
perfect security interests in Student Loans), except as set forth
in such schedule.
(I) The Servicer is an "eligible lender" as that term is
defined in the Higher Education Act of 1965, as amended (the
"Act"), at 20 U.S.C. Section 1085(d)(1).
(J) As of the date of such opinion, by executing the
Guarantee Agreements and upon execution and delivery of the
instruments of transfer described in the Sale Agreement and
notification of the Guarantors and borrowers of the transfer
contemplated thereby, and assuming that the Trustee is an
eligible lender as that term is defined in 20 U.S.C. Section
1085(d)(1) of the Higher Education Act of 1965, as amended,
the
17
<PAGE>
Trustee on behalf of the Company will be entitled to the benefit
of the applicable Guarantor and/or Department of Education
payments under the Act related to the Student Loans sold from
time to time under the Sale Agreements, subject to the terms and
conditions of the Guarantee Agreements and the Act.
(ix) You shall have received an opinion addressed to you of
counsel to the Trustee, dated the Initial Closing Date and in form and
substance satisfactory to you and your counsel, to the effect that:
(A) The Trustee is a national banking association duly
organized and validly existing under the laws of the United
States of America.
(B) The Trustee has the full corporate trust power to
accept the office of indenture trustee under the Indenture and
to enter into and perform its obligations under the Indenture,
the Custodian Agreement, the [Amended and Restated] Auction
Agency Agreement, the [Amended and Restated] Market Agent
Agreement and each Guarantee Agreement.
(C) The execution and delivery of each of the Indenture,
the Custodian Agreement, the [Amended and Restated] Auction
Agency Agreement, the [Amended and Restated] Market Agent
Agreement and each Guarantee Agreement, and the performance by
the Trustee of its obligations under the Indenture, the
Custodian Agreement, the [Amended and Restated] Auction Agency
Agreement, the [Amended and Restated] Market Agent Agreement and
each Guarantee Agreement, have been duly authorized by all
necessary action of the Trustee and each has been duly executed
and delivered by the Trustee.
(D) The Indenture, the Custodian Agreement, the [Amended
and Restated] Auction Agency Agreement, the [Amended and
Restated] Market Agent Agreement and each Guarantee Agreement
constitute valid and binding obligations of the Trustee
enforceable against the Trustee.
(E) The execution and delivery by the Trustee of the
Indenture, the Custodian Agreement, the [Amended and Restated]
Auction Agency Agreement, the [Amended and Restated] Market
Agent Agreement and each Guarantee Agreement do not require any
consent, approval or authorization of, or any registration or
filing with, any state or United States federal governmental
authority.
(F) Each of the Notes has been duly authenticated by the
Trustee.
18
<PAGE>
(G) Neither the consummation by the Trustee of the
transactions contemplated in the Indenture, the Custodian
Agreement, the [Amended and Restated] Auction Agency Agreement
and each Guarantee Agreement nor the fulfillment of the terms
thereof by the Trustee will conflict with, result in a breach
or violation of, or constitute a default under any law or the
charter, bylaws or other organizational documents of the Trustee
or the terms of any indenture or other agreement or instrument
known to such counsel and to which the Trustee or any of its
subsidiaries is a party or is bound or any judgment, order or
decree known to such counsel to be applicable to the Trustee or
any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body or arbitrator having
jurisdiction over the Trustee or any of its subsidiaries.
(H) There are no actions, suits or proceedings pending or,
to the best of such counsel's knowledge after due inquiry,
threatened against the Trustee (as indenture trustee under the
Indenture or in its individual capacity) before or by any
governmental authority that might materially and adversely affect
the performance by the Trustee of its obligations under, or the
validity or enforceability of, the Indenture, the Custodian
Agreement, the [Amended and Restated] Auction Agency Agreement,
the [Amended and Restated] Market Agent Agreement or any
Guarantee Agreement.
(I) The execution, delivery and performance by the Trustee
of the Indenture, the Custodian Agreement, the [Amended and
Restated] Auction Agency Agreement, the [Amended and Restated]
Market Agent Agreement or any Guarantee Agreement will not
subject any of the property or assets of the Company or any
portion thereof, to any lien created by or arising under the
Indenture that is unrelated to the transactions contemplated in
such agreements.
(J) The Trustee is an "eligible lender" for purposes of the
FFELP Program in its capacity as trustee with respect to Financed
Student Loans held under the Indenture.
(x) You shall have received certificates addressed to you dated
the Initial Closing Date of any two of the Chairman of the Board, the
President, any Executive Vice President, Senior Vice President or
Vice President, the Treasurer, any Assistant Treasurer, the principal
financial officer or the principal accounting officer of each of the
Seller and the Servicer in which such officers shall state that, to
the best of their knowledge after reasonable investigation, (A) the
representations and warranties of the Seller or the Servicer, as the
case may be, contained in the Sale Agreement, the Servicing Agreement
and Subservicing Agreement, as applicable, are true and correct in all
material respects, that each
19
<PAGE>
of the Seller and the Servicer has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied
under such agreements at or prior to the Initial Closing Date, (B)
that they have reviewed the Prospectus and that the information
therein regarding the Seller or the Servicer, as applicable, is fair
and accurate in all material respects, and (C) since the date set
forth in such certificate, except as may be disclosed in the
Prospectus, no material adverse change or any development involving a
prospective material adverse change, in or affecting particularly the
business or properties of the Seller or the Servicer, as applicable,
has occurred.
(xi) You shall have received certificates addressed to you dated
the Initial Closing Date of any two of the Chairman of the Board, the
President, any Executive Vice President, Senior Vice President or
Vice President, the Treasurer, any Assistant Treasurer, the principal
financial officer or the principal accounting officer of the
Subservicer in which such officers shall state that, to the best of
their knowledge after reasonable investigation, (A) the
representations and warranties of the Subservicer contained in the
Subservicing Agreement are true and correct in all material respects,
that the Subservicer has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied under such
agreements at or prior to the Initial Closing Date, (B) that they
have reviewed the Prospectus and that the information therein
regarding the Subservicer is fair and accurate in all material
respects, and (C) since the date set forth in such certificate, except
as may be disclosed in the Prospectus, no material adverse change or
any development involving a prospective material adverse change in, or
affecting particularly the business or properties of the Subservicer
has occurred.
(xii) You shall have received evidence satisfactory to you that,
on or before the Initial Closing Date, UCC-1 financing statements have
been or are being filed in the office of the Secretary of State of the
States of Nevada and Arizona reflecting the grant of the security
interest by the Company in the Financed Student Loans and the proceeds
thereof to the Trustee.
(xiii) You shall have received a certificate addressed to you
dated the Initial Closing Date from a responsible officer acceptable
to you of the Trustee in form and substance satisfactory to you and
your counsel and to which shall be attached each Guarantee Agreement.
(xiv) You shall have received a certificate addressed to you,
dated the Initial Closing Date, from a responsible officer acceptable
to you of each Guarantor, to the effect that such officer has reviewed
the Prospectus and that the information therein regarding Guarantor is
fair and accurate in all material respects.
20
<PAGE>
(xv) The Underwriter shall have received on the Initial Closing
Date from ________________________ a letter dated the Initial
Closing Date, and in form and substance satisfactory to the
Underwriter, to the effect that they have carried out certain
specified procedures, not constituting an audit, with respect to
certain information regarding the Financed Eligible Loans and setting
forth the results of such specified procedures.
(xvi) All the representations and warranties of the Company
contained in this Agreement and the Basic Documents shall be true and
correct in all material respects on and as of the date hereof and on
and as of the Initial Closing Date as if made on and as of the Initial
Closing Date and the Underwriter shall have received a certificate,
dated the Initial Closing Date and signed by an executive officer of
the Company to the effect set forth in this Section 6(a)(xvi) and in
Section 6(a)(xvii) hereof.
(xvii) The Company shall not have failed at or prior to the
Initial Closing Date to have performed or complied with any of its
agreements herein contained and required to be performed or complied
with by it hereunder at or prior to the Initial Closing Date.
(xviii) The Underwriter shall have received by instrument dated
the Initial Closing Date (at the option of the Underwriter), in lieu
of or in addition to the legal opinions referred to in this Section 6,
the right to rely on opinions provided by such counsel and all other
counsel under the terms of the Basic Documents.
(xix) Each of the Class A Notes shall be rated at least "AAA" and
"AAA," respectively, by Fitch Investors Service, L.P. ("Fitch") and
Standard & Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc. ("S&P"), and that the Class B Notes shall be rated at
least "A" by Fitch, and that neither Fitch nor S&P have placed either
of the Class A Notes or the Class B Notes under surveillance or review
with possible negative implications.
(xx) The issuance of the Notes shall not have resulted in a
reduction or withdrawal by Fitch or S&P of the current rating of any
outstanding securities issued or originated by the Company or any of
its affiliates.
(xxi) You shall have received evidence satisfactory to you of the
completion of all actions necessary to effect the transfer of the
Initial Financed Student Loans as described in the Prospectus and the
recordation thereof on the Seller's and on the Subservicer's computer
systems.
(xxii) You shall have received certificates addressed to you
dated the Initial Closing Date from officers of the Company addressing
such additional
21
<PAGE>
matters as you may reasonably request in form and substance
satisfactory to you and your counsel.
(xxiii) You shall have received such other opinions, certificates
and documents as are required under the Indenture as a condition to
the issuance of the Notes.
The Company will provide or cause to be provided to you such conformed
copies of such of the foregoing opinions, notes, letters and documents as you
reasonably request.
(b) With respect to each series of Notes to be purchased on a
Subsequent Closing Date:
The obligations of the Underwriter to purchase each additional series
of Notes hereunder are subject to the satisfaction on and as of any
Subsequent Closing Date of the conditions set forth under clause (a) of
this Section 6, except that references to the Initial Closing Date and the
Prospectus shall be to the applicable Subsequent Closing Date and the
applicable Prospectus. The opinions and letters referred to therein shall
be dated the applicable Subsequent Closing Date and shall be revised to
reflect the applicable Subsequent Closing Date, the applicable Prospectus
and the applicable additional series of Notes.
All such opinions, certificates, letters and other documents referred
in clauses (a) and (b) will be in compliance with the provisions hereof
only if they are reasonably satisfactory in form and substance to the
Underwriter and counsel for the Underwriter.
Any certificate or document signed by any officer of the Company and
delivered to the Underwriter, or to counsel for the Underwriter, shall be
deemed a representation and warranty by the Company to the Underwriter as to
the statements made therein.
Section 7. EXPENSES. The Company agrees to pay or to otherwise cause
the payment of the following costs and expenses and all other costs and
expenses incident to the performance by it of its obligations hereunder: (a)
the preparation, printing or reproduction of the Registration Statement, each
Prospectus and each amendment or supplement to any of them, this Agreement,
each Terms Agreement and each other Basic Document; (b) the printing (or
reproduction) and delivery (including postage, air freight charges and
charges for counting and packaging) of such copies of the Registration
Statement, each Prospectus and all amendments or supplements to any of them
as may be reasonably requested for use in connection with the offering and
sale of the Notes; (c) the preparation, printing, authentication, issuance
and delivery of definitive certificates for the Notes; (d) the printing (or
reproduction) and delivery of this Agreement, the preliminary and
supplemental Blue Sky Memoranda and all other agreements or documents printed
(or reproduced) and delivered in connection with the offering of the Notes;
(e) qualification of the Indenture under the Trust Indenture Act; (f) the
qualification of the Notes for offer and sale under the securities or Blue
Sky laws of the several states as provided in
22
<PAGE>
Section 3(h) hereof (including the reasonable fees, expenses and
disbursements of counsel relating to the preparation, printing or
reproduction, and delivery of the preliminary and supplemental Blue Sky
Memoranda and such qualification); (g) the fees and disbursements of (i) the
Company's counsel, (ii) the Underwriter's counsel, (iii) the Indenture
Trustee and its counsel, (iv) the Depository Trust Company in connection with
the book-entry registration of the Notes and (v) ____________, accountants for
the Company and issuer of the Comfort Letter; and (h) the fees charged by S&P
and Fitch for rating the Notes.
Section 8. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective upon the execution and delivery hereof by all the parties hereto.
Until such time as this Agreement shall have become effective, it may be
terminated by the Company, by notifying the Underwriter, or by the
Underwriter, by notifying the Company.
Any notice under this Section 8 may be given by telecopy or telephone
but shall be subsequently confirmed by letter.
Section 9. TERMINATION OF AGREEMENT. This Agreement shall be subject
to termination in the absolute discretion of the Underwriter, without
liability on the part of the Underwriter to the Company, by notice to the
Company, if prior to the Initial Closing Date or any Subsequent Closing Date
(but then only as to series of Notes not yet purchased by the Underwriter),
as the case may be, (a) trading in securities generally on the New York Stock
Exchange, American Stock Exchange or the Nasdaq National Market shall have
been suspended or materially limited, (b) a general moratorium on commercial
banking activities in New York shall have been declared by either federal or
state authorities, or (c) there shall have occurred any outbreak or
escalation of hostilities or other international or domestic calamity, crisis
or change in political, financial or economic conditions, the effect of which
on the financial markets of the United States is such as to make it, in the
judgment of the Underwriter, impracticable or inadvisable to commence or
continue the offering of the Notes on the terms set forth in the Prospectus,
as applicable, or to enforce contracts for the resale of the Notes by the
Underwriter. Notice of such termination may be given to the Company by
telecopy or telephone and shall be subsequently confirmed by letter.
Section 10. INFORMATION FURNISHED BY THE UNDERWRITER. The statements
set forth under the heading "Plan of Distribution" in the Prospectus
constitute the only information furnished by or on behalf of the Underwriter
as such information is referred to in Sections 3(b) and 5 hereof. Additional
such information may be provided in connection with the purchase of
additional series of Notes by the Underwriter for inclusion in any Prospectus
Supplement [and, if so, will be identified in the applicable Terms Agreement].
Section 11. COMPUTATIONAL MATERIALS.
(a) It is understood that the Underwriter may prepare and provide to
prospective investors certain Computational Materials (as defined below)
in connection with the Company's offering of the Notes, subject to the
following conditions:
23
<PAGE>
(i) The Underwriter shall comply with all applicable laws and
regulations in connection with the use of Computational Materials
including the No-Action Letter of May 20, 1994 issued by the
Commission to Kidder, Peabody Acceptance Corporation I, Kidder,
Peabody & Co. Incorporated and Kidder Structured Asset Corporation,
as made applicable to other issuers and underwriters by the
Commission in response to the request of the Public Securities
Association dated May 24, 1994, and the No-Action Letter of February
17, 1995 issued by the Commission to the Public Securities Association
(collectively, the "Kidder/PSA Letters").
(ii) As used herein, "Computational Materials" and the term "ABS
Term Sheets" shall have the meanings given such terms in the
Kidder/PSA Letters, but shall include only those Computational
Materials that have been prepared or delivered to prospective
investors by or at the direction of the Underwriter.
(iii) The Underwriter shall provide the Company with
representative forms of all Computational Materials prior to their
first use, to the extent such forms have not previously been approved
by the Company for use by the Underwriter. The Underwriter shall
provide to the Company, for filing on Form 8-K as provided in Section
11(b), copies of all Computational Materials that are to be filed
with the Commission pursuant to the Kidder/PSA Letters. The
Underwriter may provide copies of the foregoing in a consolidated or
aggregated form. All Computational Materials described in this
subsection (a)(iii) must be provided to the Company not later than
[10:00 a.m., Colorado time], one business day before filing thereof is
required pursuant to the terms of this Agreement.
(iv) If the Underwriter does not provide the Computational
Materials to the Company pursuant to subsection (a)(iii) above, the
Underwriter shall be deemed to have represented, as of the applicable
Closing Date, that it did not provide any prospective investors with
any information in written or electronic form in connection with the
offering of the Notes that is required to be filed with the Commission
in accordance with the Kidder/PSA Letters.
(v) In the event of any delay in the delivery by the Underwriter
to the Company of all Computational Materials required to be delivered
in accordance with subsection (a)(iii) above, the Company shall have
the right to delay the release of the Prospectus to investors or to
the Underwriter, to delay the Closing Date and to take other
appropriate actions in each case as necessary in order to allow the
Company to comply with its agreement set forth in Section 11(b) to
file the Computational Materials by the time specified therein.
24
<PAGE>
(b) The Company shall file the Computational Materials (if any)
provided to it by the Underwriter under Section 11(a)(iii) with the
Commission pursuant to a Current Report on Form 8-K no later than
[10:00 a.m., New York time], on the date required pursuant to the
Kidder/PSA Letters.
[(c) At or prior to the time any Computational Materials are furnished
to the Company for filing on the Form 8-K, the Underwriter will provide to
the Company a letter of a firm of independent public accountants of
national reputation to the effect that such accountants have performed
certain specified procedures with respect to such Computational Materials
and have found no exceptions, other than such exceptions as are acceptable
to the Underwriter. The costs and expenses of such letter will be paid by
the Company.]
Section 12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
indemnities, agreements, representations, warranties and other statements of
the Company or its officers and of the Underwriter set forth in or made
pursuant to this Agreement or contained in notes of officers of the Company
submitted pursuant hereto shall remain operative and in full force and
effect, regardless of any investigation or statement as to the results
thereof, made by or on behalf of the Underwriter, the Company or any of their
respective representatives, officers or directors or any controlling person,
and will survive delivery of and payment for the Notes.
Section 13. MISCELLANEOUS. Except as otherwise provided in Sections 5,
8 and 9 hereof, notice given pursuant to any provision of this Agreement
shall be in writing and shall be delivered (a) if to the Company, at 6991
East Camelback Road, Suite B290, Scottsdale, Arizona 85251, Attention:
Stephen F. Butterfield, and (b) if to the Underwriter, to ____________________,
Attention: ___________________.
This Agreement has been and is made solely for the benefit of the
Underwriter, the Company, their respective directors, officers, trustees and
controlling persons referred to in Section 5 hereof and their respective
successors and assigns, to the extent provided herein, and no other person
shall acquire or have any right under or by virtue of this Agreement.
Neither the term "successor" nor the term "successors and assigns" as used in
this Agreement shall include a purchaser from the Underwriter of any of the
Notes in his status as such purchaser.
Section 14. APPLICABLE LAW; COUNTERPARTS. This Agreement, and each
Terms Agreement, shall be governed by and construed in accordance with the
laws of the State of [New York]applicable to contracts made and to be
performed within the State of [New York] without giving effect to the choice
of laws or conflict of laws principles thereof.
This Agreement[, and each Terms Agreement,] may be signed in various
counterparts which together constitute one and the same instrument. If
signed in counterparts, this Agreement [and each Terms Agreement] shall not
become effective unless at least one counterpart hereof or thereof shall have
been executed and delivered on behalf of each party hereto.
25
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the Underwriter.
Very truly yours,
UNION FINANCIAL SERVICES-1, INC.
By
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
Confirmed as of the date first
above mentioned.
[NAME OF UNDERWRITER]
By
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
26
<PAGE>
EXHIBIT A
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES
TERMS AGREEMENT
Dated ______, 199__
To: UNION FINANCIAL SERVICES-1, INC.
Re: Underwriting Agreement dated _______________, 199__
Issuer: Union Financial Services-1, Inc.
Series Designation:
Terms of the Notes:
Final Original Price
Maturity Principal Interest to
Class Date Amount Rate Underwriter(1)
- ----- -------- --------- --------- --------------
_______________
(1) Plus accrued interest, if any, at the applicable rate from _______________.
Collateral: The Student Loans to be included in the Collateral are as described
in Schedule A to the Sale Agreement dated _______________, 199__
between _______________ and _______________.
Credit Support: [Insert if Applicable]
Initial Note Distribution Dates:
Note Rating:
A-1
<PAGE>
Form of Notes: [Book entry] [definitive]
Closing Date:
Information Provided by the Underwriter in the
Prospectus Supplement:
Additional Terms, if any, Not in Master Indenture:
[NAME OF UNDERWRITER]
By
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
UNION FINANCIAL SERVICES-1, INC.
By
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
A-2
<PAGE>
- -------------------------------------------------------------------------------
FORM OF
SECOND AMENDED AND RESTATED INDENTURE OF TRUST
BY AND BETWEEN
UNION FINANCIAL SERVICES-1, INC.,
AS ISSUER
AND
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
AS TRUSTEE
--------------------------------------
DATED AS OF JULY ___, 1996
--------------------------------------
THIS INSTRUMENT HAS BEEN ENTERED INTO BY THE WITHIN-DESCRIBED PARTIES IN
ORDER TO SECURE UNION FINANCIAL SERVICES-1, INC.'S TAXABLE STUDENT LOAN ASSET-
BACKED NOTES IN SUCH AGGREGATE PRINCIPAL AMOUNT AS MAY BE OUTSTANDING FROM TIME
TO TIME HEREUNDER AND TO SECURE CERTAIN OTHER OBLIGATIONS OF UNION FINANCIAL
SERVICES-1, INC.
- -------------------------------------------------------------------------------
<PAGE>
UNION FINANCIAL SERVICES-1, INC.
Reconciliation and tie between Trust Indenture Act of 1939 and Indenture
dated as of ________________, 1996.
Trust Indenture Act Section Indenture Section
--------------------------- -----------------
Section 310(a)(1) 7.23
(a)(2) 7.23
(b) 7.23,7.09
Section 312(c) 9.17
Section 313(a) 7.24
(c) 7.24
Section 314(a) 4.16
(a)(4) 4.17
(c)(1) 9.16
(c)(2) 9.16
(e) 9.16
Section 315(b) 8.05
Section 316(a) Article 1
(a)(1)(A)
(a)(1)(B)
(b)
Section 317(a)(1) 4.18
(a)(2) 4.19
Section 318(a) 9.10
(c) 9.10
____________________
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
Attention should also be directed to Section 318(c) of the 1939 Act, which
provides that the provisions of Sections 310 to and including 317 of the 1939
Act are a part of and govern every qualified indenture, whether or not
physically contained therein.
<PAGE>
-------------------------
TABLE OF CONTENTS
-------------------------
(This Table of Contents is for convenience of reference only and is not
intended to define, limit or describe the purpose or intent of any provisions of
this Indenture of Trust.)
Page
----
PARTIES AND PREAMBLES AND RECITALS . . . . . . . . . . . . . . . . . . . . . 1
GRANTING CLAUSES, HABENDUM CLAUSE AND DEFEASANCE CLAUSE. . . . . . . . . . . 2
ARTICLE I
DEFINITIONS AND USE OF PHRASES . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II
NOTE DETAILS, FORM OF NOTES, REDEMPTION OF NOTES
AND USE OF PROCEEDS OF NOTES
Section 2.01. Series 1996A Note and Series 1996B Note Details . . . . . . . 20
Section 2.02. Redemption of the Series 1996A Notes. . . . . . . . . . . . . 25
Section 2.03. Execution of Notes. . . . . . . . . . . . . . . . . . . . . . 33
Section 2.04. Registration, Transfer and Exchange of Notes; Persons
Treated as Registered Owners. . . . . . . . . . . . . . . . . 33
Section 2.05. Lost, Stolen, Destroyed and Mutilated Notes . . . . . . . . . 35
Section 2.06. Delivery of Series 1996A Notes and Series 1996B Notes . . . . 35
Section 2.07. Trustee's Authentication Certificate. . . . . . . . . . . . . 36
Section 2.08. Cancellation and Destruction of Notes by the Trustee. . . . . 36
Section 2.09. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.10. Deposit of Note Proceeds and Funding of Trust Estate. . . . . 37
Section 2.11. Forms of Series 1996A Notes and Series 1996B Notes. . . . . . 37
Section 2.12. Issuance of Additional Notes. . . . . . . . . . . . . . . . . 38
ARTICLE III
PARITY OF LIEN; OTHER OBLIGATIONS;
AND SWAP AGREEMENTS
Section 3.01. Parity of Lien. . . . . . . . . . . . . . . . . . . . . . . . 40
Section 3.02. Other Obligations . . . . . . . . . . . . . . . . . . . . . . 40
Section 3.03. Swap Agreements; Counterparty Swap Payments; Issuer Swap
Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
i
<PAGE>
ARTICLE IV
PROVISIONS APPLICABLE TO THE NOTES;
DUTIES OF THE ISSUER
Section 4.01. Pledge for Payment. . . . . . . . . . . . . . . . . . . . . . 42
Section 4.02. Representations and Warranties of the Issuer. . . . . . . . . 42
Section 4.03. Covenants as to Additional Conveyances. . . . . . . . . . . . 42
Section 4.04. Further Covenants of the Issuer . . . . . . . . . . . . . . . 43
Section 4.05. Enforcement of Servicing Agreements . . . . . . . . . . . . . 45
Section 4.06. Procedures for Transfer of Funds. . . . . . . . . . . . . . . 46
Section 4.07. Additional Covenants with Respect to the Act. . . . . . . . . 46
Section 4.08. Student Loans; Collections Thereof; Assignment Thereof. . . . 47
Section 4.09. Appointment of Agents, Etc. . . . . . . . . . . . . . . . . . 47
Section 4.10. Capacity to Sue . . . . . . . . . . . . . . . . . . . . . . . 47
Section 4.11. Continued Existence; Successor to Issuer. . . . . . . . . . . 47
Section 4.12. Amendment of Loan Purchase Agreements . . . . . . . . . . . . 48
Section 4.13. Representations; Negative Covenants . . . . . . . . . . . . . 48
Section 4.14. Additional Covenants. . . . . . . . . . . . . . . . . . . . . 54
Section 4.15. Providing of Notice . . . . . . . . . . . . . . . . . . . . . 55
Section 4.16. Reports by Company. . . . . . . . . . . . . . . . . . . . . . 56
Section 4.17. Statement as to Compliance. . . . . . . . . . . . . . . . . . 56
Section 4.18. Collection of Indebtedness and Suits for Enforcement by
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 4.19. Trustee May File Proofs of Claim. . . . . . . . . . . . . . . 57
ARTICLE V
FUNDS
Section 5.01. Creation of Funds and Accounts. . . . . . . . . . . . . . . . 58
Section 5.02. Student Loan Fund . . . . . . . . . . . . . . . . . . . . . . 59
Section 5.03. Revenue Fund. . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 5.04. Reserve Fund. . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 5.05. Interest Fund . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 5.06. Note Redemption Fund. . . . . . . . . . . . . . . . . . . . . 67
Section 5.07. Student Loan Holding Fund . . . . . . . . . . . . . . . . . . 69
Section 5.08. Cost of Issuance Fund . . . . . . . . . . . . . . . . . . . . 70
Section 5.09. Operating Fund. . . . . . . . . . . . . . . . . . . . . . . . 70
Section 5.10. General Fund. . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 5.11. Investment of Funds Held by Trustee . . . . . . . . . . . . . 71
Section 5.12. Release . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
ii
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ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.01. Event of Default Defined. . . . . . . . . . . . . . . . . . . 72
Section 6.02. Remedy on Default; Possession of Trust Estate . . . . . . . . 74
Section 6.03. Remedy on Default; Advice of Counsel. . . . . . . . . . . . . 75
Section 6.04. Remedy on Default; Sale of Trust Estate . . . . . . . . . . . 75
Section 6.05. Restoration of Position . . . . . . . . . . . . . . . . . . . 76
Section 6.06. Purchase of Properties by Trustee or Registered Owners. . . . 76
Section 6.07. Application of Sale Proceeds. . . . . . . . . . . . . . . . . 77
Section 6.08. Accelerated Maturity. . . . . . . . . . . . . . . . . . . . . 77
Section 6.09. Remedies not Exclusive. . . . . . . . . . . . . . . . . . . . 77
Section 6.10. Direction of Trustee. . . . . . . . . . . . . . . . . . . . . 77
Section 6.11. Right to Enforce in Trustee . . . . . . . . . . . . . . . . . 79
Section 6.12. Physical Possession of Notes not Required . . . . . . . . . . 79
ARTICLE VII
THE TRUSTEE
Section 7.01. Acceptance of Trust . . . . . . . . . . . . . . . . . . . . . 79
Section 7.02. Recitals of Others. . . . . . . . . . . . . . . . . . . . . . 80
Section 7.03. As to Filing of Indenture . . . . . . . . . . . . . . . . . . 80
Section 7.04. Trustee May Act Through Agents. . . . . . . . . . . . . . . . 81
Section 7.05. Assumption of Liability and Indemnification of Trustee. . . . 81
Section 7.06. Trustee's Right to Reliance . . . . . . . . . . . . . . . . . 82
Section 7.07. Compensation of Trustee . . . . . . . . . . . . . . . . . . . 82
Section 7.08. Trustee May Own Notes . . . . . . . . . . . . . . . . . . . . 83
Section 7.09. Resignation of Trustee. . . . . . . . . . . . . . . . . . . . 83
Section 7.10. Removal of Trustee. . . . . . . . . . . . . . . . . . . . . . 83
Section 7.11. Successor Trustee . . . . . . . . . . . . . . . . . . . . . . 84
Section 7.12. Manner of Vesting Title in Trustee. . . . . . . . . . . . . . 84
Section 7.13. Filing of Current Information with Trustee. . . . . . . . . . 85
Section 7.14. Right of Inspection . . . . . . . . . . . . . . . . . . . . . 85
Section 7.15. Limitation with Respect to Examination of Reports . . . . . . 85
Section 7.16. Servicing Agreement . . . . . . . . . . . . . . . . . . . . . 85
Section 7.17. Additional Covenants of Trustee . . . . . . . . . . . . . . . 85
Section 7.18. Trustee Covenants with Respect to "Eligible Lender" Status. . 85
Section 7.19. Trustee's Status as an "Eligible Lender." . . . . . . . . . . 86
Section 7.20. Trustee to Cause Investments to be Made . . . . . . . . . . . 86
Section 7.21. Duty of Trustee with Respect to Each Rating Agency. . . . . . 86
Section 7.22. Conversion, Consolidation or Merger of Trustee. . . . . . . . 87
Section 7.23. Corporate Trustee Required; Eligibility; Conflicting
Interests . . . . . . . . . . . . . . . . . . . . . . . . . . 87
iii
<PAGE>
Section 7.24. Reports by Trustee. . . . . . . . . . . . . . . . . . . . . . 87
ARTICLE VIII
SUPPLEMENTAL INDENTURES
Section 8.01. Supplemental Indentures Not Requiring Consent of Registered
Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 8.02. Supplemental Indentures Requiring Consent of Registered
Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 8.03. Additional Limitation on Modification of Indenture. . . . . . 90
Section 8.04. Notice to Each Rating Agency. . . . . . . . . . . . . . . . . 90
Section 8.05. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . 91
Section 8.06. Conformity with the Trust Indenture Act.. . . . . . . . . . . 91
ARTICLE IX
GENERAL PROVISIONS
Section 9.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 9.02. Covenants Bind Issuer . . . . . . . . . . . . . . . . . . . . 92
Section 9.03. Lien Created. . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 9.04. Severability of Lien. . . . . . . . . . . . . . . . . . . . . 92
Section 9.05. Consent of Registered Owners Binds Successors . . . . . . . . 93
Section 9.06. Date of Execution . . . . . . . . . . . . . . . . . . . . . . 93
Section 9.07. Nonliability of Directors; No General Obligation. . . . . . . 93
Section 9.08. Nonpresentment of Notes or Interest Checks. . . . . . . . . . 93
Section 9.09. Security Agreement. . . . . . . . . . . . . . . . . . . . . . 93
Section 9.10. Laws Governing. . . . . . . . . . . . . . . . . . . . . . . . 93
Section 9.11. Severability. . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 9.12. Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 9.13. Parties Interested Herein . . . . . . . . . . . . . . . . . . 94
Section 9.14. Notes are Limited Obligations . . . . . . . . . . . . . . . . 94
Section 9.15. Swap Counterparty Rights. . . . . . . . . . . . . . . . . . . 94
Section 9.16. Compliance Certificates and Opinions. . . . . . . . . . . . . 94
Section 9.17. Disclosure of Names and Addresses of Holders. . . . . . . . . 95
ARTICLE X
PAYMENT AND CANCELLATION OF NOTES
AND SATISFACTION OF INDENTURE
Section 10.01. Trust Irrevocable . . . . . . . . . . . . . . . . . . . . . . 95
Section 10.02. Satisfaction of Indenture . . . . . . . . . . . . . . . . . . 95
Section 10.03. Cancellation of Paid Notes. . . . . . . . . . . . . . . . . . 97
iv
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ARTICLE XI
TERMINATION
<TABLE>
<CAPTION>
<S> <C>
Section 11.01. Termination of the Trust . . . . . . . . . . . . . . . . . . . . . . 97
Section 11.02. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
SIGNATURES AND SEALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
APPENDIX A-- Certain Terms and Provisions of the Auction Notes. . . . . . . . . A-1
APPENDIX B-- Certain Terms and Provisions of the Class 1996B Notes. . . . . . . B-1
EXHIBIT A-1-- Form of Class 1996[A-1][A-2] Senior
(Auction Rate Securities (ARS-SM-)). . . . . . . . . . . . . . . . A-1-1
EXHIBIT A-2-- Form of Class 1996B Subordinate LIBOR Rate Notes . . . . . . . . . A-2-1
EXHIBIT A-3-- Form of Class 1996A[-3][-4] Senior
(Auction Rate Securities (ARS-SM-)). . . . . . . . . . . . . . . . A-3-1
EXHIBIT A-4-- Form of Class 1996B-2 Subordinate LIBOR Rate Notes . . . . . . . . A-4-1
EXHIBIT B-1-- Form of Series 1996A Investment Letter . . . . . . . . . . . . . . B-1-1
EXHIBIT B-2-- Forms of Series 1996B Investment Letter. . . . . . . . . . . . . . B-2-1
EXHIBIT C-1-- Form of Series 1996A Transferee Agreement. . . . . . . . . . . . . C-1-1
EXHIBIT C-2-- Form of Series 1996B Transferee Agreement. . . . . . . . . . . . . C-2-1
EXHIBIT C-3-- Form of Master Purchase Letter . . . . . . . . . . . . . . . . . . C-3-1
EXHIBIT D-- Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . D-1
EXHIBIT E-1-- Series 1996A Cash Flow Assumptions . . . . . . . . . . . . . . . . E-1-1
EXHIBIT E-2-- Series 1996B Cash Flow Assumptions . . . . . . . . . . . . . . . . E-2-1
EXHIBIT F-1-- Series 1996A Closing Cash Flow Projections . . . . . . . . . . . . F-1-1
EXHIBIT F-2-- Series 1996B Closing Cash Flow Projections . . . . . . . . . . . . F-2-1
EXHIBIT G-- Notice of Payment Default. . . . . . . . . . . . . . . . . . . . . G-1
EXHIBIT H-- Notice of Cure of Payment Default. . . . . . . . . . . . . . . . . H-1
EXHIBIT I-- Notice of Proposed Change in Length of One or More
Auction Periods. . . . . . . . . . . . . . . . . . . . . . . . . . I-1
EXHIBIT J-- Notice Establishing Change in Length of One or More
Auction Periods. . . . . . . . . . . . . . . . . . . . . . . . . . J-1
EXHIBIT K-- Notice of Change in Auction Date . . . . . . . . . . . . . . . . . K-1
EXHIBIT L-- Notice of Proposed Adjustment to Percentage Used in
Determining [Maximum Auction Rate] [All Hold Rate]
[Non-Payment Rate] . . . . . . . . . . . . . . . . . . . . . . . . L-1
EXHIBIT M-- Notice Establishing New Percentage Used in Determining
[Maximum Auction Rate] [All Hold Rate] [Non-Payment Rate]. . . . . M-1
</TABLE>
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<PAGE>
SECOND AMENDED AND RESTATED INDENTURE OF TRUST
THIS SECOND AMENDED AND RESTATED INDENTURE OF TRUST (this "Indenture"),
dated as of July ___, 1996, is by and between UNION FINANCIAL SERVICES-1, INC.,
a corporation duly organized and existing under the laws of the State of Nevada
(the "Issuer"), and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national
banking association duly organized and operating under the laws of the United
States of America and authorized to exercise corporate trust powers, with its
principal place of business and corporate trust office located in Minneapolis,
Minnesota (together with its successors, the "Trustee"), as trustee hereunder
(all capitalized terms used in these preambles, recitals and granting clauses
shall have the same meanings assigned thereto in Article I hereof);
W I T N E S S E T H:
WHEREAS, the Issuer represents that it is duly created as a corporation
under the laws of the State and that by proper action of its governing body it
has previously duly authorized the issuance of its Taxable Student Loan Asset-
Backed Notes, Series 1996A (the "Series 1996A Notes"), in the aggregate
principal amount of $107,700,000, consisting of $96,600,000 of Taxable Student
Loan Asset-Backed Notes, Class 1996A Senior Auction Rate (the "Class 1996A
Notes") and $11,100,000 Taxable Student Loan Asset-Backed Notes, Class 1996B
Subordinate LIBOR Rate (the "Class 1996B Notes") pursuant to the terms of the
Indenture of Trust dated as of March 1, 1996 (the "Original Indenture"), between
the Issuer and the Trustee; and
WHEREAS, the Issuer represents that by proper action of its governing body
it has previously duly authorized the issuance of its Taxable Student Loan
Asset-Backed Notes, Series 1996B (the "Series 1996B Notes"), in the aggregate
principal amount of $142,200,000, consisting of $128,000,000 of Taxable Student
Loan Asset-Backed Notes, Class 1996A Senior Auction Rate (the "Additional Class
1996A Notes") and $14,200,000 Taxable Student Loan Asset-Backed Notes,
Class 1996B-2 Subordinate LIBOR Rate (the "Class 1996B-2 Notes") pursuant to the
terms of the Amended and Restated Indenture of Trust dated as of June 15, 1996
(the "Amended Indenture") between the Issuer and the Trustee; and
WHEREAS, this Indenture is subject to the provisions of the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act" or "TIA"), that are deemed to
be incorporated into this Indenture and shall, to the extent applicable, be
governed by such provisions; and
WHEREAS, the Issuer desires to amend and restate the Amended Indenture to
conform the Indenture to the requirements of the Trust Indenture Act; and
WHEREAS, to secure the payment of the Series 1996A Notes, the Series 1996B
Notes and any additional notes on a parity with or subordinate to any of the
Series 1996A Notes and the Series 1996B Notes (the "Additional Notes") (the
Series 1996A Notes, the Series 1996B
<PAGE>
Notes and any Additional Notes are referred to herein as the "Notes"), it has
by proper corporate action authorized the execution and delivery of this
Indenture; and
WHEREAS, the Trustee has agreed to accept the trusts herein created upon
the terms herein set forth; and
WHEREAS, it is hereby agreed between the parties hereto and the Registered
Owners of the Notes (the Registered Owners evidencing their consent by their
acceptance of the Notes) that in the performance of any of the agreements of the
Issuer herein contained, any obligation it may thereby incur for the payment of
money shall not be general debt on its part, but shall be secured by and payable
solely from the Trust Estate.
NOW, THEREFORE, the Issuer, in consideration of the premises and acceptance
by the Trustee of the trusts herein created, of the purchase and acceptance of
the Notes by the Registered Owners thereof, the execution and delivery of any
Swap Agreement by any Swap Counterparty and the Issuer and the acknowledgement
thereof by the Trustee, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, does hereby GRANT,
CONVEY, PLEDGE, TRANSFER, ASSIGN AND DELIVER to the Trustee, for the benefit of
the Registered Owners of the Notes, any Swap Counterparty (to secure the payment
of any and all amounts which may from time to time become due and owing to a
Swap Counterparty pursuant to any Swap Agreement), the Trustee (to secure the
payment of any and all amounts which may from time to time be due and owing to
the Trustee under this Indenture), all of the moneys, rights, and properties
described in the granting clauses A through F below (the "Trust Estate"), as
follows:
GRANTING CLAUSE A
The Revenue with respect to Financed Eligible Loans;
GRANTING CLAUSE B
All moneys and investments held in the Funds created under Section 5.01(a)
hereof, except amounts in the Student Loan Holding Fund not representing
Revenue;
GRANTING CLAUSE C
The Financed Eligible Loans purchased with money from the Student Loan Fund
or otherwise acquired and pledged or credited to the Student Loan Fund;
GRANTING CLAUSE D
The rights of the Issuer in and to the Servicing Agreement, the Student
Loan Purchase Agreements, the Custodian Agreement and the Guarantee Agreements
as the same relate to
2
<PAGE>
Financed Eligible Loans and in and to the Auction Agent Agreement and the
Administrative Services Agreement;
GRANTING CLAUSE E
The rights of the Issuer in and to any Swap Agreement and any Swap
Counterparty Guarantee, including accrued liabilities thereon; provided,
however, that this Granting Clause E shall not be for the benefit of any Swap
Counterparty;
GRANTING CLAUSE F
Any and all other property, rights and interests of every kind or
description that from time to time hereafter is granted, conveyed, pledged,
transferred, assigned or delivered to the Trustee as additional security
hereunder.
TO HAVE AND TO HOLD the Trust Estate, whether now owned or held or
hereafter acquired, unto the Trustee and its successors or assigns,
IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the
equal and proportionate benefit and security of all present and future
Registered Owners of the Notes, without preference of any Note over any other,
except as provided herein, and for enforcement of the payment of the Notes in
accordance with their terms, and all other sums payable hereunder (including
payments due and payable to any Swap Counterparty) or on the Notes, and for the
performance of and compliance with the obligations, covenants, and conditions of
this Indenture, as if all the Notes at any time Outstanding had been executed
and delivered simultaneously with the execution and delivery of this Indenture;
PROVIDED, HOWEVER, that if the Issuer, its successors or assigns, shall
well and truly pay, or cause to be paid, the principal of the Notes and the
interest due and to become due thereon, or provide fully for payment thereof as
herein provided, at the times and in the manner mentioned in the Notes according
to the true intent and meaning thereof, and shall make all required payments
into the Funds as required under Article V hereof, or shall provide, as
permitted hereby, for the payment thereof by depositing with the Trustee sums
sufficient to pay or to provide for payment of the entire amount due and to
become so due as herein provided (including payments due and payable to any Swap
Counterparty), then, subject to the provisions of Article X hereof, this
Indenture (other than Sections 4.13, 4.14 (for a period of 90 days) and 7.05
hereof) and the rights hereby granted shall cease, terminate and be void;
otherwise, this Indenture shall be and remain in full force and effect;
NOW, THEREFORE, it is mutually covenanted and agreed as follows:
3
<PAGE>
ARTICLE I
DEFINITIONS AND USE OF PHRASES
In addition to the words and terms defined elsewhere in this Indenture and
in Appendix A and Appendix B hereto, the following terms have the following
meanings unless the context clearly requires otherwise:
"ACCOUNT" shall mean any of the accounts created and established within any
Fund by this Indenture.
"ACT" shall mean the Higher Education Act of 1965, as amended or
supplemented from time to time, or any successor federal act and all
regulations, directives, bulletins, and guidelines proposed or promulgated from
time to time thereunder.
"ADDITIONAL CLASS 1996A NOTES" shall mean the Issuer's Taxable Student Loan
Asset-Backed Notes, Class 1996A Senior Auction Rate issued pursuant to this
Indenture in the aggregate principal amount of $128,000,000 and consisting of
$73,700,000 of Class 1996A-3 Notes (Auction Rate Securities-SM- (ARS-SM-)) and
$54,300,000 of Class 1996A-4 Notes (Auction Rate Securities-SM- (ARS-SM-)).
"ADDITIONAL NOTES" shall mean any Notes issued pursuant to Section 2.12 of
this Indenture.
"ADMINISTRATIVE SERVICES AGREEMENT" shall mean any administrative services
agreement entered into between the Issuer and an entity who will provide
administrative services for the Issuer, as supplemented and amended.
"AGGREGATE MARKET VALUE" shall mean on any calculation date the sum of the
Values of all assets of the Trust Estate, less moneys in any Fund or Account
which the Issuer is then entitled to receive for deposit into the Operating Fund
or the General Fund but which has not yet been removed from the Trust Estate.
"AUTHORIZED DENOMINATIONS" shall mean with respect to any Class or subclass
of the Series 1996A Notes and the Series 1996B Notes, $100,000 or any integral
multiple thereof.
"AUTHORIZED OFFICER" shall mean, when used with reference to the Issuer,
its President, its Vice President, its Secretary, or any other officer or agent
authorized in writing by the Board to act on behalf of the Issuer.
"BOARD" or "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Issuer.
"BUSINESS DAY" shall mean any day on which banks located in the City of New
York, New York and banks located in the city in which the Principal Office of
the Trustee is located
4
<PAGE>
are not required or authorized by law to remain closed and on which The New
York Stock Exchange is not closed.
"CASH FLOW CERTIFICATE" shall mean a report or reports prepared by the
Issuer showing, with respect to the period covered by the Cash Flow Certificate,
which period shall extend from the date of the Cash Flow Certificate to the
latest maturity of the Notes then Outstanding, (a) all Revenue expected to be
received during such period from the Trust Estate, (b) the application of all
such Revenue in accordance with this Indenture and (c) the resulting periodic
balances on each Interest Payment Date, and showing that anticipated Revenue
will exceed, by a margin of $250,000 plus any additional amount, if any,
required by any Supplemental Indenture, the amount necessary to pay the
principal of and interest on the Notes when due and all expenses payable under
this Indenture when due and to maintain the Reserve Fund Requirement at a level
which will not cause the Rating Agencies to withdraw or reduce their respective
ratings on the Notes Outstanding, under all scenarios included in the Cash
Flows. Each Cash Flow Certificate shall be accompanied by all supporting Cash
Flows, shall be based solely upon assumptions acceptable to each Rating Agency
and shall be approved in writing by each Rating Agency.
"CASH FLOWS" shall mean cash flow schedules prepared by the Issuer or its
designee including a listing of all assumptions used in the preparation of such
cash flow schedules. Such assumptions will include those contained in
Exhibits E-1 and E-2 hereto or such other assumptions at the time such Cash
Flows are prepared as shall be reasonable in the judgment of the Issuer and each
Rating Agency.
"CERTIFICATE OF INSURANCE" shall mean a certificate of federal loan
insurance issued with respect to an Eligible Loan by the Secretary pursuant to
the provisions of the Act.
"CLASS 1996A NOTES" shall mean the Issuer's Taxable Student Loan
Asset-Backed Notes, Class 1996A Senior Auction Rate issued pursuant to this
Indenture in the aggregate principal amount of $96,600,000 and consisting of
$48,300,000 of Class 1996A-1 Notes (Auction Rate Securities-SM- (ARS-SM-)) and
$48,300,000 of Class 1996A-2 Notes (Auction Rate Securities-SM- (ARS-SM-)).
"CLASS 1996A-1 NOTES" shall mean, with respect to the Class 1996A Notes,
the $48,300,000 Notes designated as Class 1996A-1.
"CLASS 1996A-2 NOTES" shall mean, with respect to the Class 1996A Notes,
the $48,300,000 Notes designated as Class 1996A-2.
"CLASS 1996A-3 NOTES" shall mean, with respect to the Series 1996B Notes,
the $73,700,000 Additional Class 1996A Notes designated as Class 1996A-3.
"CLASS 1996A-4 NOTES" shall mean, with respect to the Series 1996B Notes,
the $54,300,000 Additional Class 1996A Notes designated as Class 1996A-4.
5
<PAGE>
"CLASS 1996B NOTES" shall mean, with respect to the Series 1996A Notes, the
Issuer's Taxable Student Loan Asset-Backed Notes, Class 1996B Subordinate LIBOR
Rate, issued pursuant to this Indenture in the aggregate principal amount of
$11,100,000.
"CLASS 1996B-2 NOTES" shall mean, with respect to the Series 1996B Notes,
the Issuer's Taxable Student Loan Asset-Backed Notes, Class 1996B-2 Subordinate
LIBOR Rate, issued pursuant to this Indenture in the aggregate principal amount
of $14,200,000.
"CLOSING CASH FLOW PROJECTION" shall mean the Cash Flow Certificate
delivered on the Date of Issuance of the Series 1996A Notes as attached hereto
as Exhibit F-1 and the Cash Flow Certificate delivered on the Date of Issuance
of the Series 1996B Notes as attached hereto as Exhibit F-2.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time. Each reference to a section of the Code herein shall be deemed to
include the United States Treasury Regulations, including temporary and proposed
regulations, relating to such section which are applicable to the Notes and the
use of the proceeds thereof. A reference to any specific section of the Code
shall be deemed also to be a reference to the comparable provisions of any
enactment which supersedes or replaces the Code thereunder from time to time.
"COMPLIANCE CERTIFICATE" shall mean a certificate substantially in the form
of Exhibit D attached hereto signed by an Authorized Officer and all documents,
opinions and certificates required thereby.
"CONSOLIDATION LOAN" shall mean a Student Loan authorized under
Section 428C of the Act consolidating Eligible Loans.
"CONTRACT OF INSURANCE" shall mean the contract of insurance between the
Eligible Lender and the Secretary.
"COST OF ISSUANCE FUND" shall mean the Fund by that name created in
Section 5.01 hereof and further described in Section 5.08 hereof.
"COUNTERPARTY SWAP PAYMENT" shall mean a payment due to the Issuer from a
Swap Counterparty pursuant to the applicable Swap Agreement (including, but not
limited to, payments in respect of an Early Termination Date, as defined in the
applicable Swap Agreement).
"CUSTODIAN AGREEMENT" shall mean, collectively, the Custodian Agreement
dated as of March 1, 1996, between the Trustee and UNIPAC Service Corporation,
and the custodian agreements with any Servicer related to Financed Eligible
Loans.
"DATE OF ISSUANCE" shall mean (i) with respect to the Series 1996A Notes,
March 8, 1996, the date of delivery of the Series 1996A Notes to the Placement
Agent, (ii) with respect to the Series 1996B Notes, June 19, 1996, the date of
delivery of the Series 1996B Notes to the
6
<PAGE>
Placement Agent and (iii) with respect to any Additional Notes, the date of
delivery of such Additional Notes, as described in a Supplemental Indenture.
"DISSOLUTION" means, with respect to Article XI and the Issuer, the
occurrence of any of the events which would cause a dissolution of a limited
partnership organized under the laws of the State of Delaware, the sole general
partner of which is the Issuer.
"ELIGIBLE BORROWER" shall mean a borrower who is eligible under the Act to
be the obligor of a loan for financing a program of education at an Eligible
Institution or for consolidating two or more such loans, including without
limitation a borrower who is eligible under the Act to be an obligor of a loan
made pursuant to Section 428A, 428B or 428C of the Act.
"ELIGIBLE INSTITUTION" shall mean (a) an institution of higher education;
(b) a vocational school; or (c), with respect to students who are nationals of
the United States, an institution outside the United States which is comparable
to an institution of higher education or to a vocational school and which has
been approved by the Secretary.
"ELIGIBLE LENDER" shall mean any "ELIGIBLE LENDER," as defined in the Act,
permitted to participate as a seller of Student Loans to the Issuer under the
Program and which has received an eligible lender designation from the Secretary
with respect to Insured Student Loans or from the Guarantee Agency with respect
to Guaranteed Student Loans.
"ELIGIBLE LOAN" shall mean a Student Loan which (a) has been or will be
made to an Eligible Borrower; (b) is Insured or is Guaranteed by a Guarantee
Agency which then has a Guarantee Agreement with the Trustee; (c) unless it is
an Unsubsidized Loan, a PLUS Loan or an SLS Loan, is an "eligible loan" under
the Act for purposes of receiving Interest Benefit Payments; (d) bears interest
at not less than the maximum applicable rate of interest permitted by the Act at
the time originated; (e) is not delinquent more than 180 days and has not been
tendered at any time to either the Secretary or any guarantee agency, including
without limitation, the Guarantee Agency, for payment unless the situation
giving rise to such tender has been cured; and (f) is eligible for Special
Allowance Payments as provided in Section 438 of the Act.
"ESTIMATED AMOUNT" shall mean the amount which the Issuer estimates will be
required to pay Maintenance and Operating Expenses (including accrued but unpaid
Maintenance and Operating Expenses) for the period beginning on the
Date of Issuance of the Series 1996A Notes and ending on June 30, 1996, and
thereafter for the monthly period beginning on the first Business Day of each
month, commencing July 1, 1996. The Estimated Amount shall be paid pursuant to
Section 5.03 hereof; provided, however, such Estimated Amount shall not exceed
(i) the amount shown therefor in the Closing Cash Flow Projection, (ii) 0.12%
annualized on the then Outstanding Financed Eligible Loans or (iii) the amount
shown in the most recent subsequent Cash Flow Certificate.
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"EVENT OF BANKRUPTCY" shall mean (a) the Issuer shall have commenced a
voluntary case or other proceeding seeking liquidation, reorganization, or other
relief with respect to itself or its debts under any bankruptcy, insolvency, or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian, or other similar official of it or any
substantial part of its property, or shall have made a general assignment for
the benefit of creditors, or shall have declared a moratorium with respect to
its debts or shall have failed generally to pay its debts as they become due, or
shall have taken any action to authorize any of the foregoing; or (b) an
involuntary case or other proceeding shall have been commenced against the
Issuer seeking liquidation, reorganization, or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property provided such action or proceeding is not dismissed within 60 days.
"EVENT OF DEFAULT" shall have the meaning specified in Article VI hereof.
"EXCHANGE DATE" shall mean the date that the Series 1996A Notes and the
Series 1996B Notes are exchanged for Exchange Notes pursuant to Section 2.02(e)
hereof.
"EXCHANGE NOTES" shall mean the Notes exchanged for the Series 1996A Notes
and the Series 1996B Notes pursuant to Section 2.02(e) hereof.
"FEDERAL REIMBURSEMENT CONTRACTS" shall mean the agreements between the
Guarantee Agency and the Secretary providing for the payment by the Secretary of
amounts authorized to be paid pursuant to the Act, including (but not
necessarily limited to) reimbursement of amounts paid or payable upon defaulted
Financed Eligible Loans and other Student Loans Guaranteed or Insured by the
Guarantee Agency and Interest Benefit Payments and Special Allowance Payments to
holders of qualifying Student Loans Guaranteed or Insured by the Guarantee
Agency.
"FINANCED" or "FINANCING," when used with respect to Eligible Loans or
Student Loans, shall mean or refer to Eligible Loans or Student Loans, as the
case may be, (i) acquired by the Issuer with balances in the Student Loan Fund
and (ii) Eligible Loans substituted or exchanged for Financed Student Loans or
Financed Eligible Loans, but does not include Student Loans or Eligible Loans
released from the lien of this Indenture and sold or transferred, to the extent
permitted by this Indenture.
"FISCAL YEAR" shall mean the fiscal year of the Issuer as established from
time to time.
"FISL PROGRAM" shall mean the federal loan insurance program created under
the Act, whereby the Secretary directly insures the repayment of 100% of the
principal of and accrued interest on student loans under the Act.
"FITCH" shall mean Fitch Investors Service, L.P., and its successors and
assigns, and, for the purposes of the Auction Procedures, if such corporation
shall be dissolved or liquidated or
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shall no longer perform the functions of a securities rating agency, "Fitch"
shall be deemed to relate to any other nationally recognized securities
rating agency designated by the Issuer by notice to the Trustee, the Auction
Agent and the Broker-Dealers; provided, however, that such notice shall not
be effective unless accompanied by a consent of a majority of the
Broker-Dealers.
"FUNDS" shall mean the following funds created under Section 5.01 hereof
and held by the Trustee: (a) the Student Loan Fund, including therein the Series
1996 Loan Account, the Series 1996 Note Account and the Series 1996 Recycling
Account, (b) the Revenue Fund, (c) the Reserve Fund, (d) the Interest Fund,
including therein the Senior Interest Account, the Subordinate Interest Account
and the Junior-Subordinate Interest Account, (e) the Note Redemption Fund,
including therein the Senior Note Redemption Account, the Subordinate Note
Redemption Account and the Junior-Subordinate Note Redemption Account, (f) the
Student Loan Holding Fund and (g) the Cost of Issuance Fund.
"GENERAL FUND" shall mean the fund by that name described in Section 5.10
hereof.
"GUARANTEE" or "GUARANTEED" shall mean with respect to a Student Loan, the
insurance or guarantee by the Guarantee Agency pursuant to such Guarantee
Agency's Guarantee Agreement of not less than 98% of the principal of and
accrued interest on such Student Loan and the coverage of such Student Loan by
the Federal Reimbursement Contracts, providing, among other things, for
reimbursement to the Guarantee Agency for payments made by it on defaulted
Student Loans insured or guaranteed by the Guarantee Agency of at least the
minimum reimbursement allowed by the Federal Reinsurance Contracts and the Act
with respect to a particular Student Loan.
"GUARANTEE AGENCY" shall mean (a) United Student Aid Funds, Inc., (b) Iowa
College Student Aid Commission, (c) Oklahoma State Regents for Higher Education,
(d) Nebraska Student Loan Program, Inc., (e) Kentucky Higher Education
Assistance Authority and (f) any other guarantee agency so long as the Issuer
shall have received written confirmation from each Rating Agency that the
designation of such entity as a "Guarantee Agency" hereunder will not, at the
time of such designation, reduce or withdraw its Ratings then applicable to any
of the Notes, and their respective successors and assigns.
"GUARANTEE AGREEMENTS" shall mean (a) the Guarantee Agreement, dated as of
March 7, 1996, between United Student Aid Funds, Inc. and Norwest Bank
Minnesota, National Association, as trustee, (b) the Guarantee Agreement, dated
as of February 23, 1996, between Iowa College Student Aid Commission and Norwest
Bank Minnesota, National Association, as trustee, (c) the Guarantee Agreement,
dated as of March 7, 1996, between Oklahoma State Regents for Higher Education
and Norwest Bank Minnesota, National Association, as trustee, (d) the Guarantee
Agreement, dated as of May 1, 1996, between Nebraska Student Loan Program, Inc.
and Norwest Bank Minnesota, National Association, as trustee, (e) the Guarantee
Agreement, dated as of June 12, 1996, between the Kentucky Higher Education
Assistance Authority and Norwest Bank Minnesota, National Association, as
trustee, (f) any similar
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guarantee or lender agreement with any other Guarantee Agency, and (g) any
amendments to the foregoing.
"GUARANTEED STUDENT LOAN" shall mean a Student Loan which is Guaranteed or
Insured.
"GUARANTEED STUDENT LOAN PROGRAM" shall mean the program known as the
Federal Family Education Loan Program which makes low interest loans under the
Act available to pay the costs of a student attending post-secondary schools,
whether under the Guarantee Agency program or the FISL Program.
"IMMEDIATE NOTICE" shall mean notice by telephone, telex or telecopier to
such address as the addressee shall have directed in writing, promptly followed
by written notice by first class mail, postage prepaid; provided, however, that
if any person required to give Immediate Notice shall not have been provided
with the necessary information as to the telephone, telex or telecopier number
of an addressee, Immediate Notice shall mean written notice by first class mail,
postage prepaid.
"INDENTURE" shall mean this Second Amended and Restated Indenture of Trust,
including all supplements and amendments hereto.
"INSTITUTIONAL ACCREDITED INVESTOR" shall mean a Person specified as such
under Rule 501(a)(1), (2), (3) or (7) of the Securities Act.
"INSURANCE," "INSURED" or "INSURING" shall mean, with respect to a Student
Loan, insurance by the Secretary under the Act (as evidenced by a Contract of
Insurance issued or entered into under the provisions of the Act) of the maximum
percentage of the principal of such Student Loan allowed by the Act, and, during
such time as such Student Loan is not entitled to Interest Benefit Payments, the
interest on such Student Loan.
"INTEREST BENEFIT PAYMENT" shall mean an interest payment on Student Loans
received pursuant to the Interest Benefits Agreement.
"INTEREST BENEFITS AGREEMENT" shall mean the Agreement between the
Guarantee Agency and the Secretary whereby the Secretary agrees to pay to
holders of Student Loans Guaranteed by the Guarantee Agency the portion of the
interest charges on such loans which students are entitled to have paid on their
behalf pursuant to Sections 428(a)(1) and 428(a)(2) of the Act.
"INTEREST FUND" shall mean the Fund by that name created in Section 5.01
hereof and further described in Section 5.05 hereof, including the Senior
Interest Account, the Subordinate Interest Account and the Junior-Subordinate
Interest Account created therein.
"INVESTMENT AGREEMENT" shall mean, collectively, the Investment Agreement
dated as of June 19, 1996 by and among the Trustee, the Issuer and Lehman
Brothers, Inc. and the
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Promissory Note dated as of June 19, 1996 between the Issuer and Lehman
Brothers Holdings Inc.
"INVESTMENT SECURITIES" shall mean
(a) Direct obligations of (including obligations issued or held in
book entry form on the books of) the Department of Treasury of the United
States of America with remaining maturities not exceeding the first
Business Day preceding the next Transfer Date. If not rated by S&P, the
obligations must have a predetermined fixed dollar principal due at
maturity that cannot vary or change. If the obligation is rated, it should
not have an "r" highlighter affixed to its rating;
(b) Obligations of any of the following federal agencies which
obligations represent full faith and credit of the United States of America
with remaining maturities not exceeding the first Business Day preceding
the next Transfer Date, (i) Export-Import Bank; (ii) Farmers Home
Administration; (iii) General Services Administration; (iv) Government
National Mortgage Association (GNMA); (v) U.S. Department of Housing &
Urban Development (PHA's); (vi) Federal Housing Administration. If not
rated by S&P, the obligations must have a predetermined fixed dollar
principal due at maturity that cannot vary or change. If the obligation is
rated, it should not have an "r" highlighter affixed to its rating;
(c) Notes, bonds or other evidences of indebtedness rated "AAA" by
Fitch and S&P issued by the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation with remaining maturities not
exceeding the first Business Day preceding the next Transfer Date. If not
rated by S&P, the obligations must have a predetermined fixed dollar
principal due at maturity that cannot vary or change. If the obligation is
rated, it should not have an "r" highlighter affixed to its rating;
(d) U.S. dollar denominated deposit accounts, federal funds and
banker's acceptances with domestic commercial banks which have a rating on
their short-term debt obligations of "A-1+" by S&P and "F-1+" by Fitch and
maturities not exceeding the first Business Day preceding the next Transfer
Date. In addition, the instruments should not have an "r" highlighter
affixed to the rating and its terms should have a predetermined amount of
principal due at maturity that cannot vary or change (Ratings on holding
companies are not considered as the rating of the bank);
(e) Commercial paper which is rated "F-1+" by Fitch and "A-1+" by S&P
and maturities not exceeding the first Business Day preceding the next
Transfer Date. In addition, the instruments should not have an "r"
highlighter affixed to the rating and its terms should have a predetermined
amount of principal due at maturity that cannot vary or change;
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(f) Investments in money market funds (i) rated within the two
highest rating categories of Fitch and (ii) "AAAm" or "AAAm-G" by S&P;
(g) With the prior written consent of Fitch and S&P, repurchase
agreements with respect to securities of the type described in (a), (b) or
(c) above, with (i) a registered broker/dealer rated by Fitch and S&P or
approved in writing by Fitch and S&P and subject to the Securities
Investors' Protection Issuer Liquidation Act in the event of insolvency to
the full extent of such repurchase agreement, (ii) a primary dealer rated
by Fitch and S&P reporting to and trading with the Federal Reserve Bank of
New York, or (iii) any commercial bank, and in the case of clauses (i),
(ii) and (iii), (x) whose unsecured long-term indebtedness is rated by
Fitch and S&P and whose long-term or short-term indebtedness is rated
"F-1+" or "AAA" by Fitch and "A-1+" or "AAA" by S&P (dependent upon whether
the repurchase agreement is long-term or short-term, respectively), or
(y) which (in the case of clause (iii)) is the lead bank of a parent bank
holding company whose unsecured long-term indebtedness is rated "AAA" or
better by Fitch and S&P, and in the case of either (x) or (y), having a
combined capital, surplus and undivided profits of not less than $100
million and which repurchase agreement shall provide that:
(A) the repurchase obligation is collateralized by the
securities themselves which shall be held by the Trustee (unless the
Trustee is the purchaser under the repurchase agreement) or a third
party which is a Federal Reserve Bank or a commercial bank with
capital, surplus and undivided profits of not less than $50 million,
and the Trustee shall have received written confirmation from such
third party that it holds such securities;
(B) a perfected security interest in favor of the Trustee in the
securities has been created under the Uniform Commercial Code or
pursuant to the book entry procedures described in 31 C.F.R. 306.1 et
seq. or 31 C.F.R. 350.0 et seq., as amended, and any successor
regulations thereto; and
(C) the securities on the date of execution of the repurchase
agreement and upon weekly evaluation by the Trustee thereafter have a
fair market value of at least 102% of the amount of the repurchase
obligation, including both principal and interest;
(h) With the prior written consent of Fitch and S&P, any investment
agreement that has as a counterparty, an institution rated "F-1+" or "AAA"
by Fitch and "A-1+" or "AAA" by S&P; and
(i) The Investment Agreement and any other investment approved in
advance in writing by each Rating Agency.
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"ISSUER" shall mean Union Financial Services-1, Inc., a corporation
organized and existing under the corporation laws of the State, and any
successor to its functions.
"ISSUER ORDER" shall mean a written order signed in the name of the Issuer
by an Authorized Officer.
"ISSUER SWAP PAYMENT" shall mean a payment due to a Swap Counterparty from
the Issuer pursuant to the applicable Swap Agreement (including, but not limited
to, payments in respect of an Early Termination Date, as defined in the
applicable Swap Agreement).
"JUNIOR-SUBORDINATE INTEREST ACCOUNT" shall mean the Account by that name
created within the Interest Fund by Section 5.01 hereof and further described in
Section 5.05 hereof.
"JUNIOR-SUBORDINATE NOTE REDEMPTION ACCOUNT" shall mean the Account by that
name created within the Note Redemption Fund by Section 5.01 hereof and further
described in Section 5.06 hereof.
"JUNIOR-SUBORDINATE NOTES" shall mean Additional Notes secured subordinate
to the Series 1996A Notes and the Series 1996B Notes, if any, the principal of
and interest on which is paid from the Junior-Subordinate Redemption Account of
the Note Redemption Fund and the Junior-Subordinate Interest Account of the
Interest Fund, respectively; provided, however, that any series of the Junior-
Subordinate Notes need not necessarily be payable on a parity with all other
series of the Junior-Subordinate Notes. Any additional Junior-Subordinate Notes
shall be designated by a "C," "D" or lower alphabetic designation, the higher
alphabetic designation ("C" being higher than "D") indicating the more senior
series of the Junior-Subordinate Notes.
"LETTER OF REPRESENTATIONS" means the Letters of Representations among the
Securities Depository, the Issuer and the Trustee.
"MAINTENANCE AND OPERATING EXPENSES" shall mean the expenses of the Issuer
incurred in direct connection with the Program under this Indenture, including
attorneys' fees, auditing fees, marketing fees, travel expenses of directors and
officers, insurance, taxes, and such other reasonable and necessary expenses
which may be incurred directly or indirectly in connection with the operation of
the Program under this Indenture and in an annual amount not to exceed the
estimated Maintenance and Operating Expenses described in Exhibit E-2 attached
hereto until January 1, 1999, unless otherwise approved by each Rating Agency as
described in Section 5.03 hereof, and on and after January 1, 1999, an annual
amount not to exceed the estimated Maintenance and Operating Expenses described
in a Cash Flow Certificate to be approved by each Rating Agency for a specified
period approved by each Rating Agency; but such term shall not include servicing
fees and expenses incurred under the Servicing Agreement, the Trustee fees and
expenses and the Calculation Agent fees and expenses incurred under this
Indenture or the Custodian Agreement, the Auction Agent's fees and expenses
incurred under the Auction Agent Agreement, any Broker-Dealer Fees and expenses
incurred under a Broker-Dealer Agreement or the fees and expenses of the Rating
Agencies incurred under this Indenture.
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"MATURITY," when used with respect to any Note, shall mean the date on
which the principal thereof becomes due and payable as therein or herein
provided, whether at its Stated Maturity, by earlier redemption, by declaration
of acceleration, or otherwise.
"NET LOSSES" shall mean the aggregate principal amount of all Financed
Eligible Loans which are over 540 days delinquent, less any recoveries of
principal received with respect to such Financed Eligible Loans.
"NOTES" shall mean the Series 1996A Notes, the Series 1996B Notes and any
Additional Notes.
"NOTE COUNSEL" shall mean Kutak Rock, or any other counsel of nationally
recognized standing in the field of law relating to notes, selected by the
Issuer and reasonably acceptable to the Trustee.
"NOTE REDEMPTION FUND" shall mean the Fund by that name created in
Section 5.01 hereof and further described in Section 5.06 hereof, including the
Senior Note Redemption Account, the Subordinate Note Redemption Account and the
Junior-Subordinate Note Redemption Account created therein.
"NOTICE OF MANDATORY EXCHANGE" means the notice delivered by the Trustee
pursuant to Section 2.02(f) hereof.
"NOTIFICATION OF LOAN APPROVAL" shall mean the written notification by the
Guarantee Agency with respect to an Eligible Loan evidencing the Guarantee
thereof by the Guarantee Agency.
"OPERATING FUND" shall mean the fund by that name continued by Section 5.01
and further described in Section 5.09 hereof.
"OUTSTANDING" shall mean, when used in connection with any Note, a Note
which has been executed and delivered pursuant to this Indenture which at such
time remains unpaid as to principal or interest, unless provision has been made
for such payment pursuant to Section 10.02 hereof, excluding Notes which have
been replaced pursuant to Section 2.04 hereof.
"OWNERSHIP INTEREST" means, with respect to any Note, any ownership
interest in such Note, including any interest in such Note as the Registered
Owner thereof and any other interest therein, whether direct or indirect, legal
or beneficial.
"PERSON" shall mean an individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, or
government or agency or political subdivision thereof.
"PLACEMENT AGENT" shall mean Smith Barney Inc.
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"PLUS LOAN" shall mean a Student Loan authorized under Section 428B of the
Act.
"PRESIDENT" shall mean the President of the Issuer.
"PRINCIPAL OFFICE" shall mean the principal corporate trust office of the
Trustee.
"PROGRAM" shall mean the Issuer's Program for the purchase of Eligible
Loans from Eligible Lenders in order to increase the supply of money available
for new Student Loans, thereby assisting students in obtaining an education at
an Eligible Institution.
"PURCHASE PRICE" shall mean the purchase price described in the respective
Student Loan Purchase Agreements.
"QUALIFIED INSTITUTIONAL BUYER" shall mean a Person specified as such under
Rule 144A of the Securities Act.
"RATING" shall mean one of the rating categories of Fitch, S&P or any other
Rating Agency, provided Fitch, S&P or any other Rating Agency, as the case may
be, is currently rating the Notes.
"RATING AGENCY" shall mean, collectively, (i) Fitch and its successors and
assigns, (ii) S&P and its successors and assigns or (iii) any other Rating
Agency requested by the Issuer to maintain a Rating on any of the Notes, but
only to the extent such entity is at the time maintaining a Rating on the Notes.
"REGISTERED OWNER" shall mean the Person in whose name a Note is registered
on the Note registration books maintained by the Trustee or, if a Note is
registered in the name of a Securities Depository, any other Person with an
Ownership Interest.
"REGISTERED OWNER APPROVAL" shall have the meaning set forth in Section
6.01 hereof.
"REGULATIONS" shall mean the Regulations promulgated from time to time by
the Secretary or the Guarantee Agency.
"RESERVE FUND" shall mean the Fund by that name created in Section 5.01
hereof and further described in Section 5.04 hereof.
"RESERVE FUND REQUIREMENT" shall mean at any time (a) the greater of an
amount equal to 2% of the aggregate principal amount of the Series 1996A Notes
and the Series 1996B Notes then Outstanding or $750,000 plus (b) an amount, if
any, required to be on deposit in the Reserve Fund with respect to any
Additional Notes pursuant to the Supplemental Indenture authorizing the issuance
of such Additional Notes.
"RESOLUTION" shall mean a resolution duly adopted by the Board.
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"REVENUE" shall mean all principal and interest payments, proceeds, charges
and other income received by the Trustee or the Issuer on account of any
Financed Eligible Loan (including, but not limited to, scheduled, delinquent and
advance payments of and any insurance proceeds with respect to such Financed
Eligible Loans, interest, including Interest Benefit Payments, on Financed
Eligible Loans and any Special Allowance Payments received by the Issuer or the
Trustee with respect to any Financed Eligible Loan) and investment income from
all Funds and Accounts, and any proceeds from the sale or other disposition of
such Financed Eligible Loans.
"REVENUE FUND" shall mean the Fund by that name created in Section 5.01
hereof and further described in Section 5.03 hereof.
"S&P" shall mean Standard & Poor's Ratings Services, a Division of The
McGraw-Hill Companies, Inc., its successors and assigns, and, for the purposes
of the Auction Procedures, if such corporation shall be dissolved or liquidated
or shall no longer perform the functions of a securities rating agency, "S&P"
shall be deemed to relate to any other nationally recognized securities rating
agency designated by the Issuer by notice to the Trustee, the Auction Agent and
the Broker-Dealers; provided, however, that such notice shall not be effective
unless accompanied by a consent of a majority of the Broker-Dealers.
"SECRETARY" shall mean the Secretary of the United States Department of
Education or any successor to the pertinent functions thereof, under the Act or
when the context so requires, the former Commissioner of Education of the United
States Department of Health, Education and Welfare.
"SECURITIES DEPOSITORY" shall mean The Depository Trust Company and its
successors and assigns or if, (i) the then Securities Depository resigns from
its functions as depository of the Notes or (ii) the Issuer discontinues use of
the Securities Depository pursuant to Section 2.01(d) hereof, any other
securities depository which agrees to follow the procedures required to be
followed by a securities depository in connection with the Notes and which is
selected by the Issuer with the consent of the Trustee.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"SELLER" shall mean an Eligible Lender from which the Issuer is purchasing
or has purchased or agreed to purchase Eligible Loans pursuant to a Student Loan
Purchase Agreement between the Issuer and such Eligible Lender; provided,
however, that any Seller, other than Union Bank and Trust Company, shall be
approved in writing by each Rating Agency.
"SENIOR NOTE REDEMPTION ACCOUNT" shall mean the Account by that name
created within the Note Redemption Fund by Section 5.01 hereof and further
described in Section 5.06 hereof.
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"SENIOR NOTES" shall mean the Class 1996A Notes, the Additional Class 1996A
Notes and any Additional Notes secured on a parity with the Class 1996A Notes
and the Additional Class 1996A Notes, the principal of and interest on which is
paid from the Senior Note Redemption Account of the Note Redemption Fund and the
Senior Interest Account of the Interest Fund, respectively.
"SENIOR INTEREST ACCOUNT" shall mean the Account by that name created
within the Interest Fund by Section 5.01 hereof and further described in Section
5.05 hereof.
"SERIES 1996 LOAN ACCOUNT" shall mean the Account by that name created
within the Student Loan Fund by Section 5.01 hereof and further described in
Section 5.02 hereof.
"SERIES 1996 NOTE ACCOUNT" shall mean the Account by that name created
within the Student Loan Fund by Section 5.01 hereof and further described in
Section 5.02 hereof.
"SERIES 1996 RECYCLING ACCOUNT" shall mean the Account by that name created
within the Student Loan Fund by Section 5.01 hereof and further described in
Section 5.02 hereof.
"SERIES 1996A NOTES" shall mean the Union Financial Services-1, Inc.,
Taxable Student Loan Asset-Backed Notes, Series 1996A issued pursuant to this
Indenture in the aggregate principal amount of $107,700,000, consisting of
$96,600,000 of Class 1996A Notes and $11,100,000 of Class 1996B Notes.
"SERIES 1996B NOTES" shall mean the Union Financial Services-1, Inc.,
Taxable Student Loan Asset-Backed Notes, Series 1996B issued pursuant to this
Indenture in the aggregate principal amount of $142,200,000, consisting of
$73,700,000 of Class 1996A-3 Notes, $54,300,000 of Class 1996A-4 Notes and
$14,200,000 of Class 1996B-2 Notes.
"SERVICER" shall mean, collectively, Union Bank and Trust Company and
UNIPAC Service Corporation, and any other servicer or subservicer so long as the
Issuer shall have received written confirmation from each Rating Agency that the
designation of such entity as a "Servicer" hereunder will not, at the time of
such designation, reduce or withdraw its Ratings then applicable to any of the
Notes, and their respective successors and assigns.
"SERVICING AGREEMENT" shall mean, collectively, (i) the Amended and
Restated Servicing Agreement, dated as of June 15, 1996 between the Issuer and
Union Bank and Trust Company and (ii) the Servicing Agreement, dated as of
January 1, 1995, as amended by the First Amendment to Servicing Agreement, dated
as of March 1, 1996 and the Second Amendment to Servicing Agreement, dated as of
June 19, 1996, each between Union Bank and Trust Company and UNIPAC Service
Corporation, each as amended or supplemented from time to time, and any other
servicing or subservicing agreement with any other Servicer relating to Financed
Eligible Loans.
"SLS LOAN" shall mean a Student Loan authorized under Section 428A of the
Act.
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"SPECIAL ALLOWANCE PAYMENTS" shall mean the special allowance payments
authorized to be made by the Secretary by Section 438 of the Act, or similar
allowances authorized from time to time by federal law or regulation.
"SPECIAL RECORD DATE" shall have the meaning set forth in Section 2.01(a)
hereof.
"STATE" shall mean the State of Nevada.
"STATED MATURITY" shall mean the date specified in the Notes as the fixed
date on which principal of such Notes is due and payable.
"STUDENT LOAN" shall mean a loan under the Act to an Eligible Borrower for
education at an Eligible Institution (or a loan to consolidate the same)
authorized to be made or acquired by the Issuer pursuant to its articles of
incorporation and described in Section 144(b)(1)(A) of the Code.
"STUDENT LOAN FUND" shall mean the Fund by that name created in Section
5.01 hereof and further described in Section 5.02 hereof, including the Series
1996 Loan Account, the Series 1996 Note Account and the Series 1996 Recycling
Account created therein.
"STUDENT LOAN HOLDING FUND" shall mean the Fund by that name created in
Section 5.01 hereof and further described in Section 5.07 hereof.
"STUDENT LOAN PURCHASE AGREEMENT" shall mean (i) that certain Loan Sale and
Commitment Agreement dated as of March 1, 1996 between the Issuer and Union Bank
and Trust Company, (ii) that certain Loan Sale and Commitment Agreement dated as
of June 19, 1996 between the Issuer and Union Bank and Trust Company, and
(iii) and any other loan purchase agreement, entered into between the Issuer and
any Eligible Lender for the purchase of Eligible Loans in substantially the same
form as said Loan Sale and Commitment Agreement, as determined by the Issuer and
with an opinion of Note Counsel.
"SUBORDINATE INTEREST ACCOUNT" shall mean the Account by that name created
within the Interest Fund by Section 5.01 hereof and further described in Section
5.05 hereof.
"SUBORDINATE NOTE REDEMPTION ACCOUNT" shall mean the Account by that name
created within the Note Redemption Fund by Section 5.01 hereof and further
described in Section 5.06 hereof.
"SUBORDINATE NOTES" shall mean the Class 1996B Notes, the Class 1996B-2
Notes and any Additional Notes secured on a parity with the Class 1996B Notes
and the Class 1996B-2 Notes, the principal of and interest on which is paid from
the Subordinate Note Redemption Account of the Note Redemption Fund and the
Subordinate Interest Account of the Interest Fund, respectively.
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"SUPPLEMENTAL INDENTURE" shall mean an agreement supplemental hereto
executed pursuant to Article VIII hereof.
"SWAP AGREEMENT" shall mean an interest rate swap agreement between the
Issuer and a Swap Counterparty, as originally executed and as amended or
supplemented, or other interest rate hedge or basis agreement between the Issuer
and a Swap Counterparty, as originally executed and as amended or supplemented,
in each case approved in writing by each Rating Agency, for the purpose of
converting in whole or in part the Issuer's variable interest rate liability on
all or a portion of the Series 1996A Notes, the Series 1996B Notes or any
variable rate Additional Notes issued on a parity therewith to a fixed rate
liability, or for the purpose of converting in whole or in part the Issuer's
fixed interest rate liability on all or a portion of any fixed rate Additional
Notes issued on a parity therewith to a variable rate liability.
"SWAP COUNTERPARTY" shall mean any Person with whom the Issuer shall, from
time to time, enter into a Swap Agreement.
"SWAP COUNTERPARTY GUARANTEE" shall mean a guarantee in favor of the Issuer
given in connection with the execution and delivery of a Swap Agreement
hereunder.
"TRANSFER DATE" shall mean each January 1 and July 1, commencing July 1,
1996.
"TRUST ESTATE" shall mean the property described as such in the granting
clauses hereto.
"TRUST INDENTURE ACT" or "TIA" means the Trust Indenture Act of 1939, as
amended, and as in force at the date as of which this Indenture was executed,
except as provided in Section 8.06.
"TRUSTEE" shall mean Norwest Bank Minnesota, National Association, acting
in its capacity as Trustee under this Indenture, or any successor trustee
designated pursuant to this Indenture.
"UNSUBSIDIZED LOAN" shall mean a Student Loan authorized under Section 428H
of the Act.
"VALUE" on any calculation date when required under this Indenture shall
mean the value of the Trust Estate calculated by the Trustee as follows:
(a) with respect to any Eligible Loan, the unpaid principal amount
thereof plus any unamortized premiums, any accrued but unpaid interest,
Interest Benefit Payments and Special Allowance Payments as set forth on
the most recent Servicer's report or from the Issuer;
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(b) with respect to any funds on deposit in any commercial bank or as
to any banker's acceptance or repurchase agreement or investment contract,
the amount thereof plus accrued but unpaid interest;
(c) with respect to any Investment Securities of an investment
company, the net asset value price of the shares as reported by the
investment company;
(d) as to investments the bid and asked prices of which are published
on a regular basis in THE WALL STREET JOURNAL (or, if not there, then in
THE NEW YORK TIMES): (i) the average of the bid and asked prices for such
investments so published on or most recently prior to such time of
determination, but not in excess of the par amount of such investment plus
accrued interest thereon or (ii) the bid price published by a nationally
recognized pricing service;
(e) with respect to Swap Agreements, (i) mark to market for purposes
of a sale of an interest in a Swap Agreement and (ii) the amount thereof
plus accrued but unpaid interest for other purposes; and
(f) as to investments the bid and asked prices of which are not
published on a regular basis in THE WALL STREET JOURNAL or THE NEW YORK
TIMES: (i) the lower of the bid prices at such time of determination for
such investments by any two nationally recognized government securities
dealers (selected by the Issuer in its absolute discretion) at the time
making a market in such investments or (ii) the bid price published by a
nationally recognized pricing service.
Words importing the masculine gender include the feminine gender. Words
importing persons include firms, associations and corporations. Words importing
the singular number include the plural number and vice versa. Additional terms
are defined in the body of this Indenture.
ARTICLE II
NOTE DETAILS, FORM OF NOTES, REDEMPTION OF NOTES
AND USE OF PROCEEDS OF NOTES
Section 2.01. SERIES 1996A NOTE AND SERIES 1996B NOTE DETAILS.
(a) (i) The aggregate principal amount of the Series 1996A Notes
which were initially authenticated and delivered under this Indenture
was limited to $107,700,000, consisting of $96,600,000 of Class 1996A
Notes and $11,100,000 of Class 1996B Notes, except for Series 1996A
Notes authenticated and delivered upon transfer of, or in exchange
for, or in lieu of Notes pursuant to Sections 2.03 and 2.04 hereof.
In addition, the Class 1996A Notes were issued in two (2) separate
subclasses (each a "subclass" of the Class 1996A Notes) consisting of
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$48,300,000 of Class 1996A-1 Notes and $48,300,000 of Class 1996A-2
Notes. The Class 1996A-1 Notes and the Class 1996A-2 Notes are known
and designated as "Union Financial Services-1, Inc., Taxable Student
Loan Asset-Backed Notes, Class 1996A Senior Auction Rate Securities-
SM- (ARS-SM-)" with the appropriate -1 or -2 designation and the Class
1996B Notes are known and designated as "Union Financial Services-1,
Inc., Taxable Student Loan Asset-Backed Notes, Class 1996B Subordinate
LIBOR Rate." The Series 1996A Notes were issuable only as fully
registered notes in the Authorized Denominations of $100,000 or any
integral multiple thereof. The Series 1996A Notes of each class and
subclass are each lettered "R" and numbered separately from 1 upwards.
The Class 1996A Notes (also known as "Auction Notes") are dated
their Date of Issuance and bear interest payable on each Interest
Payment Date for such subclass, except that Auction Notes issued upon
transfer, exchange or other replacement shall bear interest from the
most recent Interest Payment Date to which interest has been paid, or
if no interest has been paid, from the Date of Issuance. The Class
1996A-1 Notes shall mature on July 1, 2014 and the Class 1996A-2 Notes
shall mature on July 1, 2014. Interest on the Class 1996A-1 Notes and
the Class 1996A-2 Notes shall be computed on the basis of a 360-day
year and actual days elapsed. The terms of and definitions related to
the Auction Notes are found in Appendix A hereto.
The Class 1996B Notes are dated their Date of Issuance and bear
interest, payable on each Interest Payment Date, commencing April 1,
1996, except that Class 1996B Notes which are issued upon transfer,
exchange or other replacement shall bear interest from the most recent
Interest Payment Date to which interest has been paid, or if no
interest has been paid, from the date of the Class 1996B Notes. The
Class 1996B Notes shall mature on July 1, 2014 in the principal amount
of $11,100,000. Interest on the Class 1996B Notes shall be computed
on the basis of a 360-day year and actual days elapse. The terms of
and definitions related to the Class 1996B Notes are found in
Appendix B hereto.
The principal of the Series 1996A Notes due at its Stated
Maturity or redemption in whole shall be payable at the Principal
Office of the Trustee in Minneapolis, Minnesota, or at the Principal
Office of its successor in trust upon presentation and surrender of
the Series 1996A Notes. Payment of interest and principal paid in
connection with a redemption on any Series 1996A Note shall be made to
the Registered Owner thereof by check or draft mailed on the Interest
Payment Date by the Trustee to the Registered Owner at his address as
it last appears on the registration books kept by the Trustee at the
close of business on the Record Date for such interest payment date,
but any such interest not so timely paid or duly provided for shall
cease to be payable to the Registered Owner thereof at the close of
business on the Record Date and shall be payable to the Registered
Owner thereof at the close of business on a special record date
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(a "Special Record Date") for the payment of any such defaulted
interest. Such Special Record Date shall be fixed by the Trustee
whenever moneys become available for payment of the defaulted
interest, and notice of such Special Record Date shall be given to
the Registered Owners of the Series 1996A Notes not less than 10 days
prior thereto by first-class mail to each such Registered Owner as
shown on the Trustee's registration books on the date selected by the
Trustee, stating the date of the Special Record Date and the date
fixed for the payment of such defaulted interest. Payment of
interest to the Securities Depository or its nominee shall, and at
the written request addressed to the Trustee of any other Registered
Owner owning at least $1,000,000 principal amount of the Series
1996A Notes, payments of interest shall, be paid by wire transfer
within the United States to the bank account number filed no later
than the Record Date or Special Record Date with the Trustee for such
purpose. All payments on the Series 1996A Notes shall be made in
lawful money of the United States of America.
(ii) The aggregate principal amount of the Series 1996B Notes
which may be initially authenticated and delivered under this
Indenture is limited to $142,200,000, consisting of $128,000,000 of
Additional Class 1996A Notes and $14,200,000 of Class 1996B-2 Notes,
except for Series 1996B Notes authenticated and delivered upon
transfer of, or in exchange for, or in lieu of Notes pursuant to
Sections 2.03 and 2.04 hereof. The Additional Class 1996A Notes shall
be issued in two (2) separate subclasses (each a "subclass" of the
Additional Class 1996A Notes) consisting of $73,700,000 of Class
1996A-3 Notes and $54,300,000 of Class 1996A-4 Notes. The Class
1996A-3 Notes and the Class 1996A-4 Notes shall be known and
designated as "Union Financial Services-1, Inc., Taxable Student Loan
Asset-Backed Notes, Class 1996A Senior Auction Rate Securities-SM-
(ARS-SM-)" with the appropriate -3 or -4 designation and the Class
1996B-2 Notes shall be known and designated as "Union Financial
Services-1, Inc., Taxable Student Loan Asset-Backed Notes, Class
1996B-2 Subordinate LIBOR Rate." The Series 1996B Notes shall be
issuable only as fully registered notes in the Authorized
Denominations of $100,000 or any integral multiple thereof. The
Series 1996B Notes of each class and subclass shall each be lettered
"R" and shall be numbered separately from 1 upwards.
The Additional Class 1996A Notes (also known as "Auction Notes")
shall be dated their Date of Issuance and shall bear interest payable
on each Interest Payment Date for such subclass, except that Auction
Notes issued upon transfer, exchange or other replacement shall bear
interest from the most recent Interest Payment Date to which interest
has been paid, or if no interest has been paid, from the Date of
Issuance. The Class 1996A-3 Notes shall mature on July 1, 2014 and
the Class 1996A-4 Notes shall mature on July 1, 2014. Interest on the
Class 1996A-3 Notes and the Class 1996A-4 Notes shall be computed on
the basis
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of a 360-day year and actual days elapsed. The terms of and
definitions related to the Auction Notes are found in Appendix A
hereto.
The Class 1996B-2 Notes shall be dated their Date of Issuance and
shall bear interest, payable on each Interest Payment Date, commencing
August 1, 1996, except that Class 1996B-2 Notes which are issued upon
transfer, exchange or other replacement shall bear interest from the
most recent Interest Payment Date to which interest has been paid, or
if no interest has been paid, from the date of the Class 1996B-2
Notes. The Class 1996B-2 Notes shall mature on July 1, 2014 in the
principal amount of $14,200,000. Interest on the Class 1996B-2 Notes
shall be computed on the basis of a 360-day year and actual days
elapse. The terms of and definitions related to the Class 1996B-2
Notes are found in Appendix B hereto.
The principal of the Series 1996B Notes due at its Stated
Maturity or redemption in whole shall be payable at the Principal
Office of the Trustee in Minneapolis, Minnesota, or at the Principal
Office of its successor in trust upon presentation and surrender of
the Series 1996B Notes. Payment of interest and principal paid
subject to a redemption on any Series 1996B Note shall be made to the
Registered Owner thereof by check or draft mailed on the Interest
Payment Date by the Trustee to the Registered Owner at his address as
it last appears on the registration books kept by the Trustee at the
close of business on the Record Date for such interest payment date,
but any such interest not so timely paid or duly provided for shall
cease to be payable to the Registered Owner thereof at the close of
business on the Record Date and shall be payable to the Registered
Owner thereof at the close of business on a special record date (a
"Special Record Date") for the payment of any such defaulted interest.
Such Special Record Date shall be fixed by the Trustee whenever moneys
become available for payment of the defaulted interest, and notice of
such Special Record Date shall be given to the Registered Owners of
the Series 1996B Notes not less than 10 days prior thereto by
first-class mail to each such Registered Owner as shown on the
Trustee's registration books on the date selected by the Trustee,
stating the date of the Special Record Date and the date fixed for the
payment of such defaulted interest. Payment of interest to the
Securities Depository or its nominee shall, and at the written request
addressed to the Trustee of any other Registered Owner owning at least
$1,000,000 principal amount of the Series 1996B Notes, payments of
interest shall, be paid by wire transfer within the United States to
the bank account number filed no later than the Record Date or Special
Record Date with the Trustee for such purpose. All payments on the
Series 1996B Notes shall be made in lawful money of the United States
of America.
(b) Except as otherwise provided in this Section, the Series 1996A
Notes and the Series 1996B Notes in the form of one global note for each
Stated Maturity date of each series or subclass shall be registered in the
name of the Securities Depository or its
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nominee and ownership thereof shall be maintained in book-entry form by the
Securities Depository for the account of the Agent Members. Initially,
each Series 1996A Note and each Series 1996B Note shall be registered in
the name of CEDE & Co., as the nominee of The Depository Trust Company.
Except as provided in subsection (d) of this Section, the Series 1996A
Notes and the Series 1996B Notes may be transferred, in whole but not in
part, only to the Securities Depository or a nominee of the Securities
Depository or to a successor Securities Depository selected or approved
by the Issuer or to a nominee of such successor Securities Depository.
Each global note shall bear a legend substantially to the following
effect: "Except as otherwise provided in the Indenture, this global note
may be transferred, in whole but not in part, only to another nominee of
the Securities Depository (as defined in the Indenture) or to a successor
Securities Depository or to a nominee of a successor Securities
Depository."
(c) Except as otherwise provided herein, the Issuer and the Trustee
shall have no responsibility or obligation with respect to (i) the accuracy
of the records of the Securities Depository or any Agent Member with
respect to any beneficial ownership interest in the Series 1996A Notes and
the Series 1996B Notes, (ii) the delivery to any Agent Member, beneficial
owner of the Series 1996A Notes and the Series 1996B Notes or other Person,
other than the Securities Depository, of any notice with respect to the
Series 1996A Notes and the Series 1996B Notes or (iii) the payment to any
Agent Member, beneficial owner of the Series 1996A Notes or other Person,
other than the Securities Depository, of any amount with respect to the
principal of or interest on the Series 1996A Notes and the Series 1996B
Notes. So long as the certificates for the Series 1996A Notes and the
Series 1996B Notes issued under this Indenture are not issued pursuant to
subsection (d) of this Section the Issuer and the Trustee may treat the
Securities Depository as, and deem the Securities Depository to be, the
absolute owner of the Series 1996A Notes and the Series 1996B Notes for all
purposes whatsoever, including, without limitation, (i) the payment of
principal of and interest on such Series 1996A Notes and such Series 1996B
Notes, (ii) giving notices of redemption and other matters with respect to
such Series 1996A Notes and such Series 1996B Notes and (iii) registering
transfers with respect to such Series 1996A Notes and such Series 1996B
Notes. In connection with any notice or other communication to be provided
to the Registered Owners pursuant to this Indenture by the Issuer or the
Trustee with respect to any consent or other action to be taken by the
Registered Owners, the Issuer or the Trustee, as the case may be, shall
establish a record date for such consent or other action and, if the
Securities Depository shall hold all of the Series 1996A Notes and the
Series 1996B Notes, give the Securities Depository notice of such record
date not less than fifteen (15) calendar days in advance of such record
date to the extent possible. Such notice to the Securities Depository
shall be given only when the Securities Depository is the sole Registered
Owner.
(d) If at any time the Securities Depository notifies the Issuer and
the Trustee that it is unwilling or unable to continue as Securities
Depository with respect to any or all of the Series 1996A Notes and the
Series 1996B Notes or if at any time the Securities
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Depository shall no longer be registered or in good standing under the
Securities Exchange Act or other applicable statute or regulation and a
successor Securities Depository is not appointed by the Issuer within 90
days after the Issuer receives notice or becomes aware of such condition,
as the case may be, subsections (b) and (c) of this Section shall no
longer be applicable and the Issuer shall execute and the Trustee shall
authenticate and deliver certificates representing the Series 1996A Notes
and the Series 1996B Notes as provided below. In addition, the Issuer may
determine at any time that the Series 1996A Notes and the Series 1996B
Notes shall no longer be represented by global certificates and that the
provisions of subsections (b) and (c) of this Section shall no longer
apply to the Series 1996A Notes and the Series 1996B Notes. In such
event, the Issuer shall execute and the Trustee shall authenticate and
deliver certificates representing the Series 1996A Notes and the Series
1996B Notes as provided below. Certificates for the Series 1996A Notes
and the Series 1996B Notes issued in exchange for a global certificate
pursuant to this subsection shall be registered in such names and
authorized denominations as the Securities Depository, pursuant to
instructions from the Agent Members or otherwise, shall instruct in
writing the Issuer and the Trustee, and upon which written instructions
the Trustee may rely without investigation. The Trustee shall promptly
deliver such certificates representing the Series 1996A Notes and the
Series 1996B Notes to the Persons in whose names such Notes are so
registered.
Section 2.02. REDEMPTION OF THE SERIES 1996A NOTES AND SERIES 1996B NOTES.
(a) MANDATORY REDEMPTION OF SERIES 1996A NOTES AND SERIES 1996B
NOTES.
(i) (A) Subject to the provisions of Section 2.02(d) hereof,
the Series 1996A Notes are subject to mandatory redemption by the
Issuer, in whole or in part, on any Interest Payment Date with
respect to the Class of Series 1996A Notes being redeemed at a
redemption price equal to the principal amount thereof plus
interest accrued, if any, to the date of redemption thereof from
moneys in the Note Redemption Fund available therefor pursuant to
Section 5.06 hereof.
(B) Subject to the provisions of Section 2.02(d) hereof,
the Series 1996B Notes are subject to mandatory redemption by the
Issuer, in whole or in part, on any Interest Payment Date with
respect to the Class of Series 1996B Notes being redeemed at a
redemption price equal to the principal amount thereof plus
interest accrued, if any, to the date of redemption thereof from
moneys in the Note Redemption Fund available therefor pursuant to
Section 5.06 hereof.
(ii) (A) Subject to the provisions of Section 2.02(d) hereof,
the Series 1996A Notes are also subject to mandatory redemption
by the Issuer at a redemption price equal to the principal amount
thereof plus interest accrued, if any, to the date of redemption
thereof from moneys in
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the Note Redemption Fund available therefor pursuant to Section
5.06 hereof, (i) for the Class 1996A Notes, on the Interest
Payment Date next succeeding January 1, 1998 and (ii) for the
Class 1996B Notes, on the next Interest Payment Date thereafter,
to the extent that a balance exists in the Series 1996 Loan
Account of the Student Loan Fund, such anticipated excesses
to be determined by estimate as of 30 days prior to said
Interest Payment Dates; provided, however, that if 30 days
prior to said Interest Payment Dates, the Issuer files with
the Trustee a certificate that such balances may be invested
at a rate of return until a subsequent Interest Payment Date
which, together with other available Revenues and cash balances,
will produce sufficient cash flows to permit the timely
retirement of the Series 1996A Notes, which cash flows shall not
assume the refunding of the Series 1996A Notes, and such
conclusions are approved by each Rating Agency, then such call
for redemption need not be made; and provided that the Trustee
shall have received an opinion of Note Counsel to the effect that
the failure to redeem Notes as provided in this
Section 2.02(a)(ii)(A) would not cause the Notes to fail to be
characterized as indebtedness of the Issuer for federal income
tax purposes.
(B) Subject to the provisions of Section 2.02(d) hereof,
the Series 1996B Notes are also subject to mandatory redemption
by the Issuer at a redemption price equal to the principal amount
thereof plus interest accrued, if any, to the date of redemption
thereof from moneys in the Note Redemption Fund available
therefor pursuant to Section 5.06 hereof, (i) for the Additional
Class 1996A Notes, on the Interest Payment Date next succeeding
January 1, 1998 and (ii) for the Class 1996B-2 Notes, on the next
Interest Payment Date thereafter, to the extent that a balance
exists in the Series 1996 Loan Account of the Student Loan Fund,
such anticipated excesses to be determined by estimate as of 30
days prior to said Interest Payment Dates; provided, however,
that if 30 days prior to said Interest Payment Dates, the Issuer
files with the Trustee a certificate that such balances may be
invested at a rate of return until a subsequent Interest Payment
Date which, together with other available Revenues and cash
balances, will produce sufficient cash flows to permit the timely
retirement of the Series 1996B Notes, which cash flows shall not
assume the refunding of the Series 1996B Notes, and such
conclusions are approved by each Rating Agency, then such call
for redemption need not be made; and provided that the Trustee
shall have received an opinion of Note Counsel to the effect that
the failure to redeem Notes as provided in this
Section 2.02(a)(ii)(B) would not cause the Notes to fail to be
characterized as indebtedness of the Issuer for federal income
tax purposes.
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(iii) The Series 1996A Notes and the Series 1996B Notes shall be
subject to mandatory redemption at a redemption price equal to 100% of
the principal amount thereof plus accrued interest on any Interest
Payment Date within 60 days from when moneys are deposited in the
Senior Note Redemption Account pursuant to Section 5.03(j) hereof.
(b) OPTIONAL REDEMPTIONS AND OPTIONAL PURCHASE OF SERIES 1996A NOTES
AND SERIES 1996B NOTES.
(i) (A) CLASS 1996A NOTES. Subject to the provisions of
Section 2.02(d) hereof, the Class 1996A-1 Notes and the
Class 1996A-2 Notes are subject to redemption at the option of
the Issuer from any source of funds in whole or in part on any
Interest Payment Date for such subclass at a redemption price
equal to the principal amount of the Class 1996A Notes being
redeemed, plus interest accrued, if any, to the date of
redemption.
(B) ADDITIONAL CLASS A NOTES. Subject to the provisions of
Section 2.02(d) hereof, the Class 1996A-3 Notes and the
Class 1996A-4 Notes are subject to redemption at the option of
the Issuer from any source of funds in whole or in part on any
Interest Payment Date for such subclass at a redemption price
equal to the principal amount of the Additional Class 1996A Notes
being redeemed, plus interest accrued, if any, to the date of
redemption.
(ii) (A) CLASS 1996B NOTES. Subject to the provisions of
Section 2.02(d) hereof, the Class 1996B Notes are subject to
redemption at the option of the Issuer from any source of funds
in whole or in part on any Interest Payment Date on or after May
1, 1999, at a redemption price equal to the principal amount of
the Class 1996B Notes being redeemed, plus interest accrued, if
any, to the date of redemption.
(B) CLASS 1996B-2 NOTES. Subject to the provisions of
Section 2.02(d) hereof, the Class 1996B-2 Notes are subject to
redemption at the option of the Issuer from any source of funds
in whole or in part on any Interest Payment Date on or after May
1, 1999, at a redemption price equal to the principal amount of
the Class 1996B-2 Notes being redeemed, plus interest accrued, if
any, to the date of redemption.
(iii) (A) EXTRAORDINARY OPTIONAL REDEMPTION OF SERIES 1996A
NOTES. Subject to the provisions of Section 2.02(d) hereof, the
Series 1996A Notes shall also be subject to extraordinary
optional redemption, at the option of the Issuer, at a redemption
price equal to the principal amount of the Series 1996A Notes
being redeemed, plus accrued interest to the
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date of redemption, without premium in whole or in part on any
Interest Payment Date, if the Issuer reasonably determines that
it is unable to acquire Financed Eligible Loans, that the rate
of return on Financed Eligible Loans has materially decreased,
or that the costs of administering the Trust Estate have placed
unreasonable burdens upon the ability of the Issuer to perform
its obligations under this Indenture.
(B) EXTRAORDINARY OPTIONAL REDEMPTION OF SERIES 1996B
NOTES. Subject to the provisions of Section 2.02(d) hereof, the
Series 1996B Notes shall also be subject to extraordinary
optional redemption, at the option of the Issuer, at a redemption
price equal to the principal amount of the Series 1996B Notes
being redeemed, plus accrued interest to the date of redemption,
without premium in whole or in part on any Interest Payment Date,
if the Issuer reasonably determines that it is unable to acquire
Financed Eligible Loans, that the rate of return on Financed
Eligible Loans has materially decreased, or that the costs of
administering the Trust Estate have placed unreasonable burdens
upon the ability of the Issuer to perform its obligations under
this Indenture.
(iv) OPTIONAL PURCHASE. Subject to the provisions of
Section 2.02(d) hereof, the Issuer may purchase or cause to be
purchased all of the Notes on any Interest Payment Date on which the
aggregate current principal balance of the Notes shall be less than or
equal to 10% of the initial aggregate principal balance of the Notes
on the respective Date of Issuance, at a purchase price equal to the
aggregate current principal balance of such Notes, plus accrued
interest on the Notes through the day preceding the Interest Payment
Date on which the purchase occurs. The amount deposited pursuant to
this subsection (iv) shall be paid to the Registered Owners on the
related Interest Payment Date following the date of such deposit. All
Notes which are purchased pursuant to this subsection (iv) shall be
delivered by the Issuer upon such purchase to, and be canceled by, the
Trustee and be disposed of in a manner satisfactory to the Trustee and
the Issuer.
(c) NOTICE OF REDEMPTION AND PURCHASE. The Trustee shall cause
notice of any redemption or purchase to be given by mailing a copy of the
notice to the Registered Owner of any Series 1996A Notes and any Series
1996B Notes, and the Auction Agent in the case of the Auction Notes,
designated for redemption or purchase in whole or in part, at their address
as the same shall last appear upon the registration books, in each case not
less than 15 days prior to the redemption or purchase date; provided,
however, that failure to give such notice, or any defect therein, shall not
affect the validity of any proceedings for the redemption or purchase date
of such Series 1996A Notes and such Series 1996B Notes for which no such
failure or defect occurs.
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Each notice of redemption or purchase shall state the following: (i)
the full designated name of the issue, including the series designation,
(ii) the CUSIP number, (iii) the Note numbers and the principal amounts of
each Note to be redeemed or purchased, (iv) the date of redemption or
purchase, (v) the redemption or purchase price, (vi) the name of the
Trustee and the address and phone number of the Trustee's office handling
the redemption or purchase, (vii) the date of the Notes, (viii) the
interest rate, (ix) the maturity date, (x) the date of the notice, (xi) the
place or places of payment, (xii) that payment will be made upon
presentation and surrender of the Notes to be redeemed or purchased, if at
Stated Maturity or redemption in whole, and (xiii) that on and after said
date interest thereon will cease to accrue. If less than all the
Outstanding Notes of any series are to be redeemed, the notice of
redemption shall specify the numbers of the Notes or portions thereof to be
redeemed.
(d) PARTIAL REDEMPTION OF SERIES 1996A NOTES AND SERIES 1996B NOTES.
(i) (A) If less than all of the Series 1996A Notes are to be
redeemed pursuant to Section 2.02(a) or 2.02(b) hereof, the class
and subclass of Series 1996A Notes to be redeemed shall be
redeemed from each such class or subclass of the Series 1996A
Notes in the following order of priority: (1) no payments of
principal shall be made with respect to the Class 1996A-2 Notes
until all Class 1996A-1 Notes have been paid in full; and (2) no
payments of principal shall be made with respect to the
Class 1996B Notes until all Class 1996A Notes have been paid in
full. If less than all of the Series 1996B Notes are to be
redeemed pursuant to Section 2.02(a) or 2.02(b) hereof, the class
or subclass of Series 1996B Notes to be redeemed shall be
redeemed as directed by an Issuer Order. If less than all of the
Series 1996A Notes or Series 1996B Notes of any Stated Maturity
of any class or subclass of the Series 1996A Notes or
Series 1996B Notes are to be redeemed, such Series 1996A Notes or
Series 1996B Notes of the same Stated Maturity to be redeemed
shall be selected by lot in such manner as the Trustee shall
determine. Notwithstanding the foregoing, the Class 1996B Notes
and the Class 1996B-2 Notes may only be redeemed pursuant to the
provisions of Section 5.06 hereof.
(B) Additional Notes (other than the Series 1996B Notes) to
be redeemed in part shall be redeemed in accordance with the
provisions of the Supplemental Indenture authorizing the issuance
and delivery of such Additional Notes.
(ii) (A) In case a Series 1996A Note is of a denomination larger
than $100,000, a portion of such Note ($100,000, or integral
multiples thereof) may be redeemed. Upon surrender of any Series
1996A Note for redemption in part only, the Issuer shall execute
and the Trustee shall
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authenticate and deliver to the Registered Owner thereof, the
cost of which shall be paid by the Issuer, a new Series 1996A
Note or Series 1996A Notes of the same series, maturity and of
authorized denominations, in an aggregate principal amount
equal to the unredeemed portion of the Series 1996A Note
surrendered.
(B) In case a Series 1996B Note is of a denomination larger
than $100,000, a portion of such Note ($100,000, or integral
multiples thereof) may be redeemed. Upon surrender of any Series
1996B Note for redemption in part only, the Issuer shall execute
and the Trustee shall authenticate and deliver to the Registered
Owner thereof, the cost of which shall be paid by the Issuer, a
new Series 1996B Note or Series 1996B Notes of the same series,
maturity and of authorized denominations, in an aggregate
principal amount equal to the unredeemed portion of the Series
1996B Note surrendered.
(e) MANDATORY EXCHANGE OF NOTES UPON REGISTRATION OF NOTES. The
Notes are subject to mandatory exchange, from time to time, in whole or in
part, for Exchange Notes on any Exchange Date. Such mandatory exchange
shall be effective on the Exchange Date specified by the Trustee in the
notice described in Section 2.02(f) hereof, upon receipt by the Trustee of
immediately available funds from the Issuer equal to the amount of accrued
interest to the Exchange Date due and payable with respect to the Notes
subject to mandatory exchange and a copy of the opinion of Note Counsel
described below and by receipt by the Placement Agent of:
(i) Exchange Notes in an aggregate principal amount equal to the
Notes subject to such exchange;
(ii) an opinion of Note Counsel to the effect that (A) the
Exchange Notes constitute legal, valid and binding obligations of the
Issuer thereof enforceable in accordance with their terms (except as
such enforcement may be limited by bankruptcy, insolvency, moratorium
or other laws and equitable principles generally affecting the
enforcement of the rights of creditors), (B) the pledge of the trust
estate to secure the payment of the Exchange Notes is in all material
respects at least equivalent to the Issuer's pledge of the Trust
Estate securing the Notes (except as permitted by the Indenture), (C)
the Exchange Notes are registered securities within the meaning of the
Securities Act of 1933, as amended, (D) the exchange of the Exchange
Notes for the Notes will not cause the Notes to fail to be
characterized as the indebtedness of the Issuer for federal income tax
purposes, (E) the Indenture has been qualified under the Trust
Indenture Act of 1939 or is otherwise exempt therefrom, and (F) all
conditions precedent to the exchange of such Notes for Exchange Notes
set forth herein and the Notice of Mandatory Exchange have been
complied with; and
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(iii) prior written consent of each Rating Agency and evidence of
the ratings of the Exchange Notes by each Rating Agency.
(f) NOTICE OF EXCHANGE OF NOTES. Not less than ten calendar days
prior to the Exchange Date, and upon the written request of the Issuer
delivered to the Trustee not less than fifteen calendar days prior to the
date such notice is to be mailed to the Registered Owners of the Notes
(which request shall set forth the information required below), the Trustee
shall mail to all Registered Owners of the Notes, at their addresses
appearing on the registration books for the Notes maintained by the
Trustee, by first-class mail, postage pre-paid, a Notice of Mandatory
Exchange of Notes for Exchange Notes, a copy of which shall be sent to the
Auction Agent in respect of any such exchange of Auction Notes, which
notice shall set forth:
(i) the Notes to be exchanged, specifying the aggregate
principal amount of Notes to be exchanged, the maturity thereof and
the CUSIP numbers relating to any Note to be exchanged (provided,
however, that the Trustee shall have no responsibility for the
selection or use of the CUSIP number nor shall the Trustee be deemed
to make any representation as to the correctness of such CUSIP number
on the Notes or as indicated in such notice);
(ii) the Exchange Date, which shall be a single date not less
than 10 days following the date of mailing of such Notice of Mandatory
Exchange and the Record Date for the payment of accrued interest on
the Note on the Exchange Date;
(iii) the interest rates for the Exchange Notes (if then known)
and that upon exchange, the security provisions, terms, conditions and
covenants of security documents relating to the Exchange Notes will
control the Exchange Notes and the terms of the Indenture shall not
control the Exchange Notes;
(iv) that the Notes subject to mandatory exchange shall be
exchanged on the Exchange Date at the Principal Office of the Trustee
(the address of which shall be specifically set forth in such notice)
by surrendering such Notes at such office together with appropriate
letters of transmittal (the form of which may be provided by the
Trustee with such notice) duly executed by the Registered Owner
thereof, upon which surrender, certificates representing a like
principal amount of Exchange Notes shall be issued by the Trustee for
the Exchange Notes in the name of the Registered Owner or registered
assigns and delivered by the Trustee;
(v) that notwithstanding the failure of any owner to surrender
Notes subject to mandatory exchange for exchange on the Exchange Date,
provided that all conditions set forth in clause (vi) of the Notice of
Mandatory Exchange have been complied with, all such Notes shall be
deemed to have been so exchanged and that interest shall cease to
accrue on such Notes at the interest rate thereon
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but shall thereafter instead accrue on the Exchange Notes for which
such Notes shall have been deemed exchanged from and after the
Exchange Date at the interest rates for the Exchange Notes
corresponding to Notes of like maturity, as described in the Notice
of Mandatory Exchange; and
(vi) the conditions to the effectiveness of such exchange as
described below.
Notwithstanding the failure of any Registered Owner to surrender Notes
subject to mandatory exchange for exchange on the Exchange Date, provided
that all conditions set forth in this Indenture and the Notice of Mandatory
Exchange have been complied with, all such Notes shall be deemed to have
been so exchanged and interest shall cease to accrue on such Notes at the
interest rate thereon but shall thereafter instead accrue on the Exchange
Notes for which such Notes shall have been deemed exchanged from and after
the Exchange Date at the interest rates for the Exchange Notes
corresponding to Notes of like maturity, as described in the Notice of
Mandatory Exchange or the notice given pursuant hereto as applicable.
Any exchange pursuant to the notice described in this Section 2.02(f)
shall be subject to the receipt by the Trustee of the moneys and opinion of
Note Counsel and receipt by the Trustee of the Notes to be exchanged and
the Exchange Notes, opinion of Note Counsel and evidence of ratings
specified above and the satisfaction of any other condition specified by
the Issuer and set forth in the Notice of Mandatory Exchange not later than
the opening of business on the Exchange Date, and such exchange shall be of
no effect unless the specified items are so received.
Immediately after effecting any mandatory exchange of Notes, the
Issuer shall cause the Trustee for such Exchange Notes to mail to the
addresses of the new owners of the Exchange Notes, at their addresses
appearing on the register of the Exchange Notes maintained for such
Exchange Notes, by first-class mail, postage pre-paid, notice of the
interest rates for the Exchange Notes if not set forth in the Notice of
Mandatory Exchange, together with a copy of the opinion of Note Counsel
delivered in connection with the issuance of such Exchange Notes as
described above.
Copies of each notice described above to be given shall be delivered
by the Trustee to each Rating Agency, to DTC in the event all of the
outstanding Notes are registered in the name of DTC or its nominee, in each
case by messenger or by overnight or certified mail--return receipt
requested. In addition, each Rating Agency or DTC shall receive such
notice prior to the close of business on the Business Day prior to the
mailing of the respective notice to the Registered Owners. In each case,
failure of a Registered Owner to receive any such notice, or any defect in
the notice as mailed or in the mailing thereof, shall not affect the
validity of the exchange with respect to such Note.
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Section 2.03. EXECUTION OF NOTES. The Notes shall be executed in the name
and on behalf of the Issuer by the manual or facsimile signature of the
President of the Issuer and its corporate seal or a facsimile thereof shall be
thereunto affixed, imprinted, engraved or otherwise reproduced thereon and
attested by the manual or facsimile signature of the Secretary of the Issuer.
Any Note may be signed (manually or by facsimile), sealed or attested on behalf
of the Issuer by any person who, at the date of such act, shall hold the proper
office, notwithstanding that at the date of authentication, issuance or
delivery, such person may have ceased to hold such office.
Section 2.04. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; PERSONS
TREATED AS REGISTERED OWNERS.
(a) The Issuer shall cause books for the registration and for the
transfer of the Notes as provided in this Indenture to be kept by the
Trustee which is hereby appointed the transfer agent of the Issuer for the
Notes. Notwithstanding such appointment, the Trustee is hereby authorized
to make any arrangements with other institutions which it deems necessary
or desirable in order that such institutions may perform the duties of
transfer agent for the Notes. Subject to the restrictions contained in
this Section 2.04, upon surrender for transfer of any Note at the Principal
Office of the Trustee, duly endorsed for transfer or accompanied by an
assignment duly executed by the Registered Owner or his attorney duly
authorized in writing, the Issuer shall execute and the Trustee shall
authenticate and deliver in the name of the transferee or transferees a new
fully registered Note or Notes of the same interest rate and for a like
series, subclass, if any, aggregate principal amount of the same maturity.
(i) Subject to the restrictions contained in this Section 2.04,
notes may be exchanged at the Principal Office of the Trustee for a
like aggregate principal amount of fully registered Notes of the same
interest rate and maturity in authorized denominations. The Issuer
shall execute and the Trustee shall authenticate and deliver Notes
which the Registered Owner making the exchange is entitled to receive,
bearing numbers not contemporaneously outstanding. The execution by
the Issuer of any fully registered Note of any authorized denomination
shall constitute full and due authorization of such denomination and
the Trustee shall thereby be authorized to authenticate and deliver
such fully registered Note.
(ii) The Trustee shall not be required to transfer or exchange
any Note during the period of fifteen (15) business days next
preceding the mailing of notice of redemption as herein provided.
After the giving of such notice of redemption, the Trustee shall not
be required to transfer or exchange any Note, which Note or portion
thereof has been called for redemption.
(b) (i) Each Person who has or who acquires any Ownership Interest
in a Note shall be deemed by the acceptance or acquisition of such
Ownership
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Interest to have agreed to be bound by the provisions of this Section
2.04. No Ownership Interest in a Note may be transferred, and the
Trustee and the Issuer shall not register the transfer of any Note,
unless the proposed transferee shall have delivered to each of the
Trustee, the Placement Agent and the Issuer (A) evidence satisfactory
to them that such Note has been registered under the Securities Act
and has been registered or qualified under all applicable state
securities laws to the reasonable satisfaction of the Trustee or
(B) (1) with respect to Auction Notes, an express agreement signed by
or on behalf of the transferee substantially in the form of Exhibit
C-3 hereto or (2) with respect to Other Notes, an express agreement
signed by or on behalf of the transferee substantially in the form
of Exhibit C-1 or C-2, as may be applicable (each of Exhibit C-1,
C-2 and C-3, a "Transferee Agreement") by the proposed transferee
to be bound by and to abide by the provisions of this Section 2.04
and the restrictions noted in the Transferee Agreement; or (C) in
the case of the original issuance and delivery of a Note from the
Issuer to an initial purchaser, the investment letter substantially
in the form of Exhibit B hereto (the "Investment Letter") shall be
deemed to be a Transferee Agreement for purposes of this Indenture
and the Notes and with respect to Auction Notes, Exhibit C-3 hereto.
(ii) The Issuer will, upon the request of any Registered Owner of
any Outstanding Note, which Registered Owner is a Qualified
Institutional Buyer, provide such Registered Owner, and any Qualified
Institutional Buyer designated by such Registered Owner, such
financial and other information as such Registered Owner may
reasonably determine to be necessary in order to permit compliance
with the information requirements of Rule 144A under the Securities
Act in connection with the resale of Notes, except at such times as
the Issuer is subject to the reporting requirements of section 13 or
15(d) of the Securities Exchange Act of 1934, as amended.
(c) As to any Note, the person in whose name the same shall be
registered shall be deemed and regarded as the absolute owner thereof for
all purposes, and payment of either principal or interest on any fully
registered Note shall be made only to or upon the written order of the
Registered Owner thereof or his legal representative but such registration
may be changed as hereinabove provided. All such payments shall be valid
and effectual to satisfy and discharge the liability upon such Note to the
extent of the sum or sums paid.
(d) The Trustee shall require the payment by any Registered Owner
requesting exchange or transfer of any tax or other governmental charge
required to be paid with respect to such exchange or transfer. The
applicant for any such transfer or exchange may be required to pay all
taxes and governmental charges and all expenses and charges of the Issuer
and the Trustee in connection with such transfer or exchange.
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Section 2.05. LOST, STOLEN, DESTROYED AND MUTILATED NOTES. Upon receipt
by the Issuer and the Trustee of evidence satisfactory to them of the ownership
of and the loss, theft, destruction or mutilation of any Note and, in the case
of a lost, stolen or destroyed Note, of indemnity satisfactory to them, and upon
surrender and cancellation of the Note, if mutilated, (i) the Issuer shall
execute, and the Trustee shall authenticate and deliver, a new Note of the same
series, subclass, if any, interest rate, maturity and denomination in lieu of
such lost, stolen, destroyed or mutilated Note or (ii) if such lost, stolen,
destroyed or mutilated Note shall have matured or have been called for
redemption, in lieu of executing and delivering a new Note as aforesaid, the
Issuer may pay such Note. Any such new Note shall bear a number not
contemporaneously outstanding. The applicant for any such new Note may be
required to pay all taxes and governmental charges and all expenses and charges
of the Issuer and of the Trustee in connection with the issuance of such Note.
All Notes shall be held and owned upon the express condition that, to the extent
permitted by law, the foregoing conditions are exclusive with respect to the
replacement and payment of mutilated, destroyed, lost or stolen Notes,
negotiable instruments or other securities.
Section 2.06. DELIVERY OF SERIES 1996A NOTES AND SERIES 1996B NOTES.
(a) Upon the execution and delivery of the Original Indenture, the
Issuer executed and delivered to the Trustee and the Trustee authenticated
the Series 1996A Notes and delivered them to The Depository Trust Company
as hereinafter in this Section provided.
Prior to the delivery by the Trustee of any of the Series 1996A Notes,
there was filed with or delivered to the Trustee the following:
(i) A resolution duly adopted by the Issuer, certified by the
Secretary or other Authorized Officer thereof, authorizing the
execution and delivery of this Indenture, the Student Loan Purchase
Agreement, the Servicing Agreement, the Custodian Agreement, the
Broker-Dealer Agreement and the Auction Agent Agreement and the
issuance of the Series 1996A Notes.
(ii) Duly executed copies of this Indenture, the Student Loan
Purchase Agreement, the Servicing Agreement, the Custodian Agreement,
the Auction Agent Agreement and the Broker-Dealer Agreement.
(iii) The written order of the Issuer as to the delivery of the
Series 1996A Notes, signed by an Authorized Officer.
(b) Upon the execution and delivery of this Indenture, the Issuer
shall execute and deliver to the Trustee and the Trustee shall authenticate
the Series 1996B Notes and deliver them to The Depository Trust Company as
hereinafter in this Section provided.
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Prior to the delivery by the Trustee of any of the Series 1996B Notes,
there shall have been filed with or delivered to the Trustee the following:
(i) A resolution duly adopted by the Issuer, certified by the
Secretary or other Authorized Officer thereof, authorizing the
execution and delivery of this Indenture, the Student Loan Purchase
Agreement, the Broker-Dealer Agreement and the Auction Agent Agreement
and the issuance of the Series 1996B Notes.
(ii) Duly executed copies of this Indenture, the Student Loan
Purchase Agreement, the Auction Agent Agreement and the Broker-Dealer
Agreement.
(iii) The written order of the Issuer as to the delivery of the
Series 1996B Notes, signed by an Authorized Officer.
Section 2.07. TRUSTEE'S AUTHENTICATION CERTIFICATE. The Trustee's
authentication certificate upon the Series 1996A Notes shall be substantially in
the forms provided in Exhibits A-1 and A-2. The Trustee's authentication
certificate upon the Series 1996B Notes shall be substantially in the forms
provided in Exhibits A-3 and A-4. No Series 1996A Note or Series 1996B Note
shall be secured hereby or entitled to the benefit hereof, or shall be valid or
obligatory for any purpose, unless a certificate of authentication,
substantially in such form, has been duly executed by the Trustee; and such
certificate of the Trustee upon any Series 1996A Note or Series 1996B Note shall
be conclusive evidence and the only competent evidence that such Note has been
authenticated and delivered hereunder. The Trustee's certificate of
authentication shall be deemed to have been duly executed by it if manually
signed by an authorized officer of the Trustee, but it shall not be necessary
that the same person sign the certificate of authentication on all of the Series
1996A Notes or the Series 1996B Notes issued hereunder.
Section 2.08. CANCELLATION AND DESTRUCTION OF NOTES BY THE TRUSTEE.
Whenever any Outstanding Notes shall be delivered to the Trustee for the
cancellation thereof pursuant to this Indenture, upon payment of the principal
amount and interest represented thereby, or for replacement pursuant to Section
2.05 hereof, such Notes shall be promptly cancelled and cremated or otherwise
destroyed by the Trustee in accordance with its normal procedures.
Section 2.09. TEMPORARY NOTES. Pending the preparation of definitive
Notes, the Issuer may execute and the Trustee shall authenticate and deliver
temporary Notes. Temporary Notes shall be issuable as fully registered Notes
without coupons, of any denomination, and substantially in the form of the
definitive Notes but with such omissions, insertions and variations as may be
appropriate for temporary Notes, all as may be determined by the Issuer. Every
temporary Note shall be executed by the Issuer and be authenticated by the
Trustee upon the same conditions and in substantially the same manner, and with
like effect, as the definitive Notes. As promptly as practicable the Issuer
shall execute and shall furnish definitive Notes and thereupon temporary Notes
may be surrendered in exchange therefor without charge at the principal office
of the Trustee, and the Trustee shall authenticate and deliver in exchange for
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such temporary Notes a like aggregate principal amount of definitive Notes.
Until so exchanged the temporary Notes shall be entitled to the same benefits
under this Indenture as definitive Notes.
Section 2.10. DEPOSIT OF NOTE PROCEEDS AND FUNDING OF TRUST ESTATE.
(a) Upon the issuance and delivery of the Series 1996A Notes, the
Trustee deposited the net proceeds thereof ($107,117,100.00) as follows:
(i) an amount equal to $350,000.00 was deposited to the
Operating Fund;
(ii) an amount equal to $313,100.00 was deposited to the Cost of
Issuance Fund;
(iii) an amount equal to $2,154,000.00 was deposited to the
Reserve Fund;
(iv) an amount equal to $2,800,000.00 was deposited to the
Revenue Fund; and
(v) the balance of the proceeds of the Series 1996A Notes
($101,500,000.00) was deposited to the Series 1996 Loan Account of the
Student Loan Fund.
(b) Upon the issuance and delivery of the Series 1996B Notes, the
Trustee shall deposit the net proceeds thereof ($141,671,026) as follows:
(i) an amount equal to $350,000 shall be deposited to the
Operating Fund;
(ii) an amount equal to $470,276 shall be deposited to the Cost
of Issuance Fund;
(iii) an amount equal to $2,844,000 shall be deposited to the
Reserve Fund; and
(iv) the balance of the proceeds of the Series 1996B Notes
($138,006,750) shall be deposited to the Series 1996 Loan Account of
the Student Loan Fund.
Section 2.11. FORMS OF SERIES 1996A NOTES AND SERIES 1996B NOTES. Any
subclass of the Class 1996A Notes shall be in substantially the form set forth
in Exhibit A-1 hereto, with such variations, omissions and insertions as may be
necessary. The Class 1996B Notes shall be
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in substantially the form set forth in Exhibit A-2 hereto, with such
variations, omissions and insertions as may be necessary. Any subclass of
the Additional Class 1996A Notes shall be in substantially the form set forth
in Exhibit A-3 hereto, with such variations, omissions and insertions as may
be necessary. The Class 1996B-2 Notes shall be in substantially the form set
forth in Exhibit A-4 hereto, with such variations, omissions and insertions
as may be necessary.
Section 2.12. ISSUANCE OF ADDITIONAL NOTES.
(a) The Issuer shall have the authority, upon complying with the
provisions of this Section, to authenticate and deliver from time to time
Additional Notes secured by the Trust Estate on a parity with or
subordinate to either the Senior Notes, the Subordinate Notes or the
Junior-Subordinate Notes, if any, secured hereunder as shall be determined
by the Issuer. In addition, the Issuer may enter into any Swap Agreements
it deems necessary or desirable with respect to any or all of such
Additional Notes.
(b) No Additional Notes shall be authenticated and delivered pursuant
to this Indenture until the following conditions have been satisfied:
(i) The Issuer and the Trustee have entered into a Supplemental
Indenture (which Supplemental Indenture shall not require the
approval of the Registered Owners of any of the Outstanding Notes)
providing the terms and forms of the Additional Notes, including the
designation of such Additional Notes as Senior Notes, Subordinate
Notes or Junior-Subordinate Notes, the redemption provisions
applicable to such Additional Notes and the selection provisions
applicable to such Additional Notes in the case of partial
redemptions not inconsistent with this Indenture, and which adopts
the applicable provisions of this Indenture.
(ii) The Issuer has delivered to the Trustee within 30 days prior
to the delivery of the proposed Additional Notes a Cash Flow
Certificate which, taking into account the then-existing Trust Estate
as well as the Trust Estate after giving effect to the issuance of
the proposed Additional Notes, shows, with respect to the period
covered by the Cash Flow Certificate, which period shall extend from
the date of the Cash Flow Certificate to the latest maturity of the
Notes expected to be Outstanding after the issuance of the proposed
Additional Notes, (A) all Revenue expected to be received during such
period from the Trust Estate, (B) the application of all such Revenue
in accordance with this Indenture and (C) the resulting periodic
balances on each Interest Payment Date, and shows that anticipated
Revenue will exceed, by a margin of $250,000 plus any additional
amount, if any, required by any Supplemental Indenture, the amount
necessary to pay the principal of and interest on the Notes,
including the proposed Additional Notes, when due and all expenses
payable under this Indenture when due, under all scenarios included
in the Cash Flows.
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(iii) Written evidence from each Rating Agency which has been
requested by the Issuer to and has assigned a Rating or Ratings to
any series of Notes that such Rating or Ratings will not be reduced
or withdrawn as a result of the issuance of the proposed Additional
Notes; provided however, that if any series of the Notes are not then
rated by any Rating Agency, such Additional Notes may not be secured
on a parity with or subordinate to such unrated Notes.
(iv) An opinion of Note Counsel to the effect that all of the
foregoing conditions to the issuance of the proposed Additional Notes
have been satisfied.
(v) Upon the issuance of the Additional Notes, an amount shall
be deposited to the Reserve Fund to increase the amount on deposit
therein to equal the Reserve Fund Requirement.
(vi) The Trustee shall have received an opinion of Note Counsel
in form and substance acceptable to it to the effect that the
issuance of the Additional Notes, if consummated, would not cause the
Notes to fail to be characterized as the indebtedness of the Issuer
for federal income tax purposes.
(c) Any Additional Notes shall have Stated Maturities of July 1 of
any years or years.
(d) The Trustee is authorized to set up any additional Funds or
Accounts under this Indenture which it deems necessary or convenient in
connection with the issuance and delivery of any Additional Notes.
(e) Additional Notes which constitute Senior Notes shall be
designated by their year of authorization, the letter "A" and a number
indicating its sequence of issuance in that year. Additional Notes which
constitute Subordinate Notes shall be designated by their year of
authorization, the letter "B" and a number indicating its sequence of
issuance in that year. Additional Notes which constitute Junior-
Subordinate Notes shall be designated by their year of authorization, an
alphabetic letter indicating its subordination (which must be a "C," "D" or
lower) and a number indicating its sequence of issuance in that year (i.e.
the second issuance of Junior-Subordinate Notes in 1996 could be designated
"Class 1996C-2" or "Class 1996D-2" depending upon its level of
subordination). The payment of principal of and interest on a Junior-
Subordinate Note designated with a "D" is subordinated to the payment of
principal of and interest on a Junior-Subordinate Note designated with a
"C."
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ARTICLE III
PARITY OF LIEN; OTHER OBLIGATIONS;
AND SWAP AGREEMENTS
Section 3.01. PARITY OF LIEN. The provisions, covenants and agreements
herein set forth to be performed by or on behalf of the Issuer shall be for the
equal benefit, protection and security of the Registered Owners of any and all
of the Notes, all of which, regardless of the time or times of their issuance or
maturity, shall be of equal rank without preference, priority or distinction of
any of the Notes over any other thereof, except as expressly provided in this
Indenture.
Section 3.02. OTHER OBLIGATIONS.
(a) The Issuer shall not commingle the Funds established by this
Indenture with funds, proceeds, or investment of funds relating to other
issues or series of notes heretofore or hereafter issued, except to the
extent such commingling is required by the Trustee for ease in
administration of its duties and responsibilities; provided, however, that
should the Trustee require such permitted commingling, it shall keep
complete records in order that the funds, proceeds, or investments under
this Indenture may at all times be identified by source and application,
and if necessary, separated.
(b) The Issuer shall not create or voluntarily permit to be created
any debt, lien, or charge which would be on a parity with, junior to, or
prior to the lien of this Indenture; shall not do or omit to do or suffer
to be done or omitted to be done any matter or things whatsoever whereby
the lien of this Indenture or the priority of such lien for the Notes and
Issuer Swap Payments hereby secured might or could be lost or impaired; and
will pay or cause to be paid or will make adequate provisions for the
satisfaction and discharge of all lawful claims and demands which if unpaid
might by law be given precedence to or any equality with this Indenture as
a lien or charge upon the Financed Eligible Loans; provided, however, that
nothing in this subsection (b) shall require the Issuer to pay, discharge,
or make provision for any such lien, charge, claim, or demand so long as
the validity thereof shall be by it in good faith contested, unless
thereby, in the opinion of the Trustee, the same will endanger the security
for the Notes and Issuer Swap Payments; and provided further that any
subordinate lien hereon (i.e., subordinate to the lien securing the Senior
Notes, the Issuer Swap Payments, the Subordinate Notes and the Junior-
Subordinate Notes) shall be entitled to no payment from the Trust Estate,
nor may any remedy be exercised with respect to such subordinate lien
against the Trust Estate until all Notes and Issuer Swap Payments shall
have been paid or deemed paid hereunder.
Section 3.03. SWAP AGREEMENTS; COUNTERPARTY SWAP PAYMENTS; ISSUER SWAP
PAYMENTS. The Issuer hereby authorizes and directs the Trustee to acknowledge
and agree to any Swap Agreement hereafter entered into by the Issuer and a Swap
Counterparty under which (a) the
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Issuer may be required to make, from time to time, Issuer Swap Payments and
(b) the Trustee may receive, from time to time, Counterparty Swap Payments
for the account of the Issuer. The Issuer shall not execute and deliver any
Swap Agreement unless upon execution and delivery of such Swap Agreement the
notional amount of such Swap Agreement, together with the notional amounts of
any other Swap Agreements outstanding at such time, does not exceed the
aggregate principal amount of Notes Outstanding at such time. In connection
with the execution of a Swap Agreement, the Trustee, on behalf of the Swap
Counterparty and at the Swap Counterparty's written direction, shall waive in
the Supplemental Indenture executed in connection with the Swap Agreement any
and all rights which the Swap Counterparty may have to receive any amounts
realized by the Trustee from foreclosure upon the Trust Estate consisting of
any Swap Agreement and any Swap Counterparty Guarantee.
No later than the Business Day immediately preceding each date on which a
Counterparty Swap Payment or Issuer Swap Payment is due pursuant to the
applicable Swap Agreement through and including the termination date of a Swap
Agreement, the Issuer shall give written notice to the Trustee stating either
(a) the amount of any Counterparty Swap Payment due to be received by the
Trustee for the account of the Issuer no later than such Interest Payment Date
or (b) the amount of any Issuer Swap Payment to be paid to the Swap Counterparty
on such Interest Payment Date. If the Trustee fails to receive such written
notification from the Issuer by the end of such Business Day, it shall
immediately notify the Issuer of such fact in writing.
On any Business Day on which a Counterparty Swap Payment is due pursuant to
the applicable Swap Agreement in accordance with the written notification
received from the Issuer, the Trustee shall deposit all moneys received
representing such Counterparty Swap Payment in the Revenue Fund to be applied in
accordance with the provisions of Section 5.03 hereof. The Trustee shall notify
the Issuer on such Business Day, if (a) the amount received from the Swap
Counterparty is not equal to the amount specified in the written notification of
the Issuer, (b) no amount is received from the Swap Counterparty or (c) the
amount received is not received in freely transferable funds.
On any date with respect to which an Issuer Swap Payment is due in
accordance with the written notification received from the Issuer or, with
respect to a payment in respect of an early termination date, from the Swap
Counterparty, the Trustee shall make payment to the Swap Counterparty from
moneys in the Revenue Fund of the amount of the Issuer Swap Payment specified in
such written notification of the Issuer or the Swap Counterparty, as the case
may be, due on such date by the deposit or wire transfer of freely transferable
funds to the credit of the account of the Swap Counterparty specified in such
written notification of the Issuer or the Swap Counterparty, as the case may be.
Nothing in this Indenture shall prohibit, or be construed as prohibiting,
an Issuer Swap Payment or Counterparty Swap Payment from being made on a date
other than an Interest Payment Date.
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ARTICLE IV
PROVISIONS APPLICABLE TO THE NOTES;
DUTIES OF THE ISSUER
Section 4.01. PLEDGE FOR PAYMENT. The Notes and interest thereon and any
Issuer Swap Payments shall be and are hereby declared to be payable from and
equally secured (except as to priority of payment of the Senior Notes and any
Issuer Swap Payments secured on a parity with the Senior Notes, over the
Subordinate Notes and any Issuer Swap Payment secured on a parity with the
Subordinate Notes, and the Junior-Subordinate Notes and any Issuer Swap Payments
secured on a parity with the Junior-Subordinate Notes, the priority of payment
of the Senior Notes, any Issuer Swap Payments secured on a parity with the
Senior Notes, the Subordinate Notes and any Issuer Swap Payments secured on a
parity with the Subordinate Notes, over the Junior-Subordinate Notes and any
Issuer Swap Payments secured on a parity with the Junior-Subordinate Notes, and
the priority, if any, of payment of one series of Junior-Subordinate Notes and
any Issuer Swap Payments secured on a parity with such series of Junior-
Subordinate Notes over any other series of Junior-Subordinate Notes and any
Issuer Swap Payments secured on a parity with such series of Junior-Subordinate
Notes, as provided herein or as provided in any Supplemental Indenture) by an
irrevocable first lien on and pledge of the properties constituting the Trust
Estate, subject to the application thereof as permitted by this Indenture, but
in no event shall the Registered Owners or any Swap Counterparty have any right
to possession of any Financed Eligible Loans, which shall be held only by the
Trustee or its agent or bailee.
Section 4.02. REPRESENTATIONS AND WARRANTIES OF THE ISSUER. The Issuer
represents and warrants that it is duly authorized under the laws of the State
to create and issue the Notes and to execute and deliver this Indenture and any
Swap Agreement and to make the pledge to the payment of Notes and any Issuer
Swap Payments hereunder, that all necessary action on the part of the Issuer and
the Board for the creation and issuance of the Notes and the execution and
delivery of this Indenture and any Swap Agreement has been duly and effectively
taken; and that the Notes in the hands of the Registered Owners thereof and the
Issuer Swap Payments are and will be valid and enforceable special limited
obligations of the Issuer secured by and payable solely from the Trust Estate.
Section 4.03. COVENANTS AS TO ADDITIONAL CONVEYANCES. At any and all
times, the Issuer will duly execute, acknowledge, and deliver, or will cause to
be done, executed, and delivered, all and every such further acts, conveyances,
transfers, and assurances in law as the Trustee shall reasonably require for the
better conveying, transferring, and pledging and confirming unto the Trustee,
all and singular, the properties constituting the Trust Estate hereby
transferred and pledged, or intended so to be transferred and pledged.
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Section 4.04. FURTHER COVENANTS OF THE ISSUER.
(a) The Issuer will cause financing statements and continuation
statements with respect thereto at all times to be filed in the office of
the Secretary of State of the State and any other jurisdiction necessary to
perfect and maintain the security interest granted by the Issuer hereunder.
(b) The Issuer will duly and punctually keep, observe and perform
each and every term, covenant, and condition on its part to be kept,
observed, and performed, contained in this Indenture and the other
agreements to which the Issuer is a party pursuant to the transactions
contemplated herein, and will punctually perform all duties required by the
Articles of Incorporation and Bylaws of the Issuer and the laws of the
State.
(c) The Issuer shall be operated on the basis of its Fiscal Year.
(d) The Issuer shall cause to be kept full and proper books of
records and accounts, in which full, true, and proper entries will be made
of all dealings, business, and affairs of the Issuer which relate to the
Notes and any Swap Agreement.
(e) The Issuer, upon written request of the Trustee, will permit at
all reasonable times the Trustee or its agents, accountants, and attorneys,
to examine and inspect the property, books of account, records, reports,
and other data relating to the Financed Student Loans, and will furnish the
Trustee such other information as it may reasonably request. The Trustee
shall be under no duty to make any such examination unless requested in
writing to do so by the Registered Owners of 51% in collective aggregate
principal amount of the Notes at the time Outstanding, and unless such
Registered Owners shall have offered the Trustee security and indemnity
satisfactory to it against any costs, expenses and liabilities which might
be incurred thereby.
(f) The Issuer shall cause an annual audit to be made by an
independent auditing firm of national reputation and file one copy thereof
with the Trustee within 150 days of the close of each Fiscal Year. The
Trustee shall be under no obligation to review or otherwise analyze such
audit.
(g) The Issuer covenants that in the event it intends to transfer or
sell Financed Eligible Loans which are a part of the Trust Estate, it shall
give written notice thereof to the Trustee. The Issuer also covenants that
in the event it intends to transfer or sell Financed Eligible Loans (except
in the case of a consolidation or serialization combination or submitting
Financial Eligible Loans for claim to a Guaranty Agency), it shall give
written notice thereof to each Rating Agency. The Issuer shall not sell
Financed Eligible Loans except as permitted by this Indenture, in which
case such Financed Eligible Loans may be sold at a price not less than the
principal amount thereof (including accrued but unpaid interest). In such
case, the proceeds thereof shall be used
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to either acquire Eligible Loans with the same or more favorable
characteristics or to redeem Notes. Further, there shall be no sale of
Financed Eligible Loans (except in the case of a consolidation or
serialization/combination or submitting Financial Eligible Loans for
claim to a Guaranty Agency) if the Aggregate Market Value of the Trust
Estate is less than the aggregate principal amount of the Notes
Outstanding and there shall be no sale of Financed Eligible Loans
(except in the case of a consolidation or serialization/combination or
submitting Financial Eligible Loans for claim to a Guaranty Agency) when
the Aggregate Market Value of the Trust Estate is greater than the
aggregate principal amount of the Notes Outstanding unless, immediately
upon such sale, the proceeds thereof are used to acquire an equal or
greater principal amount of Eligible Loans or are used to optionally
redeem Notes pursuant to Section 2.02(b) hereof, and thereupon the
Aggregate Market Value of the Trust Estate is greater than the aggregate
principal amount of all Notes Outstanding (after giving effect to such
redemption). Notwithstanding the prior sentence, Financed Eligible
Loans may be sold when the Aggregate Market Value of the Trust Estate is
less than the aggregate principal amount of the Notes Outstanding, so
long as immediately upon such sale, the proceeds thereof are used to
acquire an equal or greater principal amount of Eligible Loans having a
value comparable to the Financed Eligible Loans being sold and any
unamortized premium paid by the Issuer with respect to the Financed
Eligible Loan being sold is recovered in connection with the
transaction; provided, however, that in the event such sale and purchase
of Financed Eligible Loans would result in (i) an increase in the number
of Financed Eligible Loans held in the Trust Estate that are delinquent,
in deferment or subject to forbearance with respect to collection, or
(ii) an increase of 5% or more in the total percentage of Financed
Eligible Loans held in the Trust Estate that are (x) attributable to
Student Loans the proceeds of which funded tuition to private Eligible
Institutions offering only non-baccalaureate degrees, or (y) PLUS Loans,
SLS Loans, Unsubsidized Loans or Consolidation Loans, then no such sale
of Financed Eligible Loans may be consummated unless the Trustee has
received written evidence from each Rating Agency that such sale and
subsequent purchase of Financed Eligible Loans would not, by itself,
reduce or withdraw the current ratings of the Notes Outstanding.
(h) The Issuer covenants that all Financed Eligible Loans upon
receipt thereof shall be delivered to the Trustee or its agent or bailee to
be held pursuant to this Indenture and pursuant to the Servicing Agreement
or a custodian agreement.
(i) Notwithstanding anything to the contrary contained herein, except
upon the occurrence and during the continuance of an Event of Default
hereunder, the Issuer hereby expressly reserves and retains the privilege
to receive and, subject to the terms and provisions of this Indenture, to
keep or dispose of, claim, bring suits upon or otherwise exercise, enforce
or realize upon its rights and interest in and to the Financed Eligible
Loans and the proceeds and collections therefrom, and neither the Trustee
nor any Registered Owner shall in any manner be or be deemed to be an
indispensable party to the exercise of any such privilege, claim or suit
and the Trustee shall be under no obligation whatsoever to exercise any
such privilege, claim or suit; provided, however,
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that the Trustee shall have and retain possession of the Financed
Eligible Loans pursuant to Section 5.02 hereof (which Financed Eligible
Loans may be held by the Trustee's agent or bailee) so long as such
loans are subject to the lien of this Indenture.
(j) The Issuer shall notify the Trustee and each Rating Agency in
writing prior to entering into any Swap Agreement.
Section 4.05. ENFORCEMENT OF SERVICING AGREEMENTS. The Issuer shall
comply with and shall require the Servicer to comply with the following whether
or not the Issuer is otherwise in default under this Indenture:
(a) cause to be diligently enforced and taken all reasonable steps,
actions and proceedings necessary for the enforcement of all terms,
covenants and conditions of all Servicing Agreements, including the prompt
payment of all amounts due the Issuer thereunder, including without
limitation all principal and interest payments, and Guarantee payments
which relate to any Financed Eligible Loans and cause the Servicer to
specify whether payments received by it represent principal or interest;
(b) not permit the release of the obligations of any Servicer under
any Servicing Agreement except in conjunction with amendments or
modifications permitted by (g) below;
(c) at all times, to the extent permitted by law, cause to be
defended, enforced, preserved and protected the rights and privileges of
the Issuer and of the Registered Owners under or with respect to each
Servicing Agreement;
(d) at its own expense, the Issuer shall duly and punctually perform
and observe each of its obligations to the Servicer under the Servicing
Agreement in accordance with the terms thereof;
(e) the Issuer agrees to give the Trustee prompt written notice of
each default on the part of the Servicer of its obligations under the
Servicing Agreement coming to the Issuer's attention;
(f) the Issuer shall not waive any default by the Servicer under the
Servicing Agreement without the written consent of the Trustee; and
(g) not consent or agree to or permit any amendment or modification
of any Servicing Agreement which will in any manner materially adversely
affect the rights or security of the Registered Owners. The Issuer shall
be entitled to receive and rely upon an opinion of Issuer's Counsel that
any such amendment or modification will not materially adversely affect the
rights or security of the Registered Owners.
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Section 4.06. PROCEDURES FOR TRANSFER OF FUNDS. In any instance where
this Indenture requires a transfer of funds or money from one Fund to another, a
transfer of ownership in investments or an undivided interest therein may be
made in any manner agreeable to the Issuer and the Trustee, and in the
calculation of the amount transferred, interest on the investment which has or
will accrue before the date the money is needed in the fund to which the
transfer is made shall not be taken into account or considered as money on hand
at the time of such transfer.
Section 4.07. ADDITIONAL COVENANTS WITH RESPECT TO THE ACT. The Issuer
covenants that it will cause the Trustee to be, or replace the Trustee with, an
Eligible Lender under the Act, that it will acquire or cause to be acquired
Eligible Loans originated and held only by an Eligible Lender and that it will
not dispose of or deliver any Financed Eligible Loans or any security interest
in any such Financed Eligible Loans to any party who is not an Eligible Lender
so long as the Act or Regulations adopted thereunder require an Eligible Lender
to be the owner or holder of Guaranteed Student Loans; provided, however, that
nothing above shall prevent the Issuer from delivering the Eligible Loans to the
Servicer or the Guarantee Agency. The Registered Owners of the Notes shall not
in any circumstances be deemed to be the owner or holder of the Guaranteed
Student Loans.
The Issuer, or its designated agent, shall be responsible for each of the
following actions with respect to the Act:
(a) The Issuer, or its designated agent, shall be responsible for
dealing with the Secretary with respect to the rights, benefits and
obligations under the Certificates of Insurance and the Contract of
Insurance, and the Issuer shall be responsible for dealing with the
Guarantee Agencies with respect to the rights, benefits and obligations
under the Guarantee Agreements with respect to the Financed Eligible Loans;
(b) The Issuer, or its designated agent, shall cause to be diligently
enforced, and shall cause to be taken all reasonable steps, actions and
proceedings necessary or appropriate for the enforcement of all terms,
covenants and conditions of all Financed Eligible Loans and agreements in
connection therewith, including the prompt payment of all principal and
interest payments and all other amounts due thereunder;
(c) The Issuer, or its designated agent, shall cause the Financed
Eligible loans to be serviced by entering into the Servicing Agreement or
other agreement with the Servicer for the collection of payments made for,
and the administration of the accounts of, the Financed Eligible Loans; and
(d) The Issuer, or its designated agent, shall comply, and shall
cause all of its officers, directors, employees and agents to comply, with
the provisions of the Act and any regulations or rulings thereunder, with
respect to the Financed Eligible Loans.
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(e) The Issuer, or its designated agent, shall cause the benefits of
the Guarantee Agreements, the Interest Subsidy Payments and the Special
Allowance Payments to flow to the Trustee. The Trustee shall have no
liability for actions taken at the direction of the Issuer, except for
negligence or willful misconduct in the performance of its express duties
hereunder. The Trustee shall have no obligation to administer, service or
collect the loans in the Trust Estate or to maintain or monitor the
administration, servicing or collection of such loans.
The Trustee shall not be deemed to be the designated agent for the
purposes of this Section 4.07 unless it has agreed in writing to be such
agent.
Section 4.08. STUDENT LOANS; COLLECTIONS THEREOF; ASSIGNMENT THEREOF. The
Issuer, through the Servicer, shall diligently collect all principal and
interest payments on all Financed Eligible Loans, and all Interest Benefit
Payments, Insurance Guarantee and default claims and Special Allowance Payments
which relate to such Financed Eligible Loans. The Issuer shall cause the filing
and assignment of such claims (prior to the timely-filing deadline for such
claims under the Regulations) by the Servicer. The Issuer will comply with the
Act and Regulations which apply to the Guaranteed Student Loan Program and to
such Financed Eligible Loans.
Section 4.09. APPOINTMENT OF AGENTS, ETC. The Issuer shall employ and
appoint all employees, agents, consultants and attorneys which it may consider
necessary. No member of the Board, neither singly or collectively, shall be
personally liable for any act or omission not willfully fraudulent or MALA FIDE.
Section 4.10. CAPACITY TO SUE. The Issuer shall have the power and
capacity to sue and to be sued on matters arising out of or relating to the
financing of the Financed Eligible Loans.
Section 4.11. CONTINUED EXISTENCE; SUCCESSOR TO ISSUER. The Issuer agrees
that it will do or cause to be done all things necessary to preserve and keep in
full force and effect its existence, rights and franchises as a Nevada
corporation, except as otherwise permitted by this Section 4.11. The Issuer
further agrees that it will not (a) sell, transfer or otherwise dispose of all
or substantially all, of its assets (except Financed Eligible Loans if such
sale, transfer or disposition will discharge this Indenture in accordance with
Article X hereof); (b) consolidate with or merge into another corporation or
entity; or (c) permit one or more other corporations or entities to consolidate
with or merge into it. The preceding restrictions in (a), (b) and (c) shall not
apply to a transaction if the transferee or the surviving or resulting
corporation or entity, if other than the Issuer, by proper written instrument
for the benefit of the Trustee, irrevocably and unconditionally assumes the
obligation to perform and observe the agreements and obligations of the Issuer
under this Indenture.
If a transfer is made as provided in this Section, the provisions of this
Section shall continue in full force and effect and no further transfer shall be
made except in compliance with the provisions of this Section.
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Section 4.12. AMENDMENT OF LOAN PURCHASE AGREEMENTS. The Issuer shall
notify the Trustee in writing of any proposed amendments to any existing Student
Loan Purchase Agreement. No such amendment shall become effective unless and
until the Trustee consents thereto in writing. The consent of the Trustee shall
not be unreasonably withheld and shall not be withheld if the Trustee receives
an opinion of Counsel acceptable to them that such an amendment is required by
the Act and is not materially prejudicial to the Registered Owners.
Notwithstanding the foregoing, however, the Trustee shall consent to an
amendment from time to time so long as it is not materially prejudicial to the
interests of the Registered Owners.
Section 4.13. REPRESENTATIONS; NEGATIVE COVENANTS.
(a) The Issuer hereby makes the following representations and
warranties to the Trustee on which the Trustee relies in authenticating the
Notes and on which the Registered Owners have relied in purchasing the
Notes. Such representations and warranties shall survive the transfer and
assignment of the Trust Estate to the Trustee.
(i) ORGANIZATION AND GOOD STANDING. The Issuer is duly
organized and validly existing under the laws of the State, and has
the power to own its assets and to transact the business in which it
presently engages.
(ii) DUE QUALIFICATION. The Issuer is duly qualified to do
business and is in good standing, and has obtained all material
necessary licenses and approvals, in all jurisdictions where the
failure to be so qualified, have such good standing or have such
licenses or approvals would have a material adverse effect on the
Issuer's business and operations or in which the actions as required
by this Indenture require or will require such qualification.
(iii) AUTHORIZATION. The Issuer has the power, authority and
legal right to execute, deliver and perform this Indenture, the
Student Loan Purchase Agreement, the Broker Dealer Agreement, the
Auction Agent Agreement and the Servicing Agreement and to grant the
Trust Estate to the Trustee and the execution, delivery and
performance of this Indenture, the Student Loan Purchase Agreement,
the Broker Dealer Agreement, the Auction Agent Agreement and the
Servicing Agreement and grant of the Trust Estate to the Trustee have
been duly authorized by the Issuer by all necessary corporate action.
(iv) BINDING OBLIGATION. This Indenture, the Student Loan
Purchase Agreement, the Broker Dealer Agreement, the Auction Agent
Agreement and the Servicing Agreement, assuming due authorization,
execution and delivery by the other parties hereto and thereto, each
constitutes a legal, valid and binding obligation of the Issuer
enforceable against the Issuer in accordance with its terms, except
that (A) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws (whether statutory,
regulatory or decisional) now or hereafter in effect relating to
creditors' rights
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generally and (B) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to
certain equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought, whether a
proceeding at law or in equity.
(v) NO VIOLATION. The consummation of the transactions
contemplated by this Indenture, the Student Loan Purchase Agreement,
the Broker Dealer Agreement, the Auction Agent Agreement and the
Servicing Agreement and the fulfillment of the terms hereof or thereof
does not conflict with, result in any breach of any of the terms and
provisions of or constitute (with or without notice, lapse of time or
both) a default under the organizational documents of the Issuer, or
any material indenture, agreement, mortgage, deed of trust or other
instrument to which the Issuer is a party or by which it is bound, or
result in the creation or imposition of any lien upon any of its
material properties pursuant to the terms of any such indenture,
agreement, mortgage, deed of trust or other instrument, other than
this Indenture, nor violate any law or any order, rule or regulation
applicable to the Issuer of any court or of any federal or state
regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over the Issuer or any of its
properties.
(vi) NO PROCEEDINGS. There are no proceedings, injunctions,
writs, restraining orders or investigations to which the Issuer or any
of such entity's affiliates is a party pending, or, to the best of
such entity's knowledge, threatened, before any court, regulatory
body, administrative agency, or other tribunal or governmental
instrumentality (A) asserting the invalidity of this Indenture, the
Student Loan Purchase Agreement, the Broker Dealer Agreement, the
Auction Agent Agreement or the Servicing Agreement, (B) seeking to
prevent the issuance of any Notes or the consummation of any of the
transactions contemplated by this Indenture, the Student Loan Purchase
Agreement, the Broker Dealer Agreement, the Auction Agent Agreement or
the Servicing Agreement or (C) seeking any determination or ruling
that might materially and adversely affect the performance by the
Issuer of its obligations under, or the validity or enforceability of,
this Indenture, the Student Loan Purchase Agreement, the Broker Dealer
Agreement, the Auction Agent Agreement or the Servicing Agreement.
(vii) APPROVALS. All approvals, authorizations, consents, orders
or other actions of any person, corporation or other organization, or
of any court, governmental agency or body or official, required on the
part of the Issuer in connection with the execution and delivery of
this Indenture, the Student Loan Purchase Agreement, the Broker Dealer
Agreement, the Auction Agent Agreement and the Servicing Agreement
have been taken or obtained on or prior to the Date of Issuance.
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(viii) PLACE OF BUSINESS. The Issuer's place of business and chief
executive office is in 2255-A Renaissance Drive, Las Vegas, Nevada
89119.
(ix) TAX AND ACCOUNTING TREATMENT. The Issuer intends to treat
the transactions contemplated by the Student Loan Purchase Agreement
as an absolute transfer rather than as a pledge of the Financed
Eligible Loans from the Seller for federal income tax and financial
accounting purposes and the Issuer will be treated as the owner of the
Financed Eligible Loans for all purposes. The Issuer further intends
to treat the Notes as its indebtedness for federal income tax and
financial accounting purposes.
(x) TAXES. The Issuer has filed (or caused to be filed) all
federal, state, county, local and foreign income, franchise and other
tax returns required to be filed by it through the date hereof, and
has paid all taxes reflected as due thereon. The Issuer has taken all
steps necessary to ensure that it is eligible to file a consolidated
federal income tax return with Union Financial Services, Inc. and such
returns will be filed for all taxable years in which the Notes are
Outstanding. There is no pending dispute with any taxing authority
that, if determined adversely to the Issuer, would result in the
assertion by any taxing authority of any material tax deficiency, and
the Issuer has no knowledge of a proposed liability for any tax year
to be imposed upon such entity's properties or assets for which there
is not an adequate reserve reflected in such entity's current
financial statements.
(xi) LEGAL NAME. The legal name of the Issuer is "Union
Financial Services-1, Inc." and has not changed since its inception.
The Issuer has no tradenames, fictitious names, assumed names or
"dba's" under which it conducts its business and has made no filing in
respect of any such name.
(xii) BUSINESS PURPOSE. The Issuer has acquired the Financed
Eligible Loans conveyed to it under the Student Loan Purchase
Agreement for a bona fide business purpose and has undertaken the
transactions contemplated herein as principal rather than as an agent
of any other person. The Issuer has no subsidiaries, has adopted and
operated consistently with all corporate formalities with respect to
its operations and has engaged in no other activities other than those
specified in this Indenture, the Student Loan Purchase Agreement, the
Broker Dealer Agreement, the Auction Agent Agreement and the Servicing
Agreement and in accordance with the transactions contemplated herein
and therein.
(xiii) COMPLIANCE WITH LAWS. The Issuer is in compliance with all
applicable laws and regulations with respect to the conduct of its
business and has obtained and maintains all permits, licenses and
other approvals as are necessary for the conduct of its operations.
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(xiv) VALID BUSINESS REASONS; NO FRAUDULENT TRANSFERS. The
transactions contemplated by this Indenture are in the ordinary course
of the Issuer's business and the Issuer has valid business reasons for
granting the Trust Estate pursuant to this Indenture. At the time of
each such grant: (A) the Issuer granted the Trust Estate to the
Trustee without any intent to hinder, delay, or defraud any current or
future creditor of the Issuer; (B) the Issuer was not insolvent and
did not become insolvent as a result of any such grant; (C) the Issuer
was not engaged and was not about to engage in any business or
transaction for which any property remaining with such entity was an
unreasonably small capital or for which the remaining assets of such
entity are unreasonably small in relation to the business of such
entity or the transaction; (D) the Issuer did not intend to incur, and
did not believe or should not have reasonably believed, that it would
incur, debts beyond its ability to pay as they become due; and (E) the
consideration paid received by the Issuer for the grant of the Trust
Estate was reasonably equivalent to the value of the related grant.
(xv) NO MANAGEMENT OF AFFAIRS OF SELLER. The Issuer is not and
will not be involved in the day-to-day management of the Seller or the
Issuer's parent or any affiliate.
(xvi) NO INTERCORPORATE TRANSFERS WITH SELLER OR AFFILIATES.
Other than the acquisition of assets and the transfer of any Notes
pursuant to this Indenture, the Issuer does not engage in and will not
engage in any intercorporate transactions with the Seller and
affiliates, except as provided herein with respect to Maintenance and
Operating Expenses or the payment of dividends to the Issuer's parent.
(xvii) ABILITY TO PERFORM. There has been no material impairment
in the ability of the Issuer to perform its obligations under this
Indenture, the Student Loan Purchase Agreement, the Broker Dealer
Agreement, the Auction Agent Agreement or the Servicing Agreement.
(xviii) FINANCIAL CONDITION. No material adverse change has
occurred in the Issuer's financial status since the date of its
formation.
(xix) EVENT OF DEFAULT. No Event of Default has occurred and no
event has occurred that, with the giving of notice, the passage of
time, or both, would become an Event of Default.
(xx) ACQUISITION OF FINANCED ELIGIBLE LOANS LEGAL. The Issuer
has complied with all applicable federal, state and local laws and
regulations in connection with its acquisition of the Financed
Eligible Loans from the Seller.
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(xxi) NO MATERIAL MISSTATEMENTS OR OMISSIONS. No information,
certificate of an officer, statement furnished in writing or report
delivered to the Trustee, the Servicer or any Registered Owner by the
Issuer contains any untrue statement of a material fact or omits a
material fact necessary to make such information, certificate,
statement or report not misleading.
(b) The Issuer will not:
(i) sell, transfer, exchange or otherwise dispose of any portion
of the Trust Estate except as expressly permitted by this Indenture;
(ii) claim any credit on, or make any deduction from, the
principal amount of any of the Notes by reason of the payment of any
taxes levied or assessed upon any portion of the Trust Estate;
(iii) except as otherwise provided herein, dissolve or liquidate
in whole or in part, except with the prior written consent of the
Trustee, and to the extent Notes remain Outstanding, Noteholder
approval and prior written confirmation from each Rating Agency that
the respective ratings on the Notes will not be reduced or withdrawn;
(iv) permit the validity or effectiveness of this Indenture, any
Supplement or any grant hereunder to be impaired, or permit the lien
of this Indenture to be amended, hypothecated, subordinated,
terminated or discharged, or permit any Person to be released from any
covenants or obligations under this Indenture, except as may be
expressly permitted hereby;
(v) except as otherwise provided herein, permit any lien,
charge, security interest, mortgage or other encumbrance (other than
the lien of this Indenture) to be created on or extend to or otherwise
arise upon or burden the Trust Estate or any part thereof or any
interest therein or the proceeds thereof;
(vi) permit the lien of this Indenture not to constitute a valid
first priority, perfected security interest in the Trust Estate;
(vii) incur or assume any indebtedness or guarantee any
indebtedness of any Person whether secured by any Financed Eligible
Loans under this Indenture or otherwise, except for such obligations
as may be incurred by the Issuer in connection with the issuance of
the Notes pursuant to this Indenture and unsecured trade payables in
the ordinary course of its business;
(viii) operate such that it would be consolidated with its parent
or any other affiliate and its separate corporate existence
disregarded in any federal or state proceeding;
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(ix) act as agent of any Seller or, except as provided in the
Servicing Agreement, allow the Seller to act as its agent;
(x) allow the Seller or its parent or any other affiliate to pay
its expenses, guarantee its obligations or advance funds to it for
payment of expenses; or
(xi) consent to the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating to the
Issuer or of or relating to all or substantially all of its property,
or a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings,
or for the winding-up or liquidation of its affairs, shall have been
entered against the Issuer; or the Issuer shall not consent to the
appointment of a receiver, conservator or liquidator in any
insolvency, readjustment of debt, marshalling of assets and
liabilities, voluntary liquidation or similar proceedings of or
relating to the Issuer or of or relating to all or substantially all
of its property; or admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage of any
applicable insolvency, bankruptcy or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations.
(c) The Issuer makes the following representations and warranties as
to the Trust Estate which is granted to the Trustee hereunder on such date,
on which the Trustee relies in accepting the Trust Estate. Such
representations and warranties shall survive the grant of the Trust Estate
to the Trustee pursuant to this Indenture:
(i) FINANCED ELIGIBLE LOANS. Each Financed Eligible Loan
acquired by the Issuer shall constitute an Eligible Loan and contain
the characteristics found in the Student Loan Purchase Agreement.
(ii) SCHEDULE OF FINANCED ELIGIBLE LOANS. The information set
forth in each Schedule of Financed Eligible Loans is true and correct
in all material respects as of the opening of business on the Date of
Issuance.
(iii) GRANT. It is the intention of the Issuer that the transfer
herein contemplated constitutes a grant of the Financed Eligible Loans
to the Trustee.
(iv) ALL FILINGS MADE. All filings (including, without
limitation, UCC filings) necessary in any jurisdiction to give the
Trustee a first priority perfected ownership and security interest in
the Trust Estate, including the Financed Eligible Loans, have been
made no later than the Date of Issuance and copies of
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the file-stamped financing statements shall be delivered to the
Trustee within five Business Days of receipt by the Issuer or its
agent from the appropriate secretary of state. The Issuer has not
caused, suffered or permitted any lien, pledges, offsets, defenses,
claims, counterclaims, charges or security interest with respect to
the promissory notes relating to the Financed Eligible Loans (other
than the security interest created in favor of the Trustee) to be
created.
(v) TRANSFER NOT SUBJECT TO BULK TRANSFER ACT. Each grant of
the Financed Eligible Loans by the Issuer pursuant to this Indenture
is not subject to the bulk transfer act or any similar statutory
provisions in effect in any applicable jurisdiction.
(vi) NO TRANSFER TAXES DUE. Each grant of the Financed Eligible
Loans (including all payments due or to become due thereunder) by the
Issuer pursuant to this Indenture is not subject to and will not
result in any tax, fee or governmental charge payable by the Issuer or
the Seller to any federal, state or local government.
Section 4.14. ADDITIONAL COVENANTS. So long as any of the Notes are
Outstanding:
(a) The Issuer shall not engage in any business or activity other
than in connection with the activities contemplated hereby and in the
Student Loan Purchase Agreement, and in connection with the issuance of
Additional Notes.
(b) The Issuer shall not consolidate or merge with or into any other
entity or convey or transfer its properties and assets substantially as an
entirety to any entity except as otherwise provided herein.
(c) The funds and other assets of the Issuer shall not be commingled
with those of any other individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust, unincorporated
organization, or government or any agency or political subdivision thereof.
(d) The Issuer shall not be, become or hold itself out as being
liable for the debts of any other party.
(e) The Issuer shall not form, or cause to be formed, any
subsidiaries.
(f) The Issuer shall act solely in its own name and through its duly
authorized officers or agents in the conduct of its business, and shall
conduct its business so as not to mislead others as to the identity of the
entity with which they are concerned.
(g) The Issuer shall maintain its records and books of account and
shall not commingle its records and books of account with the records and
books of account of any
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other Person. The books of the Issuer may be kept (subject to any
provision contained in the statutes) inside or outside the State at such
place or places as may be designated from time to time by the board of
trustees or in the bylaws of the Issuer.
(h) All actions of the Issuer shall be taken by a duly authorized
officer or agent of the Issuer.
(i) The Issuer shall not amend, alter, change or repeal any provision
contained in this Section 4.14 without (i) the prior written consent of the
Trustee and (ii) prior written confirmation from each Rating Agency rating
any Notes Outstanding (a copy of which shall be provided to the Trustee)
that such amendment, alteration, change or repeal will have no adverse
effect on the rating assigned to the Notes.
(j) The Issuer shall not amend its Articles of Incorporation without
first obtaining the prior written consent of each Rating Agency.
(k) All audited financial statements of the Issuer that are
consolidated with those of any affiliate thereof will contain detailed
notes clearly stating that (i) all of the Issuer's assets are owned by the
Issuer, and (ii) the Issuer is a separate entity with creditors who have
received ownership and/or security interests in the Issuer's assets.
(l) The Issuer will strictly observe legal formalities in its
dealings with the Seller, the Issuer's parent or any affiliate thereof, and
funds or other assets of the Issuer will not be commingled with those of
the Seller, the Issuer's parent or any other affiliate thereof. The Issuer
shall not maintain joint bank accounts or other depository accounts to
which the Seller, the Issuer's parent or any other affiliate has
independent access. None of the Issuer's funds will at any time be pooled
with any funds of the Seller, the Issuer's parent or any other affiliate.
(m) The Issuer will maintain an arm's length relationship with the
Seller (and any affiliate). Any Person that renders or otherwise furnishes
services to the Issuer will be compensated by the Issuer at market rates
for such services it renders or otherwise furnishes to the Issuer except as
otherwise provided in this Indenture. Except as contemplated in this
Indenture, the Student Loan Purchase Agreement or the Servicing Agreement,
the Issuer will not hold itself out to be responsible for the debts of the
Seller, the parent or the decisions or actions respecting the daily
business and affairs of the Seller or parent.
Section 4.15. PROVIDING OF NOTICE. The Issuer, upon learning of any
failure on its part to observe or perform in any material respect any covenant,
representation or warranty of the Issuer set forth in this Indenture or the
Student Loan Purchase Agreement, or of any failure on the part of the Seller to
observe or perform in any material respect any covenant, representation or
warranty of the Seller set forth in the Student Loan Purchase Agreement, shall
promptly notify the Trustee, the Servicer and each Rating Agency of such
failure.
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Section 4.16. REPORTS BY COMPANY. The Company will:
(a) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended; or, if the Company is not
required to file information, documents or reports pursuant to either of
such Sections, then it will file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by the
Commission, such of the supplementary and periodic information, documents
and reports which may be required pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, in respect of a security listed and
registered on a national securities exchange as may be prescribed from time
to time in such rules and regulations;
(b) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and
(c) transmit by mail to the Holders of Securities, within 30 days
after the filing thereof with the Trustee, in the manner and to the extent
provided in TIA Section 313(c), such summaries of any information,
documents and reports required to be filed by the Company pursuant to
clauses (a) and (b) of this Section 7.03 as may be required by rules and
regulations prescribed from time to time by the Commission.
Section 4.17. STATEMENT AS TO COMPLIANCE. The Company will deliver to the
Trustee, within 120 days after the end of each fiscal year, a brief certificate
from the principal executive officer, principal financial officer or principal
accounting officer as to his or her knowledge of the Company's compliance with
all conditions and covenants under this Indenture and, in the event of any
noncompliance, specifying such noncompliance and the nature and status thereof.
For purposes of this Section 4.17, such compliance shall be determined without
regard to any period of grace or requirement of notice under this Indenture.
Section 4.18. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE. The Company covenants that if:
(a) default is made in the payment of any installment of interest or
Additional Amounts, if any, on any Security of any series when such
interest or Additional Amount becomes due and payable and such default
continues for a period of 30 days; or
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(b) default is made in the payment of the principal of (or premium,
if any, on) any Security of any series at its Maturity,
then the Company will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities of such series, the whole amount then
due and payable on such Securities for principal (and premium, if any) and
interest and Additional Amounts, with interest upon any overdue principal (and
premium, if any) and, to the extent that payment of such interest shall be
legally enforceable, upon any overdue installments of interest or Additional
Amounts, if any, at the rate or rates borne by or provided for in such
Securities, and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee and its agents
and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as Trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Securities of such series and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon such Securities
of such series, wherever situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series and any
related coupons by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
Section 4.19. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the pendency
of any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Company or any other obligor upon the Securities or the property of the
Company or of such other obligor or their creditors, the Trustee (irrespective
of whether the principal of the Securities of any series shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company for the payment of
overdue principal, premium, if any, or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount, or such lesser
amount as may be provided for in the Securities of such series, of
principal (and premium, if any) and interest and Additional Amounts, if
any, owing and unpaid in respect of the Securities and to file such other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable
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compensation, expenses, disbursements and advances of the Trustee and
its agents and counsel) and of the Holders allowed in such judicial
proceeding; and
(b) to collect and receive any money or other property payable or
deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator (or other
similar official) in any such judicial proceeding is hereby authorized by
each Holder of Securities of such series to make such payments to the
Trustee, and if the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and advances of the
Trustee and any predecessor Trustee, their agents and counsel, and any
other amounts due the Trustee or any predecessor Trustee under
Section 7.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Security
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder of a Security in any such proceeding.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party), the Trustee shall be held to represent all the
Holders of the Securities, and it shall not be necessary to make any Holders of
the Securities parties to any such proceedings.
ARTICLE V
FUNDS
Section 5.01. CREATION OF FUNDS AND ACCOUNTS.
(a) There are hereby created and established the following Funds to
be held and maintained by the Trustee for the benefit of the Registered
Owners and any Swap Counterparty:
(i) Student Loan Fund, including a Series 1996 Loan Account, a
Series 1996 Note Account, a Series 1996 Recycling Account and any
other Accounts added pursuant to a Supplemental Indenture therein,
(ii) Revenue Fund,
(iii) Reserve Fund,
(iv) Interest Fund, including a Senior Interest Account, a
Subordinate Interest Account and a Junior-Subordinate Interest Account
therein,
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(v) Note Redemption Fund, including a Senior Note Redemption
Account, a Subordinate Note Redemption Account and a Junior-
Subordinate Note Redemption Account therein, and
(vi) Student Loan Holding Fund.
(b) There is hereby created and established the Cost of Issuance Fund
to be held and maintained by the Trustee in which neither the Issuer
(except as provided in Section 5.08 hereof), the Registered Owners and any
Swap Counterparty has any right, title or interest.
(c) The following funds have previously been established by the
Issuer, are hereby continued, do not constitute Funds within the meaning of
this Indenture, and are held by a depository bank of the Issuer for the
benefit of the Issuer, and neither the Trustee, the Registered Owners nor
any Swap Counterparty shall have any right, title or interest therein:
(i) Operating Fund, and
(ii) General Fund.
The Trustee is hereby authorized for the purpose of facilitating the
administration of the Trust Estate and for the administration of any Additional
Notes issued hereunder to create Accounts or subaccounts in any of the various
Funds and Accounts established hereunder which are deemed necessary or
desirable; provided, however, that the obligation of the Issuer to provide such
Funds and Accounts is not altered or amended.
Section 5.02. STUDENT LOAN FUND. On the respective Date of Issuance of
the Series 1996A Notes and the Series 1996B Notes, there was or shall be
transferred to the Series 1996 Loan Account of the Student Loan Fund the amounts
set forth in Sections 2.10(a)(v) and 2.10(b)(v) hereof. In addition, there
shall be deposited from time to time into the Recycling Accounts of the Student
Loan Fund, as appropriate, moneys transferred thereto from the Student Loan
Holding Fund pursuant to Section 5.07 hereof. Financed Eligible Loans acquired
with moneys contained in the Loan Accounts or the Recycling Accounts shall be
held by the Trustee or its agent or bailee (including the Servicer) and pledged
to and accounted for as part of the Note Accounts of the Student Loan Fund.
Moneys transferred to the Loan Accounts of the Student Loan Fund or to the
Recycling Accounts of the Student Loan Fund pursuant to Section 5.07 shall be
used solely to acquire Eligible Loans. An executed Compliance Certificate, in
the form attached hereto as Exhibit D shall be delivered to the Trustee prior to
the acquisition of Financed Eligible Loans. Upon receipt by the Trustee of an
executed Compliance Certificate, the Trustee shall release the aggregate
Purchase Price of the Financed Eligible Loans being purchased from either the
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applicable Loan Account or the applicable Recycling Account, as described in the
Compliance Certificate.
Subject to the provisions of Section 5.04(d) hereof and so long as no Event
of Default has occurred and is continuing, moneys held in the Recycling Accounts
of the Student Loan Fund may be used, subject to the preceding paragraph, to
acquire Eligible Loans, in their respective order of receipt, for a period of up
to one year from the date of deposit therein. If on any Transfer Date moneys
have remained in any Recycling Account of the Student Loan Fund for more than
one year, said moneys shall be immediately transferred to the Note Redemption
Fund unless: (i) the Aggregate Market Value of the Trust Estate is greater than
the aggregate principal amount of Notes Outstanding, or (ii) the Aggregate
Market Value of the Trust Estate is less than the aggregate principal amount of
Notes Outstanding and the Issuer prepares a Cash Flow Certificate and the
Trustee shall receive an opinion of Note Counsel to the effect that the failure
to redeem Notes would not cause the Notes to fail to be characterized as debt
for federal income tax purposes, in which case said moneys shall remain in such
Recycling Account of the Student Loan Fund for a period of up to one additional
year. If such Cash Flow Certificate is not delivered to the Trustee, said
moneys in such Recycling Account of the Student Loan Fund shall be immediately
transferred to the Note Redemption Fund.
No Eligible Loan shall be acquired if, after the Date of Issuance, Congress
has, in the judgment of the Issuer, materially adversely changed any of the
following characteristics of Eligible Loans: (A) the Special Allowance Payments,
(B) the loan interest yield formula, (C) the guaranty obligation of the
Guarantee Agency, (D) the federal interest subsidies, or (E) federal reinsurance
of Eligible Loans, or makes any other economic change in such loans, which, in
each instance, would have a materially adverse effect on the return to the
holder of such loans. The Trustee shall be entitled to rely upon the
certification of an Authorized Officer of the Issuer as to the compliance with
the provisions of this paragraph in connection with the origination and
acquisition of Eligible Loans.
Notwithstanding the foregoing, if on the first Business Day preceding any
Interest Payment Date or Transfer Date there are not sufficient moneys on
deposit in the Revenue Fund to make the transfers required by Section 5.03
hereof, other than Sections 5.03(k) through 5.03(l) hereof, then, but only after
required transfers from the Note Redemption Fund, the Student Loan Holding Fund
and the Reserve Fund, such transfers shall be made by the Trustee upon Issuer
Order, in an amount equal to any such deficiency, directly from the Loan
Accounts of the Student Loan Fund, then from the Recycling Accounts of the
Student Loan Fund and then from the proceeds from the sale of Financed Eligible
Loans in the Note Accounts of the Student Loan Fund.
Notwithstanding anything herein to the contrary, on the Business Day next
preceding January 1, 1998, the Trustee shall transfer to the Note Redemption
Fund, moneys in the Series 1996 Loan Account of the Student Loan Fund specified
in Sections 2.02(a)(ii)(A) and 2.02(a)(ii)(B) hereof.
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The Trustee shall, upon Issuer Order, transfer or liquidate Financed
Eligible Loans and credit the same to the General Fund of the Issuer, but only
to the extent that the conditions set forth in Section 5.10 hereof shall have
been satisfied.
On April 1, 1999, all moneys and investments remaining in the Series 1996
Recycling Account of the Student Loan Fund shall be transferred to the Note
Redemption Fund.
Section 5.03. REVENUE FUND. The Trustee shall deposit into the Revenue
Fund (a) all amounts required to be transferred to the Revenue Fund from the
Student Loan Holding Fund, (b) all amounts designated in Sections 2.10(a)(iv)
and 2.10(b)(iv) hereof, (c) all Counterparty Swap Payments and (d) any other
amounts deposited thereto upon Issuer Order.
Upon Issuer Order directing the same, moneys in the Revenue Fund shall be
used, on any date, to pay fees and expenses of the Servicer when due under the
Servicing Agreement insofar as the same relate to the Financed Eligible Loans,
to pay Trustee fees and expenses incurred under this Indenture and the Custodian
Agreement, to pay Auction Agent fees and expenses incurred under the Auction
Agent Agreement, to pay Broker-Dealer fees and expenses incurred under any
Broker-Dealer Agreement, to pay the Calculation Agent fees and expenses incurred
hereunder, to pay fees and expenses of the Rating Agencies incurred hereunder,
and other fees, taxes, including taxes related to the Issuer's income, and
expenses with respect to the Trust Estate but not included as Maintenance and
Operating Expenses. Payments made in satisfaction of the fees and expenses
described in the preceding sentence, other than taxes related to the Issuer's
income and fees and expenses of the Servicer, shall not exceed the estimate of
such fees and expenses described in Exhibit E-2 attached hereto until January 1,
1999, unless otherwise approved by each Rating Agency and on and after
January 1, 1999, an annual amount not to exceed such estimated fees and expenses
described in a Cash Flow Certificate to be approved by each Rating Agency for a
period approved by each Rating Agency. Moneys in the Revenue Fund shall also be
used, on any date, to pay Maintenance and Operating Expenses in excess of the
Estimated Amount, upon Issuer Order delivered to the Trustee and each Rating
Agency directing the same, but only following delivery of a Cash Flow
Certificate to the Trustee and each Rating Agency showing, among other things,
that the payments required by this Section, other than Sections 5.03(k) through
5.03(l) hereof, will not be impaired and such amount has been approved by each
Rating Agency.
Money in the Revenue Fund shall be kept separate and apart from all other
Funds and shall be used and transferred to (i) the Interest Fund on the first
Business Day preceding each Interest Payment Date (other than a Transfer Date)
as specified in (w), (x) and (y) below and (ii) the Operating Fund on the first
Business Day of each month as specified in (2) below, all in the following order
of precedence (any money not so transferred or paid to remain in the Revenue
Fund until subsequently applied pursuant to this Section):
(w) to the Senior Interest Account of the Interest Fund an amount
necessary to pay interest, if any, due on any Senior Notes on such Interest
Payment Date or any
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Issuer Swap Payment secured on a parity with the Senior Notes due on
such Interest Payment Date, after giving effect to moneys already on
deposit therein;
(x) to the Subordinate Interest Account of the Interest Fund an
amount necessary to pay interest due on any Subordinate Notes on such
Interest Payment Date or any Issuer Swap Payment secured on a parity with
the Subordinate Notes due on such Interest Payment Date, after giving
effect to moneys already on deposit therein;
(y) to the Junior-Subordinate Interest Account of the Interest Fund
an amount necessary to pay interest due on any Junior-Subordinate Notes on
such Interest Payment Date or any Issuer Swap Payment secured on a parity
with the Junior-Subordinate Notes due on such Interest Payment Date, after
giving effect to moneys already on deposit therein; and
(z) An amount equal to the Estimated Amount shall be transferred from
the Revenue Fund to the Operating Fund on the first Business Day of each
month.
In addition, money in the Revenue Fund shall be used and transferred to
other funds or Persons between the fifth and first Business Day preceding each
Transfer Date as specified in this Section and in the following order of
precedence (any money not so transferred or paid to remain in the Revenue Fund
until subsequently applied pursuant to this Section):
(a) if such Transfer Date is an Interest Payment Date, to the Senior
Interest Account of the Interest Fund an amount necessary to pay interest
due on any Senior Notes on such Transfer Date or any Issuer Swap Payment
secured on a parity with the Senior Notes due on such Interest Payment
Date, after giving effect to moneys already on deposit therein;
(b) to the Senior Note Redemption Account of the Note Redemption Fund
the amount, if any, necessary to pay the principal of or premium, if any,
on any Senior Notes due on such Transfer Date (if such Transfer Date is a
Stated Maturity or mandatory sinking fund redemption date, if any, with
respect to such Senior Notes), after giving effect to moneys already on
deposit therein and required transfers from the Reserve Fund;
(c) if such Transfer Date is an Interest Payment Date, to the
Subordinate Interest Account of the Interest Fund an amount necessary to
pay interest due on any Subordinate Notes on such Transfer Date or any
Issuer Swap Payment secured on a parity with the Subordinate Notes due on
such Interest Payment Date, after giving effect to moneys already on
deposit therein;
(d) to the Subordinate Note Redemption Account of the Note Redemption
Fund the amount, if any, necessary to pay the principal of or premium, if
any, on any Subordinate Notes due on such Transfer Date (if such Transfer
Date is a Stated Maturity
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or mandatory sinking fund redemption date, if any, with respect to such
Subordinate Notes), after giving effect to moneys already on deposit
therein and required transfers from the Reserve Fund;
(e) if such Transfer Date is an Interest Payment Date, to the Junior-
Subordinate Interest Account of the Interest Fund an amount necessary to
pay interest due on any Junior-Subordinate Notes on such Transfer Date or
any Issuer Swap Payment secured on a parity with the Junior-Subordinate
Notes due on such Interest Payment Date, after giving effect to moneys
already on deposit therein;
(f) to the Junior-Subordinate Note Redemption Account of the Note
Redemption Fund the amount, if any, necessary to pay the principal of or
premium, if any, on any Junior-Subordinate Notes due on such Transfer Date
(if such Transfer Date is a Stated Maturity or mandatory sinking fund
redemption date with respect to the Junior-Subordinate Notes), after giving
effect to moneys already on deposit therein and required transfers from the
Reserve Fund;
(g) an amount equal to the Net Losses incurred by the Issuer since
the last Transfer Date, as reported to the Trustee by the Issuer, if any,
(i) to the Series 1996 Recycling Account of the Student Loan Fund prior to
April 1, 1999 and (ii) to the Note Redemption Fund on and after April 1,
1999;
(h) to the Reserve Fund the amount, if any, required by Section 5.04
hereof;
(i) [Reserved.];
(j) to the Senior Note Redemption Account of the Note Redemption
Fund, all moneys remaining to reduce the principal amount of the Senior
Notes until such time as the par amount of the Financed Eligible Loans
equals the par amount of the Notes Outstanding, pursuant to
Section 2.02(a)(iii) hereof;
(k) at the option of the Issuer and upon Issuer Order, to the Note
Redemption Fund or, prior to April 1, 1999, to the Series 1996 Recycling
Account of the Student Loan Fund; and
(l) so long as no Event of Default has occurred and is continuing, at
the option of the Issuer and upon Issuer Order, to the General Fund to the
extent permitted by Section 5.10 hereof.
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing, other than an Event of Default described in Section 6.01(g) hereof,
the Revenues otherwise scheduled to be transferred pursuant to subsections (k)
and (l) above shall be transferred instead to the Note Redemption Fund and used
to redeem Notes pursuant to Section 2.02(a) hereof. In addition, if amounts
were available to transfer pursuant to (k) and (l) above, but such transfers
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were not made on the dates provided above, the Trustee shall make such transfers
on a subsequent date no later than six months from the date of required transfer
upon written request of an Authorized Officer of the Issuer, provided that no
Event of Default shall exist hereunder at the time of transfer. In addition, if
the Auction Rate for any Class of Auction Notes exceeds the T-Bill Rate + .80%
for 12 consecutive months, the Trustee shall not transfer the Estimated Amount
to the Operating Fund and shall reduce the Broker-Dealer fees to .13% until such
time as each Rating Agency approves a Cash Flow Certificate prepared by the
Issuer. Any such unpaid Estimated Amount and Broker-Dealer fees shall not be
paid until one year and one day after the Stated Maturity or earlier redemption
of all Notes Outstanding.
Section 5.04. RESERVE FUND.
(a) The Trustee shall deposit to the Reserve Fund the amount
specified in Section 2.10(a)(iii) and 2.10(b)(iii) hereof. The Trustee,
first, shall transfer money in the Reserve Fund to the Senior Interest
Account of the Interest Fund on the first Business Day prior to each
Interest Payment Date to cure any deficiency in the Senior Interest Account
of the Interest Fund if such deficiency would cause a failure to pay or
deposit accrued interest on any Senior Notes on such Interest Payment Date
or to make any Issuer Swap Payment secured on a parity with the Senior
Notes when due and payable on such Interest Payment Date, second, shall
transfer money in the Reserve Fund to the Senior Note Redemption Account of
the Note Redemption Fund on the first Business Day prior to such Transfer
Date to pay the principal amount of any Senior Notes coming due on such
Transfer Date (if such Transfer Date is a Stated Maturity) if the money in
the Senior Note Redemption Account of the Note Redemption Fund is
insufficient to do so, third, shall transfer money in the Reserve Fund to
the Subordinate Interest Account of the Interest Fund on the first Business
Day prior to each Interest Payment Date to cure any deficiency in the
Subordinate Interest Account of the Interest Fund if such deficiency would
cause a failure to pay or deposit accrued interest on any Subordinate Notes
on such Interest Payment Date or to make any Issuer Swap Payment secured on
a parity with the Subordinate Notes when due and payable on such Interest
Payment Date, fourth, shall transfer money in the Reserve Fund to the
Subordinate Note Redemption Account of the Note Redemption Fund on the
first Business Day prior to such Transfer Date to pay the principal amount
of any Subordinate Notes coming due on such Transfer Date (if such Transfer
Date is a Stated Maturity) if the money in the Subordinate Note Redemption
Account of the Note Redemption Fund is insufficient to do so, fifth, shall
transfer money in the Reserve Fund to the Junior-Subordinate Interest
Account of the Interest Fund on the first Business Day prior to each
Interest Payment Date to cure any deficiency in the Junior-Subordinate
Interest Account of the Interest Fund if such deficiency would cause a
failure to pay or deposit accrued interest on any Junior-Subordinate Notes
on such Interest Payment Date or to make any Issuer Swap Payment secured on
a parity with the Junior-Subordinate Notes when due and payable on such
Interest Payment Date, and sixth, shall transfer money in the Reserve Fund
to the Junior-Subordinate Note Redemption Account of the Note Redemption
Fund on the first Business Day prior to such Transfer Date to pay the
principal amount of any Junior-
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Subordinate Notes coming due on such Transfer Date (if such Transfer
Date is a Stated Maturity) if the money in the Junior-Subordinate Note
Redemption Account of the Note Redemption Fund is insufficient to do so.
(b) If the Reserve Fund is used for the purposes described in
Section 5.04(a) hereof the Trustee shall restore the Reserve Fund to the
Reserve Fund Requirement by transfers from the Revenue Fund on the next
Transfer Date pursuant to Section 5.03(h) hereof. If the full amount
required to restore the Reserve Fund to the Reserve Fund Requirement is not
available in the Revenue Fund on such next succeeding Transfer Date, the
Trustee shall continue to transfer funds from the Revenue Fund as they
become available and in accordance with Section 5.03(h) until the
deficiency in the Reserve Fund has been eliminated.
(c) The Reserve Fund shall not contain an amount in excess of the
Reserve Fund Requirement. On any day after a Transfer Date that the amount
in the Reserve Fund exceeds the Reserve Fund Requirement for any reason,
the Trustee shall transfer the excess to the Senior Note Redemption Account
of the Note Redemption Fund until all Senior Notes have been paid in full
and then to the Subordinate Note Redemption Account of the Note Redemption
Fund.
(d) The Reserve Fund shall not be used to pay (i) principal on the
Notes pursuant to an optional redemption or (ii) Net Losses if, after
giving effect to such payments, Notes remain Outstanding and the balance in
the Reserve Fund is less than the Reserve Fund Requirement. In addition,
if the balance in the Reserve Fund is less than $750,000, the Issuer will
not purchase Eligible Loans with proceeds in any Recycling Account of the
Student Loan Fund until such time as each Rating Agency approves a Cash
Flow Certificate prepared by the Issuer.
Section 5.05. INTEREST FUND. On the first Business Day preceding each
Interest Payment Date, the Trustee shall transfer to the Interest Fund from the
Revenue Fund an amount equal to the interest due and payable on such Interest
Payment Date on the Outstanding Notes less any amounts already on deposit in the
Interest Fund. Any moneys transferred to the Interest Fund and not specifically
required to be deposited to any Account therein shall be deposited, first, to
the Senior Interest Account of the Interest Fund to the extent required to
increase the amount on deposit therein to equal the interest due and payable on
the next Interest Payment Date for any Outstanding Senior Notes and the amount
of any Issuer Swap Payment secured on a parity with the Senior Notes due and
payable on the next Interest Payment Date, second, to the Subordinate Interest
Account of the Interest Fund to the extent required to increase the amount on
deposit therein to equal the interest due and payable on the next Interest
Payment Date for any Outstanding Subordinate Notes and the amount of any Issuer
Swap Payment secured on a parity with the Subordinate Notes due and payable on
the next Interest Payment Date and, third, to the Junior-Subordinate Interest
Account of the Interest Fund to the extent required to increase the amount on
deposit therein to equal the interest due and payable on the next Interest
Payment Date for any Outstanding Junior-Subordinate Notes and the amount of any
Issuer Swap Payment
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secured on a parity with the Junior-Subordinate Notes due and payable on the
next Interest Payment Date.
If money sufficient to pay all interest due on the Senior Notes and any
Issuer Swap Payments secured on a parity with the Senior Notes on a particular
Interest Payment Date is not available in the Senior Interest Account of the
Interest Fund for that purpose on the first Business Day preceding an Interest
Payment Date from moneys transferred from the Revenue Fund as provided above,
then the amount of any such deficiency shall be provided from the Reserve Fund,
from any other Account of the Interest Fund, the Junior-Subordinate Note
Redemption Account of the Note Redemption Fund, the Subordinate Note Redemption
Account of the Note Redemption Fund, the Senior Note Redemption Account of the
Note Redemption Fund, the Student Loan Holding Fund and from the Accounts in the
Student Loan Fund (in the order provided in Section 5.02 hereof), in that order.
The money in the Senior Interest Account of the Interest Fund required for the
payment of interest on any Senior Notes and to pay any Issuer Swap Payments
secured on a parity with the Senior Notes shall be applied in accordance with
this Section by the Trustee to the payment of such interest or Issuer Swap
Payments when due without further authorization or direction.
If money sufficient to pay all interest due on any Subordinate Notes and
Issuer Swap Payments secured on a parity with the Subordinate Notes on a
particular Interest Payment Date is not available in the Subordinate Interest
Account of the Interest Fund for that purpose on the first Business Day
preceding an Interest Payment Date from moneys transferred from the Revenue Fund
as provided above, then the amount of any such deficiency shall be provided from
the Reserve Fund (after first making any required transfers from the Reserve
Fund to the Senior Interest Account), and then from the Junior-Subordinate Note
Redemption Account of the Note Redemption Fund, the Subordinate Note Redemption
Account of the Note Redemption Fund, the Student Loan Holding Fund and from the
Accounts in the Student Loan Fund (in the order provided in Section 5.02
hereof), in that order. The money in the Subordinate Interest Account of the
Interest Fund required for the payment of interest on any Subordinate Notes and
to pay any Issuer Swap Payments secured on a parity with the Subordinate Notes
shall be applied in accordance with this Section by the Trustee to the payment
of such interest or Issuer Swap Payments when due without further authorization
or direction.
If money sufficient to pay all interest due on any Junior-Subordinate Notes
and Issuer Swap Payments secured on a parity with the Junior-Subordinate Notes
on a particular Interest Payment Date is not available in the Junior-Subordinate
Interest Account of the Interest Fund for that purpose on the first Business Day
preceding an Interest Payment Date from moneys transferred from the Revenue Fund
as provided above, then the amount of any such deficiency shall be provided from
the Reserve Fund (after first making any required transfers from the Reserve
Fund to the Senior Interest Account and the Subordinate Interest Account), and
then from the Junior-Subordinate Note Redemption Account of the Note Redemption
Fund, the Student Loan Holding Fund and from the Accounts in the Student Loan
Fund (in the order provided in Section 5.02 hereof), in that order. The money
in the Junior-Subordinate Interest Account of the Interest Fund required for the
payment of interest on any Junior-Subordinate
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Notes and to pay any Issuer Swap Payments secured on a parity with the
Junior-Subordinate Notes shall be applied in accordance with this Section by
the Trustee to the payment of such interest or Issuer Swap Payments when due
without further authorization or direction.
Section 5.06. NOTE REDEMPTION FUND. The Trustee shall deposit to the Note
Redemption Fund: (a) all amounts required to be transferred to the Note
Redemption Fund from the Revenue Fund, the Reserve Fund, the Interest Fund, the
Student Loan Fund and the Student Loan Holding Fund; (b) the proceeds of notes
and other obligations of the Issuer which the Issuer elects to apply to the
payment of the Notes; and (c) any other funds made available by the Issuer in
its sole discretion for payment of the Notes. Any moneys transferred to the
Note Redemption Fund and not specifically required to be deposited to any
Account therein shall be deposited to the Senior Note Redemption Account of the
Note Redemption Fund unless the Trustee receives a Issuer Order in accordance
with this Section designating that such amounts shall be deposited to the
Subordinate Note Redemption Account or to the Junior-Subordinate Note Redemption
Account of the Note Redemption Fund.
Subject to Sections 2.02(d)(i)(A) and 2.02(d)(i)(B), the Issuer, pursuant
to an Issuer Order, may designate that a specified amount of moneys or
investments to be transferred to the Note Redemption Fund pursuant to the terms
and provisions of this Indenture be deposited to the Subordinate Note Redemption
Account of the Note Redemption Fund if after the redemption of Subordinate Notes
from the moneys and investments transferred to the Subordinate Note Redemption
Account of the Note Redemption Fund and the redemption of Senior Notes, if any,
from the moneys and investments transferred to the Senior Note Redemption
Account of the Note Redemption Fund, the Aggregate Market Value of the Trust
Estate will equal at least 110% of the aggregate principal amount of all Senior
Notes Outstanding. The Issuer, pursuant to an Issuer Order, may designate that
a specified amount of moneys or investments to be transferred to the Note
Redemption Fund pursuant to the terms and provisions of this Indenture be
deposited to the Junior-Subordinate Note Redemption Account of the Note
Redemption Fund if after the redemption of Junior-Subordinate Notes from the
moneys and investments transferred to the Junior-Subordinate Account of the Note
Redemption and the redemption of Senior Notes and Subordinate Notes, if any,
from the moneys and investments transferred to the Senior Note Redemption
Account and the Subordinate Note Redemption Account of the Note Redemption Fund,
the Aggregate Market Value of the Trust Estate will equal at least 110% of the
aggregate principal amount of all Senior Notes Outstanding and at least 102% of
the aggregate principal amount of all Senior and Subordinate Notes Outstanding.
In addition, first, if on the first Business Day preceding the Stated
Maturity of one or more Senior Notes, there is not available in the Senior Note
Redemption Account of the Note Redemption Fund an amount sufficient to pay the
principal of the Senior Notes coming due on such date, then an amount equal to
such deficiency shall be transferred by the Trustee to the Senior Note
Redemption Account of the Note Redemption Fund, from the Revenue Fund, from the
Student Loan Holding Fund, from the Reserve Fund, from the Subordinate Note
Redemption Account of the Note Redemption Fund, from the Junior-Subordinate Note
Redemption Account of the Note Redemption Fund, from the Subordinate Interest
Account of the Interest Fund, from
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the Junior-Subordinate Interest Account of the Interest Fund and from the
Accounts in the Student Loan Fund (in the order provided in Section 5.02
hereof), in that order, second, if on the first Business Day preceding the
Stated Maturity of any Subordinate Notes, there is not available in the
Subordinate Note Redemption Account of the Note Redemption Fund an amount
sufficient to pay the principal of the Subordinate Notes coming due on such
date, then an amount equal to such deficiency shall be transferred by the
Trustee to the Subordinate Note Redemption Account of the Note Redemption
Fund, from the Revenue Fund, from the Student Loan Holding Fund, from the
Reserve Fund, from the Junior-Subordinate Interest Account of the Interest
Fund and from the Accounts in the Student Loan Fund (in the order provided in
Section 5.02 hereof), and, third, if on the first Business Day preceding the
Stated Maturity of any Junior-Subordinate Notes, there is not available in
the Junior-Subordinate Note Redemption Account of the Note Redemption Fund an
amount sufficient to pay the principal of the Junior-Subordinate Notes coming
due on such date, then an amount equal to such deficiency shall be
transferred by the Trustee to the Junior-Subordinate Note Redemption Account
of the Note Redemption Fund, from the Revenue Fund, from the Student Loan
Holding Fund, from the Reserve Fund and from the Accounts in the Student Loan
Fund (in the order provided in Section 5.02 hereof), in that order.
The Trustee shall use amounts in the Senior Note Redemption Account of the
Note Redemption Fund (a) to pay principal of Senior Notes at their Stated
Maturity and (b) to pay the redemption price of any Senior Notes pursuant to
Section 2.02(a) hereof, but insofar as such redemptions relate to redemptions
pursuant to Section 2.02(a) hereof, only to the extent that such moneys are
identified by the Servicer as being derived from principal repayments on or with
respect to the Financed Eligible Loans or transferred to the Senior Note
Redemption Account of the Note Redemption Fund pursuant to Section 5.02 or
Section 5.03(k) hereof and such moneys are on deposit in the Senior Note
Redemption Account of the Note Redemption Fund on the fifth Business Day prior
to the last date on which a redemption notice can be given which are in excess
of the sum of the principal due on the Senior Notes on the next Stated Maturity
which is within one year of the date of such transfer. Notwithstanding the
foregoing, if on the first Business Day preceding any Interest Payment Date or
Transfer Date there are not sufficient moneys on deposit in the Revenue Fund to
make the transfers required by Section 5.03 hereof, other than Sections 5.03(k)
and 5.03(l) hereof, then such transfers shall be made by the Trustee, in an
amount equal to any such deficiency, directly from the Senior Note Redemption
Account of the Note Redemption Fund; provided, however, that the Subordinate
Note Redemption Account and the Junior-Subordinate Note Redemption Account of
the Note Redemption Fund has been fully depleted (except as provided therein)
pursuant to similar transfers previously made from such Accounts of the Note
Redemption Fund pursuant to this Section.
The Trustee shall use amounts in the Subordinate Note Redemption Account of
the Note Redemption Fund (a) to pay principal of any Subordinate Notes at their
Stated Maturity and (b) to pay the redemption price of Subordinate Notes
pursuant to Section 2.02(a) hereof, but insofar as such redemptions relate to
redemptions pursuant to Section 2.02(a) hereof, only to the extent that such
moneys are identified by the Servicer as being derived from principal repayments
on or with respect to the Eligible Loans or transferred to the Subordinate Note
Redemption Account of the Note Redemption Fund pursuant to Section 5.02 or
Section 5.03(k)
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hereof and such moneys are on deposit in the Subordinate Note Redemption
Account of the Note Redemption Fund on the fifth Business Day prior to the
last date on which a redemption notice can be given which are in excess of
the sum of the principal due on the Subordinate Notes on the next Stated
Maturity which is within one year of the date of such transfer.
Notwithstanding the foregoing, if on the first Business Day preceding any
Interest Payment Date or Transfer Date there are not sufficient moneys on
deposit in the Revenue Fund to make the transfers required by Section 5.03
hereof, other then Sections 5.03(k) and 5.03(l) hereof, then such transfers
shall be made by the Trustee, in an amount equal to any such deficiency,
directly from the Subordinate Note Redemption Account of the Note Redemption
Fund; provided, however, that the Junior-Subordinate Note Redemption Account
of the Note Redemption Fund has been fully depleted (except as provided
therein) pursuant to similar transfers previously made from such Accounts of
the Note Redemption Fund pursuant to this Section.
The Trustee shall use amounts in the Junior-Subordinate Note Redemption
Account of the Note Redemption Fund (a) to pay principal of any Junior-
Subordinate Notes at their Stated Maturity and (b) to pay the redemption price
of Junior-Subordinate Notes pursuant to Section 2.02(a) hereof, but insofar as
such redemptions relate to redemptions pursuant to Section 2.02(a) hereof, only
to the extent that such moneys are identified by the Servicer as being derived
from principal repayments on or with respect to the Eligible Loans or
transferred to the Junior-Subordinate Note Redemption Account of the Note
Redemption Fund pursuant to Section 5.02 or Section 5.03(k) hereof and such
moneys are on deposit in the Junior-Subordinate Note Redemption Account of the
Note Redemption Fund on the fifth Business Day prior to the last date on which a
redemption notice can be given which are in excess of the sum of the principal
due on the Junior-Subordinate Notes on the next Stated Maturity which is within
one year of the date of such transfer. Notwithstanding the foregoing, if on the
first Business Day preceding any Interest Payment Date or Transfer Date there
are not sufficient moneys on deposit in the Revenue Fund to make the transfers
required by Section 5.03 hereof, other than Sections 5.03(k) and 5.03(l) hereof,
then such transfers shall be made by the Trustee, in an amount equal to any such
deficiency, directly from the Junior-Subordinate Note Redemption Account of the
Note Redemption Fund.
No moneys in any Account of the Note Redemption Fund shall be transferred
to any other Fund or Account if such money is on deposit for the purpose of
redeeming Notes for which notice has been given.
Section 5.07. STUDENT LOAN HOLDING FUND. The Trustee shall deposit to the
Student Loan Holding Fund all amounts received by the Trustee which represent
payments, regardless of source, on Financed Eligible Loans. Upon receipt by the
Trustee from the Issuer of the Servicer's statement with a direction indicating
the portion of such payments which represents interest payments on Financed
Eligible Loans and the portion of such payment which represents principal
payments on Financed Eligible Loans, the Trustee shall promptly transfer (i)
that portion of such payment representing interest payments (including Special
Allowance Payments and Interest Subsidy Payments) on Eligible Loans to the
Revenue Fund, (ii) shall so transfer the portion of such payment representing
principal payments (including unamortized premiums) on
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Financed Eligible Loans held in the Series 1996 Note Account of the Student
Loan Fund to the Series 1996 Recycling Account of the Student Loan Fund prior
to April 1, 1999 and (iii) subsequent thereto to the Note Redemption Fund.
Notwithstanding the foregoing, if on the first Business Day preceding any
Interest Payment Date or Transfer Date there are not sufficient moneys on
deposit in the Revenue Fund to make the transfers required by Section 5.03
hereof, other than Sections 5.03(k) and 5.03(l) hereof, then, but only after
required transfers from the Note Redemption Fund, if any, such transfers shall
be made by the Trustee, in an amount equal to any such deficiency directly from
the Student Loan Holding Fund.
Section 5.08. COST OF ISSUANCE FUND. The Trustee shall deposit in the
Cost of Issuance Fund on the Date of Issuance the amounts set forth in Section
2.10(a)(ii) and 2.10(b)(ii) hereof. Moneys in the Cost of Issuance Fund shall
be used by the Trustee, upon the written direction of an Authorized Officer of
the Issuer, solely for the purpose of paying costs of issuance of the Series
1996A Notes and the Series 1996B Notes, including without limitation any
underwriting compensation of the Placement Agent not paid from the proceeds of
the Notes. If any moneys remain in the Cost of Issuance Fund on June 1, 1996 in
the case of deposits made pursuant to Section 2.10(a)(ii) hereof or September 1,
1996 in the case of deposits made pursuant to Section 2.10(b)(ii) hereof, such
amounts shall be paid by the Trustee without further direction to the Issuer.
Section 5.09. OPERATING FUND. The Operating Fund is a special fund
created and established by an agreement with a depository bank of the Issuer and
shall be used to pay Maintenance and Operating Expenses. The Operating Fund
shall be held by such depository bank of the Issuer, and neither the Registered
Owners, any Swap Counterparties nor the Trustee shall have any right, title or
interest in the Operating Fund.
On or before the 25th day of each month, the Issuer shall deliver an Issuer
Order to the Trustee which sets forth the Estimated Amount. If at any time the
Issuer determines that the Estimated Amount is less than the amount required to
pay expected Maintenance and Operating Expenses, the Issuer may direct the
Trustee by Issuer Order to transfer additional amounts from the Revenue Fund as
may be needed to pay Maintenance and Operating Expenses, subject to the second
paragraph of Section 5.03 hereof.
Upon the receipt of any such Issuer Order, the Trustee shall withdraw the
amount so directed from the Revenue Fund (or so much thereof as is then on
deposit in the Revenue Fund) and transfer the same to such depository bank of
the Issuer with instructions to deposit the same in the Operating Fund.
Interest income earned on the money held in the Operating Fund may be retained
therein or as otherwise provided in the agreement with such depository bank of
the Issuer.
Section 5.10. GENERAL FUND. Except as provided in Section 7.19, neither
the Registered Owners, any Swap Counterparties nor the Trustee shall have any
right, title or interest in the
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General Fund. Transfers from the Student Loan Fund to the General Fund shall
be made in accordance with Section 5.02 hereof and transfers from the Revenue
Fund to the General Fund shall be made in accordance with Section 5.03
hereof; provided, however, that no transfer of assets to the General Fund
shall be made if there is not on deposit in the Reserve Fund an amount equal
to at least the Reserve Fund Requirement; provided however, that no transfer
shall be made to the General Fund unless, (a) immediately after taking into
account any such transfer, the Aggregate Market Value of the assets in the
Trust Estate (less an amount equal to unpaid accrued interest on the
Outstanding Notes and less an amount equal to $250,000 and less any
additional amount, if any, required by any Supplemental Indenture) will be
equal to at least 103% of the unpaid principal amount of the Outstanding
Notes and (b) there shall have been delivered to the Trustee a Cash Flow
Certificate showing that after such transfer the Aggregate Market Value of
the assets in the Trust Estate (less an amount equal to unpaid accrued
interest on the Outstanding Notes and less an amount equal to $250,000 and
less any additional amount, if any, required by any Supplemental Indenture)
will continue to be equal to at least 112% of the unpaid principal amount of
the Outstanding Senior Notes and (c) there shall have been delivered to the
Trustee a Cash Flow Certificate showing that after such transfer the
Aggregate Market Value of the assets in the Trust Estate (less an amount
equal to unpaid accrued interest on the Outstanding Notes and less an amount
equal to $250,000 and less any additional amount, if any, required by any
Supplemental Indenture) will continue to be equal to at least 103% of the
unpaid principal amount of the Notes Outstanding on each Interest Payment
Date and (d) the Aggregate Market Value of the assets in the Trust Estate
(less an amount equal to unpaid accrued interest on the Outstanding Notes and
less an amount equal to $250,000 and less any additional amount, if any,
required by any Supplemental Indenture) will continue to be equal to at least
112% of the unpaid principal amount of the Outstanding Senior Notes on each
Interest Payment Date.
The amounts held in the General Fund may be used for any proper purpose of
the Issuer and investment earnings thereon shall be the property of the Issuer.
Section 5.11. INVESTMENT OF FUNDS HELD BY TRUSTEE. The Trustee shall
invest money held for the credit of any Fund or Account held by the Trustee
hereunder as directed in writing (or orally, confirmed in writing) by an
Authorized Officer of the Issuer or a designee appointed in writing by an
Authorized Officer of the Issuer, to the fullest extent practicable and
reasonable, in Investment Securities which shall mature or be redeemed at the
option of the holder prior to the respective dates when the money held for the
credit of such Fund or Account will be required for the purposes intended. In
the absence of written direction by an Authorized Officer of the Issuer, all
uninvested moneys in any Fund or Account held by the Trustee hereunder shall be
invested in Investment Securities described in (a), (b), (c), (d), (e) or (f) of
the definition of Investment Securities. Interest earnings on all Investment
Securities shall be transferred to the Revenue Fund. The Trustee and the Issuer
hereby agree that unless an Event of Default shall have occurred hereunder, the
Issuer acting by and through an Authorized Officer shall be entitled to, and
shall, provide written direction or oral direction confirmed in writing to the
Trustee with respect to any discretionary acts required or permitted of the
Trustee under any
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Investment Agreement and the Trustee shall not take such discretionary acts
without such written direction.
The Investment Securities purchased shall be held by the Trustee and shall
be deemed at all times to be part of such Fund or Account or combination of
Funds or Accounts, and the Trustee shall inform the Issuer of the details of all
such investments. Upon direction in writing (or orally, confirmed in writing)
from an Authorized Officer of the Issuer, the Trustee shall use its best efforts
to sell at the best price obtainable, or present for redemption, any Investment
Securities purchased by it as an investment whenever it shall be necessary to
provide money to meet any payment from the applicable Fund. The Trustee shall
advise the Issuer in writing, on or before the fifteenth day of each calendar
month (or such later date as reasonably consented to by the Issuer), of all
investments held for the credit of each Fund in its custody under the provisions
of this Indenture as of the end of the preceding month and the value thereof,
and shall list any investments which were sold or liquidated for less than their
value at the time thereof.
Money in any Fund constituting a part of the Trust Estate may be pooled for
the purpose of making investments and may be used to pay accrued interest on
Investment Securities purchased. Any purchase of Investment Securities may be
made by or through the Trustee or any of its affiliates.
Notwithstanding the foregoing, the Trustee shall not be responsible or
liable for any losses on investments made by it hereunder or for keeping all
Funds held by it, fully invested at all times, its only responsibility being to
comply with the investment instructions of the Issuer or its designee in a
non-negligent manner.
Section 5.12. RELEASE. The Trustee shall, upon Issuer Order and subject
to the provisions of this Indenture, take all actions reasonably necessary to
effect the release of any Financed Eligible Loans from the lien of this
Indenture to the extent the terms hereof permit the sale, disposition or
transfer of such Financed Eligible Loans.
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.01. EVENT OF DEFAULT DEFINED. For the purpose of this
Indenture, each of the following events are hereby defined as, and are declared
to be, "Events of Default":
(a) default in the due and punctual payment of any interest on any of
the Senior Notes when due or failure to make any Issuer Swap Payment
secured on a parity with the Senior Notes when due;
(b) default in the due and punctual payment of the principal of any
of the Senior Notes at their Maturity;
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(c) if no Senior Notes are Outstanding hereunder, default in the due
and punctual payment of any interest on any of the Subordinate Notes when
due or failure to make any Issuer Swap Payment secured on a parity with the
Subordinate Notes when due;
(d) if no Senior Notes are Outstanding hereunder, default in the due
and punctual payment of the principal of any of the Subordinate Notes at
their Maturity;
(e) if no Senior Notes or Subordinate Notes are Outstanding
hereunder, default in the due and punctual payment of any interest on any
of the Junior-Subordinate Notes when due or failure to make any Issuer Swap
Payment secured on a parity with the Junior-Subordinate Notes when due;
(f) if no Senior Notes or Subordinate Notes are Outstanding
hereunder, default in the due and punctual payment of the principal of any
of the Junior-Subordinate Notes at their Maturity;
(g) default in the performance or observance of any other of the
covenants, agreements, or conditions on the part of the Issuer to be kept,
observed, and performed contained in this Indenture or in the Notes, and
continuation of such default for a period of 90 days after written notice
thereof by the Trustee to the President and Secretary of the Issuer; or
(h) the occurrence of an Event of Bankruptcy.
Any notice herein provided to be given to the President or Secretary of the
Issuer with respect to any default shall be deemed sufficiently given if sent by
registered mail with postage prepaid to the Person to be notified, addressed to
him at his post office address as shown at the end of this Indenture or such
other address as may hereafter be given as the principal office of the Issuer in
writing to the Trustee by the Secretary of the Issuer. The Trustee may give any
such notice in its discretion and shall give such notice if requested to do so
in writing by the Registered Owners of at least 51% of the collective aggregate
principal amount of the Senior Notes and each Swap Counterparty secured on a
parity with the Senior Notes, if required by the related Swap Agreement at the
time Outstanding (or if no Senior Notes or Swap Agreements secured on a parity
with the Senior Notes are Outstanding hereunder at such time, then by the
Registered Owners of at least 51% of the collective aggregate principal amount
of the Subordinate Notes and each Swap Counterparty secured on a parity with the
Subordinate Notes, if required by the related Swap Agreement at the time
Outstanding) (or if no Senior Notes or Swap Agreements secured on a parity with
the Senior Notes or Subordinate Notes or Swap Agreements secured on a parity
with the Subordinate Notes are Outstanding hereunder at such time, then by the
Registered Owners of at least 51% of the collective aggregate principal amount
of the Junior-Subordinate Notes and each Swap Counterparty secured on a parity
with the Junior-Subordinate Notes, if required by the related Swap Agreement at
the time Outstanding) (the "Registered Owners Approval"). Solely for purposes
of Article XI, Registered Owner Approval
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shall be deemed given only if a majority in interest of all Registered Owners
of Notes Outstanding, excluding any Notes held by the Issuer or its
affiliates, shall consent to the actions described herein.
Section 6.02. REMEDY ON DEFAULT; POSSESSION OF TRUST ESTATE. Subject to
Section 6.11 hereof, upon the happening and continuance of any Event of Default,
the Trustee personally or by its attorneys or agents may take possession of such
portion of the Trust Estate as shall be in the custody of others, and all
property comprising the Trust Estate, and each and every part thereof, and have,
hold, use, operate, manage, and control the same and each and every part
thereof, and in the name of the Issuer or otherwise, as they shall deem best,
conduct the business thereof and exercise the privileges pertaining thereto and
all the rights and powers of the Issuer and use all of the Trust Estate for that
purpose, and collect and receive all charges, income and Revenues of the same
and of every part thereof, and after deducting therefrom all expenses incurred
hereunder and all other proper outlays herein authorized, and all payments which
may be made as just and reasonable compensation for its own services, and for
the services of its attorneys, agents, and assistants, the Trustee shall apply
the rest and residue of the money received by the Trustee as follows:
(a) if the principal of none of the Notes shall have become due,
first, to the payment of the interest in default on the Senior Notes and to
the payment of all Issuer Swap Payments secured on a parity with the Senior
Notes then due, in order of the maturity of the installments of such
interest and any such Issuer Swap Payments, with interest on the overdue
installments thereof at the same rates, respectively, as were borne by the
Senior Notes on which such interest shall be in default and any such Issuer
Swap Payments then due, such payments to be made ratably to the parties
entitled thereto without discrimination or preference, second, to the
payment of the interest in default on the Subordinate Notes and to the
payment of all Issuer Swap Payments secured on a parity with the
Subordinate Notes then due, in order of the maturity of the installments of
such interest and any such Issuer Swap Payments, with interest on the
overdue installments thereof at the same rates, respectively, as were borne
by the Subordinate Notes on which such interest shall be in default and any
such Issuer Swap Payments then due, such payments to be made ratably to the
parties entitled thereto without discrimination or preference and, third,
to the payment of the interest in default on the Junior-Subordinate Notes
and to the payment of all Issuer Swap Payments secured on a parity with
such Junior-Subordinate Notes then due, in order of the maturity of the
installments of such interest and any such Issuer Swap Payments, with
interest on the overdue installments thereof at the same rates,
respectively, as were borne by the Junior-Subordinate Notes on which such
interest shall be in default and any such Issuer Swap Payments then due,
such payments to be made ratably to the parties entitled thereto without
discrimination or preference, except as may be provided in a Supplemental
Indenture; and
(b) if the principal of any of the Notes shall have become due by
declaration of acceleration or otherwise, first to the payment of the
interest and principal in default
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on the Senior Notes and all Issuer Swap Payments secured on a parity with
the Senior Notes then due, with interest on overdue installments of
principal, interest and such Issuer Swap Payments then due at the same
rates, respectively, as were borne by the Senior Notes on which such
interest shall be in default, and such Issuer Swap Payments then due, as
the case may be, such payments to be made ratably to the parties entitled
thereto without discrimination or preference, second, to the payment of
the interest in default on the Subordinate Notes and all Issuer Swap
Payments secured on a parity with the Subordinate Notes then due, with
interest on overdue installments of principal, interest and such Issuer
Swap Payments then due at the same rates, respectively, as were borne by
the Subordinate Notes on which such interest shall be in default and such
Issuer Swap Payments then due at the same rates, respectively, such
payments to be made ratably to the parties entitled thereto without
discrimination or preference, third, to the payment of the principal of
all Subordinate Notes then due, such payments to be made ratably to the
parties entitled thereto without discrimination or preference, fourth, to
the payment of the interest in default on the Junior-Subordinate Notes and
all Issuer Swap Payments secured on a parity with such Junior-Subordinate
Notes then due, with interest on overdue installments of principal,
interest and such Issuer Swap Payments then due at the same rates,
respectively, as were borne by the Junior-Subordinate Notes on which such
interest shall be in default and such Issuer Swap Payments then due at the
same rates, respectively, such payments to be made ratably to the parties
entitled thereto without discrimination or preference, fifth, to the
payment of the principal of all Junior-Subordinate Notes then due, such
payments to be made ratably to the parties entitled thereto without
discrimination or preference, except as may be provided in a Supplemental
Indenture.
Section 6.03. REMEDY ON DEFAULT; ADVICE OF COUNSEL. Upon the happening of
any Event of Default, the Trustee may proceed to protect and enforce the rights
of the Trustee and the Registered Owners in such manner as counsel for the
Trustee may advise, whether for the specific performance of any covenant,
condition, agreement or undertaking herein contained, or in aid of the execution
of any power herein granted, or for the enforcement of such other appropriate
legal or equitable remedies as, in the opinion of such counsel, may be more
effectual to protect and enforce the rights aforesaid.
Section 6.04. REMEDY ON DEFAULT; SALE OF TRUST ESTATE. Upon the happening
of any Event of Default and if the principal of all of the Outstanding Notes
shall have been declared due and payable, then and in every such case, and
irrespective of whether other remedies authorized shall have been pursued in
whole or in part, the Trustee may sell, with or without entry, to the highest
bidder the Trust Estate, and all right, title, interest, claim and demand
thereto and the right of redemption thereof, at any such place or places, and at
such time or times and upon such notice and terms as may be required by law.
Upon such sale the Trustee may make and deliver to the purchaser or purchasers a
good and sufficient assignment or conveyance for the same, which sale shall be a
perpetual bar both at law and in equity against the Issuer and all Persons
claiming such properties. No purchaser at any sale shall be bound to see to the
application of the purchase money or to inquire as to the authorization,
necessity,
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expediency or regularity of any such sale. The Trustee is hereby irrevocably
appointed the true and lawful attorney-in-fact of the Issuer, in its name and
stead, to make and execute all bills of sale, instruments of assignment and
transfer and such other documents of transfer as may be necessary or
advisable in connection with a sale of all or part of the Trust Estate, but
the Issuer, if so requested by the Trustee, shall ratify and confirm any sale
or sales by executing and delivering to the Trustee or to such purchaser or
purchasers all such instruments as may be necessary, or in the judgment of
the Trustee, proper for the purpose which may be designated in such request.
In addition, the Trustee may proceed to protect and enforce the rights of the
Trustee, the Registered Owners of Notes hereunder and each Swap Counterparty
in such manner as counsel for the Trustee may advise, whether for the
specific performance of any covenant, condition, agreement or undertaking
herein contained, or in aid of the execution of any power herein granted, or
for the enforcement of such other appropriate legal or equitable remedies as
may in the opinion of such counsel, be more effectual to protect and enforce
the rights aforesaid. The Trustee shall take any such action or actions if
requested to do so in writing by the Registered Owners of at least 51% of the
collective aggregate principal amount of the Outstanding Senior Notes and
each Swap Counterparty secured on a parity with the Senior Notes, if required
by the related Swap Agreement (or if no Senior Notes or Swap Agreements
secured on a parity with the Senior Notes are Outstanding hereunder, then by
the Registered Owners of at least 51% of the collective aggregate principal
amount of the Outstanding Subordinate Notes and each Swap Counterparty
secured on a parity with the Subordinate Notes, if required by the related
Swap Agreement) (or if no Senior Notes or Swap Agreements secured on a parity
with the Senior Notes or Subordinate Notes or Swap Agreements secured on a
parity with the Subordinate Notes are Outstanding hereunder, then by the
Registered Owners of at least 51% of the collective aggregate principal
amount of the Outstanding Junior-Subordinate Notes and each Swap Counterparty
secured on a parity with the Junior-Subordinate Notes, if required by the
related Swap Agreement).
Section 6.05. RESTORATION OF POSITION. In case the Trustee shall have
proceeded to enforce any rights under this Indenture by sale or otherwise, and
such proceedings shall have been discontinued, or shall have been determined
adversely to the Trustee, then and in every such case to the extent not
inconsistent with such adverse decree, the Issuer and the Trustee shall be
restored to their former respective positions and the rights hereunder in
respect to the Trust Estate, and all rights, remedies, and powers of the Trustee
and of the Registered Owners and Swap Counterparties shall continue as though no
such proceeding had been taken.
Section 6.06. PURCHASE OF PROPERTIES BY TRUSTEE OR REGISTERED OWNERS. In
case of any such sale of the Trust Estate, any Registered Owner or Registered
Owners or committee of Registered Owners, Swap Counterparty or the Trustee, may
bid for and purchase such property and upon compliance with the terms of sale
may hold, retain possession, and dispose of such property as the absolute right
of the purchaser or purchasers without further accountability and shall be
entitled, for the purpose of making any settlement or payment for the property
purchased, to use and apply any Notes hereby secured and any interest thereon
due and unpaid, by presenting such Notes in order that there may be credited
thereon the sum apportionable and applicable thereto out of the net proceeds of
such sale, and thereupon such purchaser or
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purchasers shall be credited on account of such purchase price payable to him
or them with the sum apportionable and applicable out of such net proceeds to
the payment of or as a credit on the Notes so presented.
Section 6.07. APPLICATION OF SALE PROCEEDS. The proceeds of any sale of
the Trust Estate, together with any funds at the time held by the Trustee and
not otherwise appropriated, shall be applied by the Trustee as set forth in
Section 6.02 hereof, and then to the Issuer or whomsoever shall be lawfully
entitled thereto.
Section 6.08. ACCELERATED MATURITY. If an Event of Default shall have
occurred and be continuing, the Trustee may declare, or upon the written
direction by the Registered Owners of at least 51% of the collective aggregate
principal amount of the Outstanding Senior Notes and each Swap Counterparty
secured on a parity with the Senior Notes, if required by the related Swap
Agreement (or if no Senior Notes or Swap Agreements secured on a parity with the
Senior Notes are Outstanding hereunder, then upon the written direction of the
Registered Owners of at least 51% of the collective aggregate principal amount
of the Outstanding Subordinate Notes and each Swap Counterparty secured on a
parity with the Subordinate Notes, if required by the related Swap Agreement)
(or if no Senior Notes or Swap Agreements secured on a parity with the Senior
Notes or Subordinate Notes or Swap Agreements secured on a parity with the
Subordinate Notes are Outstanding hereunder, then upon the written direction of
the Registered Owners of at least 51% of the collective aggregate principal
amount of the Outstanding Junior-Subordinate Notes and each Swap Counterparty
secured on a parity with the Junior-Subordinate Notes, if required by the
related Swap Agreement), and shall declare, the principal of all Notes issued
hereunder, or any supplement hereto, and then Outstanding, and the interest
thereon, if not previously due, immediately due and payable, anything in the
Notes or in this Indenture to the contrary notwithstanding; provided, however,
that a declaration of acceleration upon a default pursuant to Section 6.01(g)
hereof shall require the consent of 100% of the Registered Owners of the
collective aggregate principal amount of the appropriate series of Notes and
Swap Agreements, as described above.
Section 6.09. REMEDIES NOT EXCLUSIVE. The remedies herein conferred upon
or reserved to the Trustee or the Registered Owners of Notes are not intended to
be exclusive of any other remedy, but each remedy herein provided shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing, and every power and remedy hereby given to the Trustee or
to the Registered Owners of Notes, or any supplement hereto, may be exercised
from time to time as often as may be deemed expedient. No delay or omission of
the Trustee or of any Registered Owner of Notes to exercise any power or right
arising from any default hereunder shall impair any such right or power or shall
be construed to be a waiver of any such default or to be acquiescence therein.
Section 6.10. DIRECTION OF TRUSTEE. Upon the happening of any Event of
Default, the Registered Owners of at least 51% of the collective aggregate
principal amount of the Senior Notes and each Swap Counterparty secured on a
parity with the Senior Notes, if required by the related Swap Agreement hereby
secured and then Outstanding (or, if no Senior Notes or Swap
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Agreements secured on a parity with the Senior Notes are Outstanding
hereunder, then the Registered Owners of at least 51% of the collective
aggregate principal amount of the Subordinate Notes and each Swap
Counterparty secured on a parity with the Subordinate Notes, if required by
the related Swap Agreement hereby secured and then Outstanding) (or, if no
Senior Notes or Swap Agreements secured on a parity with the Senior Notes or
Subordinate Notes or Swap Agreements secured on a parity with the Subordinate
Notes are Outstanding hereunder, then the Registered Owners of at least 51%
of the collective aggregate principal amount of the Junior-Subordinate Notes
and each Swap Counterparty secured on a parity with the Junior-Subordinate
Notes, if required by the related Swap Agreement hereby secured and then
Outstanding) with the prior written consent of each Swap Counterparty, if
required by the related Swap Agreement, shall have the right by an instrument
or instruments in writing delivered to the Trustee to direct and control the
Trustee as to the method of taking any and all proceedings for any sale of
any or all of the Trust Estate, or for the appointment of a receiver, if
permitted by law, and may at any time cause any proceedings authorized by the
terms hereof to be so taken or to be discontinued or delayed; provided,
however, that such Registered Owners and Swap Counterparty, if required by
the related Swap Agreement, shall not be entitled to cause the Trustee to
take any proceedings which in the Trustee's opinion would be unjustly
prejudicial to non-assenting Registered Owners of Notes, but the Trustee
shall be entitled to assume that the action requested by the Registered
Owners of 51% of the collective aggregate principal amount of the Senior
Notes and each Swap Counterparty secured on a parity with the Senior Notes,
if required by the related Swap Agreement hereby secured and then Outstanding
(or, if no Senior Notes or Swap Agreements secured on a parity with the
Senior Notes are Outstanding hereunder, then the Registered Owners of at
least 51% of the collective aggregate principal amount of the Subordinate
Notes and each Swap Counterparty secured on a parity with the Subordinate
Notes, if required by the related Swap Agreement hereby secured and then
Outstanding) (or, if no Senior Notes or Swap Agreements secured on a parity
with the Senior Notes or Subordinate or Swap Agreements secured on a parity
with the Subordinate Notes are Outstanding hereunder, then the Registered
Owners of at least 51% of the collective aggregate principal amount of the
Junior-Subordinate Notes and each Swap Counterparty secured on a parity with
the Junior-Subordinate Notes, if required by the related Swap Agreement
hereby secured and then Outstanding) will not be prejudicial to any
non-assenting Registered Owner. Provided, however, that anything in this
Indenture to the contrary notwithstanding, the Registered Owners of a
majority of the collective aggregate principal amount of the Senior Notes
hereby secured and then Outstanding together with the Registered Owners of a
majority of the collective aggregate principal amount of the Subordinate
Notes hereby secured and then Outstanding and the Registered Owners of a
majority of the collective aggregate principal amount of the
Junior-Subordinate Notes hereby secured and then Outstanding shall and with
the written consent of each Swap Counterparty, if required by the Swap
Agreement, have the right, at any time, by an instrument or instruments in
writing executed and delivered to the Trustee, to direct the method and place
of conducting all proceedings to be taken in connection with the enforcement
of the terms and conditions of this Indenture, or for the appointment of a
receiver or any other proceedings hereunder, provided that such direction
shall not be otherwise than in accordance with the provisions of law and of
this Indenture.
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Section 6.11. RIGHT TO ENFORCE IN TRUSTEE. No Registered Owner of any
Note or Swap Counterparty shall have any right as such Registered Owner or Swap
Counterparty to institute any suit, action, or proceedings for the enforcement
of the provisions of this Indenture or for the execution of any trust hereunder
or for the appointment of a receiver or for any other remedy hereunder, all
rights of action hereunder being vested exclusively in the Trustee, unless and
until such Registered Owner or Swap Counterparty shall have previously given to
the Trustee written notice of a default hereunder, and of the continuance
thereof, and also unless the Registered Owners of the requisite principal amount
of the Notes then Outstanding or the Swap Counterparty shall have made written
request upon the Trustee and the Trustee shall have been afforded reasonable
opportunity to institute such action, suit or proceeding in its own name, and
unless the Trustee shall have been offered reasonable indemnity and security
satisfactory to it against the costs, expenses, and liabilities to be incurred
therein or thereby and the Trustee for 30 days after receipt of such
notification, request, or offer of indemnity, shall have failed to institute any
such action, suit or proceeding. It is understood and intended that no one or
more Registered Owners of the Notes or the Swap Counterparty shall have the
right in any manner whatever by his or their action to affect, disturb, or
prejudice the lien of this Indenture or to enforce any right hereunder except in
the manner herein provided and for the equal benefit of the Registered Owners of
not less than 60% of the collective aggregate principal amount of the Notes then
Outstanding or the Swap Counterparty.
Section 6.12. PHYSICAL POSSESSION OF NOTES NOT REQUIRED. In any suit or
action by the Trustee arising under this Indenture or on all or any of the Notes
issued hereunder, or any supplement hereto, the Trustee shall not be required to
produce such Notes, but shall be entitled in all things to maintain such suit or
action without their production.
ARTICLE VII
THE TRUSTEE
Section 7.01. ACCEPTANCE OF TRUST. The Trustee hereby accepts the trusts
imposed upon it by this Indenture, and agrees to perform said trusts, but only
upon and subject to the following terms and conditions:
(a) Except during the continuance of an Event of Default,
(i) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture; but in the case of any such certificates or
opinions which by any provisions hereof are specifically required
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to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform as to form
with the requirements of this Indenture and whether or not they
contain the statements required under this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee, in exercising the rights and powers vested in it by this
Indenture, shall use the same degree of care and skill in its exercise as a
prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(c) Before taking any action hereunder requested by Registered
Owners, the Trustee may require that it be furnished an indemnity note or
other indemnity and security satisfactory to it by the Registered Owners,
as applicable, for the reimbursement of all expenses to which it may be put
and to protect it against all liability, except liability which results
from the gross negligence or willful misconduct of the Trustee and
negligence with respect to moneys deposited and applied pursuant to this
Indenture, by reason of any action so taken by the Trustee.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(e) The permissive right of the Trustee to do things enumerated in
this Indenture or under the other transaction documents shall not be
construed as a duty, and the Trustee shall not be answerable for other than
its negligence or willful default.
(f) Whether or not herein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section.
Section 7.02. RECITALS OF OTHERS. The recitals, statements, and
representations set forth herein and in the Notes shall be taken as the
statements of the Issuer, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representations as to the title
of the Issuer in the Trust Estate or as to the security afforded thereby and
hereby, or as to the validity or sufficiency of this Indenture or of the Notes
issued hereunder, and the Trustee shall incur no responsibility in respect of
such matters.
Section 7.03. AS TO FILING OF INDENTURE. The Trustee shall be under no
duty (a) to file or record, or cause to be filed or recorded, this Indenture or
any instrument supplemental hereto, (b) or to procure any further order or
additional instruments of further assurance, (c) to see to the delivery to it of
any personal property intended to be mortgaged or pledged hereunder or
thereunder, (d) or to do any act which may be suitable to be done for the better
maintenance or
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continuance of the lien or security hereof, or (e) for giving notice of the
existence of such lien, or for extending or supplementing the same or to see
that any rights to Revenue and Funds intended now or hereafter to be
transferred in trust hereunder are subject to the lien hereof. The Trustee
shall not be liable for failure of the Issuer to pay any tax or taxes in
respect of such property, or any part thereof, or the income therefrom or
otherwise, nor shall the Trustee be under any duty in respect of any tax
which may be assessed against it or the Registered Owners of the Notes in
respect of such property or pledged Revenue and Funds.
Section 7.04. TRUSTEE MAY ACT THROUGH AGENTS. The Trustee may execute
any of the trusts or powers hereof and perform any duty hereunder, either
itself or by or through its attorneys, agents, or employees, and it shall not
be answerable or accountable for any default, neglect, or misconduct of any
such attorneys, agents, or employees, if reasonable care has been exercised
in the appointment thereof.
Section 7.05. ASSUMPTION OF LIABILITY AND INDEMNIFICATION OF TRUSTEE.
The Trustee shall be under no obligation or duty to perform any act at the
request of Registered Owners of Notes or to institute or defend any suit in
respect thereof unless properly indemnified and provided with security to its
satisfaction as provided in Section 7.01(c) hereof. The Trustee shall not be
required to take notice, or be deemed to have knowledge, of any default or
Event of Default of the Issuer or the Board hereunder and may conclusively
assume that there has been no such default or Event of Default (other than an
Event of Default described in Sections 6.01(a), (b), (c), (d), (e) or (f)
hereof) unless and until it shall have been specifically notified in writing
at the address in Section 9.01 hereof of such default or Event of Default by
(i) the Registered Owners of the percentages in principal amount of the Notes
then Outstanding hereinabove specified or (ii) an Authorized Officer of the
Issuer. The Issuer agrees to assume liability for and to indemnify the
Trustee for, and to hold it harmless against, any loss, liability, or
expenses incurred without negligence or bad faith on its part, arising out of
or in connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder or arising from the Trust Estate.
The Issuer agrees to assume any liability aggregate against the trust
and to indemnify and hold harmless the Trustee against any and all claims,
demands, suits, actions or other proceedings and all liabilities, costs and
expenses whatsoever caused by any untrue statement or misleading statement or
alleged untrue statement or alleged misleading statement of a material fact
contained in the Preliminary Private Placement Memorandum or the final
Private Placement Memorandum in connection with the issuance of the Notes or
caused by any omission or alleged omission from the Preliminary Private
Placement Memorandum or the final Private Placement Memorandum such
information of any material fact required to be stated therein or necessary
in order to make the statements made therein in the light of the
circumstances under which they were made, not misleading. Notwithstanding
the foregoing, the assumption of liability created under this Section 7.05
does not include the assumption of any liability with respect to the payment
of the Notes except as otherwise expressly provided herein. The assumption
of liability
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by the Issuer is intended to create the same primary liability as would apply
to a general partner of a limited partnership organized under the laws of the
State of Delaware.
Section 7.06. TRUSTEE'S RIGHT TO RELIANCE. The Trustee shall be
protected in acting upon any notice, resolution, request, consent, order,
certificate, report, servicer's report appraisal, opinion, Issuer Order or
other paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties. The Trustee may consult with
experts and with counsel (who may be counsel for the Issuer, the Trustee, or
for a Registered Owner or who may be Note Counsel), and the opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken or suffered, and in respect of any determination made by it
hereunder in good faith and in accordance with the opinion of such counsel.
Whenever in the administration hereof the Trustee shall deem it
desirable that a matter be proved or established prior to taking, suffering,
or omitting any action hereunder, the Trustee (unless other evidence be
herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon a certificate signed by the President or the Secretary of the
Issuer; provided, however, that the Trustee may not delay any action required
hereunder because the Trustee has failed to receive such certificate.
The Trustee shall not be liable for any action taken, suffered, or
omitted by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it hereby; provided, however,
that the Trustee shall be liable for its negligence or willful misconduct in
taking such action.
The Trustee is authorized, under this Indenture, to sell, assign,
transfer, convey, or repurchase Financed Student Loans in accordance with an
Issuer Order, provided that no such Financed Student Loan may be sold,
assigned, transferred, or conveyed to any Person who is not an Eligible
Lender. The Trustee is further authorized to enter into agreements with
other Persons, in its capacity as Trustee, in order to carry out or implement
the terms and provisions of this Indenture.
The Trustee shall not be liable with respect to any action taken,
suffered or omitted to be taken in good faith in accordance with this
Indenture or any other transaction document or at the direction of the
Registered Owners evidencing the appropriate percentage of the aggregate
principal amount of the Outstanding Notes relating to the time, method and
place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred upon the Trustee, under this
Indenture or any other transaction document;
Section 7.07. COMPENSATION OF TRUSTEE. The Issuer shall pay to the
Trustee from time to time reasonable compensation for all services rendered
by it hereunder, and also all its reasonable expenses, charges, and other
disbursements and those of its attorneys, agents, and employees incurred in
and about the administration and execution of the trusts hereby created. The
Trustee may not change the amount of its annual compensation without giving
the Issuer at least 90 days' written notice prior to the beginning of a
Fiscal Year. In the event of a default
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of such payments by the Issuer, and as security for such payment, the Trustee
shall have a lien therefor on the Trust Estate, the Operating Fund and the
General Fund prior to any rights of the Registered Owners of the Notes.
Section 7.08. TRUSTEE MAY OWN NOTES. The Trustee hereunder, or any
successor Trustee, in its individual or other capacity, may become the owner
or pledgee of Notes and may otherwise deal with the Issuer, with the same
rights it would have if it were not the Trustee. The Trustee may act as
depository for, and permit any of its officers or directors to act as a
member of, or act in any other capacity in respect to, any committee formed
to protect the rights of the Registered Owners of Notes or to effect or aid
in any reorganization growing out of the enforcement of the Notes or of this
Indenture, whether or not any such committee shall represent the Registered
Owners of more than 60% of the collective aggregate principal amount of the
Outstanding Notes.
Section 7.09. RESIGNATION OF TRUSTEE. The Trustee and any successor to
the Trustee may resign and be discharged from the trust created by this
Indenture by giving to the President notice in writing which notice shall
specify the date on which such resignation is to take effect; provided,
however, that such resignation shall only take effect on the day specified in
such notice if a successor Trustee shall have been appointed pursuant to
Section 7.11 hereof (and is qualified to be the Trustee under the
requirements of Section 7.11 hereof). If no successor Trustee has been
appointed by the date specified or within a period of 30 days from the
receipt of the notice by the Issuer, whichever period is the longer, the
Trustee may (A) appoint a temporary successor Trustee having the
qualifications provided in Section 7.11 hereof or (B) request a court of
competent jurisdiction to (1) require the Issuer to appoint a successor, as
provided in Section 7.11 hereof, within three days of the receipt of citation
or notice by the court, or (2) appoint a Trustee having the qualifications
provided in Section 7.11 hereof. In no event may the resignation of the
Trustee be effective until a qualified successor Trustee shall have been
selected and appointed. In the event a temporary successor Trustee is
appointed pursuant to (A) above, the Board may remove such temporary
successor Trustee and appoint a successor thereto pursuant to Section 7.11
hereof.
Section 7.10. REMOVAL OF TRUSTEE. The Trustee or any successor Trustee
may be removed (i) at any time by the Registered Owners of a majority of the
collective aggregate principal amount of the Outstanding Senior Notes (or if
no Senior Notes are then Outstanding, a majority of the collective aggregate
principal amount of the Outstanding Subordinate Notes and if no Subordinate
Notes are then Outstanding, a majority of the collective aggregate principal
amount of the Junior-Subordinate Notes) by an instrument or concurrent
instruments in writing in duplicate by such Registered Owners, (ii) by the
Issuer for cause or upon the sale or other disposition of the Trustee or its
trust functions or (iii) by the Issuer without cause so long as no Event of
Default exists or has existed within the last 90 days, upon payment to the
Trustee so removed of all money then due to it hereunder and appointment of a
successor thereto by the Issuer and acceptance thereof by said successor.
One copy of any such instrument shall be filed with the Secretary of the
Issuer and the other with the Trustee so removed.
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In the event a Trustee (or successor Trustee) is removed, by any person
or for any reason permitted hereunder, such removal shall not become
effective until (a) in the case of removal by the Registered Owners, such
Registered Owners of Notes by instrument or concurrent instruments in writing
(signed and acknowledged by such Registered Owners or their
attorneys-in-fact) filed with the Trustee removed have appointed a successor
Trustee or otherwise the Issuer shall have appointed a successor, and (b) the
successor Trustee has accepted appointment as such.
Section 7.11. SUCCESSOR TRUSTEE. In case at any time the Trustee or
any successor Trustee shall resign, be dissolved, or otherwise shall be
disqualified to act or be incapable of acting, or in case control of the
Trustee or of any successor Trustee or of its officers shall be taken over by
any public officer or officers, a successor Trustee may be appointed by the
Board by an instrument in writing duly authorized by resolution. In the case
of any such appointment by the Board of a successor to the Trustee, the Board
shall forthwith cause notice thereof to be mailed to the Registered Owners at
the address of each Registered Owner appearing on the note registration books
maintained by the Registrar.
Every successor Trustee appointed by the Registered Owners, by a court
of competent jurisdiction, or by the Board shall be a bank or trust company
in good standing, organized and doing business under the laws of the United
States or of a state therein, which has a reported capital and surplus of not
less than $50,000,000, be authorized under the law to exercise corporate
trust powers, be subject to supervision or examination by a federal or state
authority, and be an Eligible Lender. Every successor Trustee shall become a
party to each and every agreement described herein to which the Trustee is a
party to (including, but not limited to, each Guaranty Agreement).
Section 7.12. MANNER OF VESTING TITLE IN TRUSTEE. Any successor
Trustee appointed hereunder shall execute, acknowledge, and deliver to its
predecessor Trustee, and also to the Issuer, an instrument accepting such
appointment hereunder, and thereupon such successor Trustee, without any
further act, deed, or conveyance shall become fully vested with all the
estate, properties, rights, powers, trusts, duties, and obligations of its
predecessors in trust hereunder (except that the predecessor Trustee shall
continue to have the benefits to indemnification hereunder together with the
successor Trustee), with like effect as if originally named as Trustee
herein; but the Trustee ceasing to act shall nevertheless, on the written
request of an Authorized Officer of the Issuer, or an authorized officer of
the successor Trustee, execute, acknowledge, and deliver such instruments of
conveyance and further assurance and do such other things as may reasonably
be required for more fully and certainly vesting and confirming in such
successor Trustee all the right, title, and interest of the Trustee which it
succeeds, in and to pledged Revenue and Funds and such rights, powers,
trusts, duties, and obligations, and the Trustee ceasing to act also, upon
like request, pay over, assign, and deliver to the successor Trustee any
money or other property or rights subject to the lien of this Indenture,
including any pledged securities which may then be in its possession. Should
any deed or instrument in writing from the Issuer be required by the
successor Trustee for more fully and certainly vesting in and confirming to
such new Trustee such estate, properties, rights,
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powers, and duties, any and all such deeds and instruments in writing shall
on request be executed, acknowledged and delivered by the Issuer.
In case any of the Notes to be issued hereunder shall have been
authenticated but not delivered, any successor Trustee may adopt the
certificate of authentication of the Trustee or of any successor to the
Trustee; and in case any of the Notes shall not have been authenticated, any
successor to the Trustee may authenticate such Notes in its own name; and in
all such cases such certificate shall have the full force which it has
anywhere in the Notes or in this Indenture.
Section 7.13. FILING OF CURRENT INFORMATION WITH TRUSTEE. The
Secretary of the Issuer shall file with the Trustee on or before January 1 of
each year, commencing in 1997, a certificate showing the names of the then
members of the Board and the names of the President and the Secretary of the
Issuer.
Section 7.14. RIGHT OF INSPECTION. The Registered Owner of a Note
shall be permitted at reasonable times during regular business hours and in
accordance with reasonable regulations prescribed by the Trustee to examine
at the principal office of the Trustee a copy of any report or instrument
theretofore filed with the Trustee relating to the condition of the Trust
Estate.
Section 7.15. LIMITATION WITH RESPECT TO EXAMINATION OF REPORTS.
Except as provided in this Indenture, the Trustee shall be under no duty to
examine any report or statement or other document required or permitted to be
filed with it by the Issuer.
Section 7.16. SERVICING AGREEMENT. The Trustee acknowledges the
receipt of a copy of the Servicing Agreement described in Section 4.05 hereof.
Section 7.17. ADDITIONAL COVENANTS OF TRUSTEE. The Trustee, by the
execution hereof, covenants, represents and agrees that it will not exercise
any of the rights, duties, or privileges under this Indenture (particularly
those enumerated in Article VI hereof or Article VII hereof) in such manner
as would cause the Student Loans held or acquired under the terms hereof to
be transferred, assigned, or pledged as security to any person or entity
other than as permitted by this Indenture.
Section 7.18. TRUSTEE COVENANTS WITH RESPECT TO "ELIGIBLE LENDER"
STATUS. The Trustee covenants as follows:
(a) The Trustee represents and warrants that it satisfies the
requirements to be an "eligible lender" as that term is defined in the Act
and covenants that it will remain and "eligible lender" so long as the
Trustee remains Trustee under this Indenture; provided, however, that the
Trustee shall have no responsibility or liability hereunder if it fails to
remain as an "eligible lender" as a result of the actions or inactions of
the Issuer or any servicer; and
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(b) The Trustee shall take such actions, but only such actions, with
respect to being an "eligible lender" as shall be reasonably requested by
the Issuer; such actions do not include taking steps or instituting suits,
actions or proceedings necessary or appropriate for the enforcement of all
terms, covenants and conditions of all Financed Eligible Loans and
agreements in connection therewith, including the prompt payment of all
principal and interest payments and all other amounts due thereunder, for
which the Issuer is solely responsible.
Section 7.19. TRUSTEE'S STATUS AS AN "ELIGIBLE LENDER." For the
purposes of this Indenture and all documents, agreements, understandings and
arrangements relating to this Indenture that are executed by the Trustee,
such documents have been executed by the Trustee with the understanding that
it may be deemed to be an "eligible lender" under the Act. The Issuer hereby
acknowledges the fact that the Trustee may be deemed an "eligible lender"
under the Act and thus may be subject to certain liabilities because of such
status and that the Trustee is willing to accept the status of "eligible
lender" hereunder as an accommodation to the Issuer, and the Issuer hereby
agrees that it will indemnify and hold harmless the Trustee and its officers,
directors, employees and agents for any and all liability which may be
incurred because of Trustee's status as an "eligible lender" or because of
the Trustee's entering into the Indenture or any of the other transaction
documents that results from the actions or inactions of the Issuer or any
servicer, from the moneys available pursuant to Section 5.03(l) or in the
General Fund, if any. The Issuer agrees that it will not seek recourse or
commence any action against the Trustee or its officers, directors, employees
or agents or any of their personal assets for the performance or payment of
any obligation under the Act. The Trustee shall have no liability or
responsibility with respect to any of the duties and obligations specifically
undertaken by the Issuer pursuant to Section 4.08 hereof.
Section 7.20. TRUSTEE TO CAUSE INVESTMENTS TO BE MADE. As to any Funds
held by the Trustee under this Indenture, the same shall be invested by the
Trustee as directed by an Issuer Order, within the limitations herein
prescribed.
Section 7.21. DUTY OF TRUSTEE WITH RESPECT TO EACH RATING AGENCY. It
shall be the duty of the Trustee to notify each Rating Agency then rating any
series of the Notes of (i) any change, expiration, extension, or renewal of
this Indenture, (ii) redemption or defeasance of any or all the Notes, or
(iii) any change in the Trustee; provided, however, the provisions of this
Section do not apply when such documents have been previously supplied to
such Rating Agency and the Trustee has received written evidence to such
effect, all as may be required by this Indenture. The Trustee shall also
promptly deliver to each Rating Agency duplicate copies of all
correspondence, notices, certificates, audits, reports or other
communications prepared by the Trustee and sent by the Trustee to the
Registered Owners or the Issuer in accordance with this Indenture. All
notices and other items to each Rating Agency required under this Section
shall be in writing at the following addresses:
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Fitch Investors Service, Inc.
One State Street Plaza
New York, New York 10004
Attention: Municipal Structured Finance Group
Standard & Poor's Ratings Services,
a Division of The McGraw Hill Companies, Inc.
26 Broadway
New York, New York 10004
Attention: Asset-Backed Surveillance Group
The Trustee also acknowledges that each Rating Agency's periodic review for
maintenance of a Rating on any series of the Notes may involve discussions
and/or meetings with representatives of the Trustee at mutually agreeable times
and places.
Section 7.22. CONVERSION, CONSOLIDATION OR MERGER OF TRUSTEE. Any bank or
trust company into which the Trustee or its successor may be converted, merged,
or with which it may be consolidated, or to which it may sell or transfer its
corporate trust business as a whole shall be the successor of the Trustee under
this Indenture with the same rights, powers, duties and obligations and subject
to the same restrictions, limitations and liabilities as its predecessor, all
without the execution or filing of any papers or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding. In
case any of the Notes to be issued hereunder shall have been authenticated, but
not delivered, any successor Trustee may adopt the certificate of any
predecessor Trustee, and deliver the same as authenticated; and, in case any of
such Notes shall not have been authenticated, any successor Trustee may
authenticate such Notes in the name of such successor Trustee.
Section 7.23. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY; CONFLICTING
INTERESTS. There shall at all times be a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or the requirements of
federal, state, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section 7.23, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 7.23, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article VII. Neither the Company
nor any Person directly or indirectly controlling or controlled by, or under
common control with, the Company shall serve as Trustee.
Section 7.24. REPORTS BY TRUSTEE. Within 60 days after ________________
of each year commencing with the first _________________ after the first
issuance of Securities pursuant to this Indenture, the Trustee shall transmit by
mail to all Holders of Securities as provided in TIA Section 313(c) a brief
report dated as of such _________________ if required by TIA Section 313(a).
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ARTICLE VIII
SUPPLEMENTAL INDENTURES
Section 8.01. SUPPLEMENTAL INDENTURES NOT REQUIRING CONSENT OF REGISTERED
OWNERS. The Issuer and the Trustee may, without the consent of or notice to any
of the Registered Owners or any Swap Counterparty, enter into any indenture or
indentures supplemental to this Indenture for any one or more of the following
purposes:
(a) To cure any ambiguity or formal defect or omission in this
Indenture;
(b) To grant to or confer upon the Trustee for the benefit of the
Registered Owners any additional benefits, rights, remedies, powers or
authorities that may lawfully be granted to or conferred upon the
Registered Owners or the Trustee;
(c) To subject to this Indenture additional revenues, properties or
collateral;
(d) To modify, amend or supplement this Indenture or any indenture
supplemental hereto in such manner as to permit the qualification hereof
and thereof under the Trust Indenture Act of 1939 or any similar federal
statute hereafter in effect or to permit the qualification of the Notes for
sale under the securities laws of the United States of America or of any of
the states of the United States of America, and, if they so determine, to
add to this Indenture or any indenture supplemental hereto such other
terms, conditions and provisions as may be permitted by said Trust
Indenture Act of 1939 or similar federal statute;
(e) To evidence the appointment of a separate or co-Trustee or a
co-registrar or transfer agent or the succession of a new Trustee
hereunder, or any additional or substitute Guarantee Agency or Servicer;
(f) To add such provisions to or to amend such provisions of this
Indenture as may, in Note Counsel's opinion, be necessary or desirable to
assure implementation of the Program in conformance with the Act if along
with such Supplemental Indenture there is filed a Note Counsel's opinion to
the effect that the addition or amendment of such provisions will in no way
impair the existing security of the Registered Owners of any Outstanding
Note;
(g) To make any change as shall be necessary in order to obtain
and/or maintain for any of the Notes an investment grade Rating from a
nationally recognized rating service, which changes, in the opinion of the
Trustee, which opinion may be supported by an opinion of counsel to the
Trustee, are not to the prejudice of the Registered Owner of any of the
Notes;
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(h) To make any changes necessary to comply with the Act, the
Regulations or the Code and the regulations promulgated thereunder;
(i) To provide for the issuance of Additional Notes pursuant to the
provisions of the Indenture, including the creation of appropriate Funds
and Accounts with respect to such Additional Notes;
(j) To make the terms and provisions of this Indenture, including the
lien and security interest granted herein, applicable to a Swap Agreement;
(k) To create any additional Funds or Accounts under this Indenture
deemed by the Trustees to be necessary or desirable;
(l) To make changes necessary to add a letter of credit to any
subclass of the Auction Notes;
(m) To make any other change which, in the judgment of the Trustee,
which judgment may be supported by an opinion of counsel to the Trustee, is
not to the material prejudice of the Registered Owners or any Swap
Counterparty.
Section 8.02. SUPPLEMENTAL INDENTURES REQUIRING CONSENT OF REGISTERED
OWNERS. Exclusive of Supplemental Indentures covered by Section 8.01 hereof and
subject to the terms and provisions contained in this Section, and not
otherwise, the Registered Owners of not less than two-thirds (2/3) of the
collective aggregate principal amount of the Notes then Outstanding which in the
opinion of the Trustee (which opinion may be supported by an opinion of counsel
to the Trustee) are affected shall have the right, from time to time, with the
prior written consent of each Swap Counterparty, if required by the related Swap
Agreement (so long as such Swap Counterparty is not in default of its
obligations under its Swap Agreement, all obligations of the Issuer under such
Swap Agreement have not been satisfied and such Swap Agreement has not been
terminated) anything contained in this Indenture to the contrary
notwithstanding, to consent to and approve the execution by the Issuer and the
Trustee of such other indenture or indentures supplemental hereto as shall be
deemed necessary and desirable by the Trustee for the purpose of modifying,
altering, amending, adding to or rescinding, in any particular, any of the terms
or provisions contained in this Indenture or in any Supplemental Indenture;
provided, however, that nothing in this Section contained shall permit, or be
construed as permitting (1) without the consent of the Registered Owners of all
then Outstanding Notes, (a) an extension of the maturity date of the principal
of or the interest on any Note, or (b) a reduction in the principal amount of
any Note or the rate of interest thereon, or (c) a privilege or priority of any
Note or Notes over any other Note or Notes, or (d) a reduction in the aggregate
principal amount of the Notes required for consent to such Supplemental
Indenture, or (e) the creation of any lien other than a lien ratably securing
all of the Notes at any time Outstanding hereunder or (2) any modification of
the trusts, powers, rights, obligations, duties, remedies, immunities and
privileges of the Trustee without the prior written approval of the Trustee.
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If at any time the Issuer shall request the Trustee to enter into any such
Supplemental Indenture for any of the purposes of this Section, the Trustee
shall, upon being satisfactorily indemnified with respect to expenses, cause
notice of the proposed execution of such Supplemental Indenture to be mailed by
registered or certified mail to each Registered Owner of a Note at the address
shown on the registration books. Such notice shall briefly set forth the nature
of the proposed Supplemental Indenture and shall state that copies thereof are
on file at the principal corporate trust office of the Trustee for inspection by
all Registered Owners. If, within 60 days, or such longer period as shall be
prescribed by the Issuer, following the mailing of such notice, the Registered
Owners representing the applicable percentage of the collective aggregate
principal amount of the Notes Outstanding required hereby at the time of the
execution of any such Supplemental Indenture shall have consented in writing to
and approved the substance of the amendments made by the Supplemental Indenture
and the execution thereof as herein provided, no Registered Owner of any Note
shall have any right to object to any of the terms and provisions contained
therein, or the operation thereof, or in any manner to question the propriety of
the execution thereof, or to enjoin or restrain the Trustee or the Issuer from
executing the same or from taking any action pursuant to the provisions thereof.
Upon the execution of any such Supplemental Indenture as in this Section 8.02
permitted and provided, this Indenture shall be and be deemed to be modified and
amended in accordance therewith.
Section 8.03. ADDITIONAL LIMITATION ON MODIFICATION OF INDENTURE. None of
the provisions of this Indenture (including Sections 8.01 and 8.02 hereof) shall
permit an amendment to the provisions of the Indenture which permits the
transfer of all or part of Guaranteed Student Loans or granting of a security
interest therein to any Person other than an Eligible Lender or the Servicer,
unless the Act or Regulations are hereafter modified so as to permit the same.
No amendment to this Indenture or to the indentures supplemental thereto
shall be effective unless the Trustee receives an opinion of Note Counsel to the
effect that such amendment was adopted in conformance with this Indenture.
Section 8.04. NOTICE TO EACH RATING AGENCY. Notice of any proposed
amendment or supplement to this Indenture shall be given by the Issuer to each
Rating Agency, together with the proposed form thereof. In addition, the Issuer
shall give notice to each Rating Agency of any intended additional parties to be
designated as a Guarantee Agency or Servicer and not listed in the definition
thereof, along with a request of certification of the Rating, and shall provide
them with duplicate copies of all correspondence, notices, certificates, audits,
reports or other communications required to be prepared by the Issuer and sent
to the Trustee in accordance with this Indenture. The Issuer shall also
promptly deliver to each Rating Agency such additional reports or information as
is necessary for maintenance of a public rating on the Notes. The Issuer
acknowledges that periodic reviews by each Rating Agency may involve discussions
and/or meetings with representatives of the Issuer at mutually agreeable times.
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Section 8.05. NOTICE OF DEFAULTS. Within 90 days after the occurrence of
any default hereunder with respect to the Securities of any series, the Trustee
shall transmit in the manner and to the extent provided in TIA Section 313(c),
notice of such default hereunder known to the Trustee, unless such default shall
have been cured or waived; provided, however, that, except in the case of a
default in the payment of the principal of (or premium, if any) or interest on
or any Additional Amounts with respect to any Security of such series, or in the
payment of any sinking fund installment with respect to the Securities of such
series, the Trustee shall be protected in withholding such notice if and so long
as Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interest of the Holders of the Securities
and coupons of such series; and provided further that in the case of any default
or breach of the character specified in Section __________ with respect to the
Securities and coupons of such series, no such notice to Holders shall be given
until at least 60 days after the occurrence thereof. For the purpose of this
Section 8.05, the term "default" means any event which is, or after notice or
lapse of time or both would become, an Event of Default with respect to the
Securities of such series.
Section 8.06. CONFORMITY WITH THE TRUST INDENTURE ACT. Every supplemental
indenture executed pursuant to this Article VIII shall conform to the
requirements of the Trust Indenture Act as then in effect.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01. NOTICES. Any notice, request or other instrument required
by this Indenture to be signed or executed by the Registered Owners of Notes may
be executed by the execution of any number of concurrent instruments of similar
tenor, and may be signed or executed by such Registered Owners of Notes in
person or by agent appointed in writing. As a condition for acting thereunder
the Trustee may demand proof of the execution of any such instrument and of the
fact that any person claiming to be the owner of any of said Notes is such owner
and may further require the actual deposit of such Note or Notes with the
Trustee. The fact and date of the execution of such instrument may be proved by
the certificate of any officer in any jurisdiction who by the laws thereof is
authorized to take acknowledgments of deeds within such jurisdiction, that the
person signing such instrument acknowledged before him the execution thereof, or
may be proved by any affidavit of a witness to such execution sworn to before
such officer.
The amount of Notes held by any person executing such instrument as a
Registered Owner of Notes and the fact, amount, and numbers of the Notes held by
such person and the date of his holding the same may be proved by a certificate
executed by any responsible trust company, bank, banker, or other depository in
a form approved by the Trustee, showing that at the date therein mentioned such
person had on deposit with such depository the Notes described in such
certificate; provided, however, that at all times the Trustee may require the
actual deposit of such Note or Notes with the Trustee.
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All notices, requests and other communications to any party hereunder shall
be in writing (including bank wire, telex or similar writing) at the following
addresses:
If intended for the Issuer:
Union Financial Services-1, Inc.
6991 East Camelback Road, Suite B290
Scottsdale, Arizona 85251
Attention: President
Telephone: (602) 947-7703
Telecopier: (602) 947-5452
If intended for the Principal Office of the Trustee:
Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department, Student Loan Group
Telephone: 612-667-8058
Telecopier: 612-667-9825
Any party may change the address to which subsequent notices to such party are
to be sent, or of its Principal Office, by notice to the others, delivered by
hand or received by telex or telecopier or registered first-class mail, postage
prepaid. Each such notice, request or other communication shall be effective
when delivered by hand or received by telex or telecopier or registered
first-class mail, postage prepaid.
Section 9.02. COVENANTS BIND ISSUER. The covenants, agreements,
conditions, promises, and undertakings in this Indenture shall extend to and be
binding upon the successors and assigns of the Issuer, and all of the covenants
hereof shall bind such successors and assigns, and each of them, jointly and
severally. All the covenants, conditions, and provisions hereof shall be held
to be for the sole and exclusive benefit of the parties hereto and their
successors and assigns and of the Registered Owners from time to time of the
Notes.
No extension of time of payment of any of the Notes shall operate to
release or discharge the Issuer, it being agreed that the liability of the
Issuer, to the extent permitted by law, shall continue until all of the Notes
are paid in full, notwithstanding any transfer of Guaranteed Student Loans or
extension of time for payment.
Section 9.03. LIEN CREATED. This Indenture shall operate effectually as
(i) a grant of lien on and security interest in, and (ii) an assignment of, the
Trust Estate.
Section 9.04. SEVERABILITY OF LIEN. If the lien of this Indenture shall
be or shall ever become ineffectual, invalid, or unenforceable against any part
of the Trust Estate, which are not
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subject to the lien, because of want of power or title in the Issuer, the
inclusion of any such part shall not in any way affect or invalidate the
pledge and lien hereof against such part of the Trust Estate as the Issuer
had the right to pledge.
Section 9.05. CONSENT OF REGISTERED OWNERS BINDS SUCCESSORS. Any request
or consent of the Registered Owner of any Notes given for any of the purposes of
this Indenture shall bind all future Registered Owners of the same Note or any
Notes issued in exchange therefor or in substitution thereof in respect of
anything done or suffered by the Issuer or the Trustee in pursuance of such
request or consent.
Section 9.06. DATE OF EXECUTION. Although this Indenture for convenience
and for the purpose of reference is dated as of June 15, 1996, the actual dates
of execution by the Issuer and by the Trustee are as indicated by their
respective acknowledgments hereto annexed.
Section 9.07. NONLIABILITY OF DIRECTORS; NO GENERAL OBLIGATION. It is
hereby expressly made a condition of this Indenture that any agreements,
covenants, or representations herein contained or contained in the Notes do not
and shall never constitute or give rise to a personal or pecuniary liability or
charge against the incorporators, officers, employees, agents, or Directors of
the Issuer, or against the general credit of the Issuer, and in the event of a
breach of any such agreement, covenant, or representation, no personal or
pecuniary liability or charge payable directly or indirectly from the general
revenues of the Issuer shall arise therefrom. Nothing contained in this
Section, however, shall relieve the Issuer from the observance and performance
of the several covenants and agreements on its part herein contained.
Section 9.08. NONPRESENTMENT OF NOTES OR INTEREST CHECKS. Should any of
the Notes or interest checks not be presented for payment when due, the Trustee
shall retain from any money transferred to it for the purpose of paying the
Notes or interest checks so due, for the benefit of the Registered Owners
thereof, a sum of money sufficient to pay such Notes or interest checks when the
same are presented by the Registered Owners thereof for payment. Such money
shall not be required to be invested, except as directed by the Issuer. All
liability of the Issuer to the Registered Owners of such Notes or interest
checks and all rights of such Registered Owners against the Issuer under the
Notes or interest checks or under this Indenture shall thereupon cease and
determine, and the sole right of such Registered Owners shall thereafter be
against such deposit. If any Note or interest check shall not be presented for
payment within the period of four years following the final Stated Maturity of
the Notes, the Trustee shall return to the Issuer the money theretofore held by
it for payment of such Note or interest check, and such Note or interest check
shall (subject to the defense of any applicable statute of limitation)
thereafter be an unsecured obligation of the Issuer.
Section 9.09. SECURITY AGREEMENT. This Indenture constitutes a Financing
Statement and a Security Agreement under the Nevada Uniform Commercial Code.
Section 9.10. LAWS GOVERNING. It is the intent of the parties hereto that
this Indenture shall in all respects be governed by the laws of the State. This
Indenture is subject to the
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provisions of the TIA that are required to be part of this Indenture and
shall, to the extent applicable, be governed by such provisions.
Section 9.11. SEVERABILITY. Of any covenant, agreement, waiver, or part
thereof in this Indenture contained be forbidden by any pertinent law or under
any pertinent law be effective to render this Indenture invalid or unenforceable
or to impair the lien hereof, then each such covenant, agreement, waiver, or
part thereof shall itself be and is hereby declared to be wholly ineffective,
and this Indenture shall be construed as if the same were not included herein.
Section 9.12. EXHIBITS. The terms of the Exhibits attached to this
Indenture are incorporated herein in all particulars.
Section 9.13. PARTIES INTERESTED HEREIN. Nothing in this Indenture
expressed or implied is intended or shall be construed to confer upon, or to
give to, any person or entity, other than the Trustee, the paying agent, if any,
and the Registered Owners of the Notes, any right, remedy or claim under or by
reason of this Indenture or any covenant, condition or stipulation hereof, and
all covenants, stipulations, promises and agreements in this Indenture contained
by and on behalf of the Issuer shall be for the sole and exclusive benefit of
the Trustee, the paying agent, if any, and the Registered Owners of the Notes.
Section 9.14. NOTES ARE LIMITED OBLIGATIONS. The Notes and any agreement
of the Issuer mentioned herein are special, limited obligations of the Issuer,
secured by and payable solely from the Trust Estate herein provided. The Issuer
shall not be obligated to pay the Notes, the interest thereon, or any other
obligation created by or arising from this Indenture from any other source.
Section 9.15. SWAP COUNTERPARTY RIGHTS. Notwithstanding any provision of
this Indenture, no Swap Counterparty which shall be in default under any Swap
Agreement with the Issuer shall have any of the rights granted to a Swap
Counterparty hereunder.
Section 9.16. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application
or request by the Company to the Trustee to take any action under any provision
of this Indenture, the Company shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with and an Opinion
of Counsel to the effect that, in the opinion of such counsel, all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
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(a) a statement that each individual signing such certificate or
opinion has read such condition or covenant and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such condition or covenant
has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 9.17. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS. Every Holder
of Securities, by receiving and holding the same, agrees with the Company and
the Trustee that neither the Company nor the Trustee nor any Authenticating
Agent nor any Paying Agent nor any Security Registrar shall be held accountable
by reason of the disclosure of any information as to the names and addresses of
the Holders of Securities in accordance with TIA Section 312, regardless of the
source from which such information was derived, and that the Trustee shall not
be held accountable by reason of mailing any material pursuant to a request made
under TIA Section 312(b).
ARTICLE X
PAYMENT AND CANCELLATION OF NOTES
AND SATISFACTION OF INDENTURE
Section 10.01. TRUST IRREVOCABLE. The trust created by the terms and
provisions of this Indenture is irrevocable until the indebtedness secured
hereby (the Notes and interest thereon) is fully paid or provision made for its
payment as provided in this Article and the Issuer has paid all of the fees and
expenses of the Trustee and given notice to the Trustee to terminate this
Indenture.
Section 10.02. SATISFACTION OF INDENTURE.
(a) If the Issuer shall pay, or cause to be paid, or there shall
otherwise be paid (i) to the Registered Owners, the principal of and
interest on the Notes, at the times and in the manner stipulated in this
Indenture and (ii) to each Swap Counterparty, all Issuer Swap Payments then
due, then the pledge of the Trust Estate, and all covenants, agreements,
and other obligations of the Issuer to the Registered Owners of Notes other
than as provided in the paragraph immediately following the Granting
Clauses hereof shall thereupon cease, terminate, and become void and be
discharged and satisfied. In such event, the Trustee shall execute and
deliver to the Issuer all such instruments as
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may be desirable to evidence such discharge and satisfaction, and the
Trustee shall pay over or deliver all money held by it under this
Indenture to the party entitled to receive the same under this
Indenture. If the Issuer shall pay or cause to be paid, or there shall
otherwise be paid, to the Registered Owners of any Outstanding Notes the
principal of and interest on such Notes and to each Swap Counterparty,
all Counterparty Swap Payments then due, at the times and in the manner
stipulated in this Indenture and in the Swap Agreement, such Notes and
each Swap Counterparty shall cease to be entitled to any lien, benefit,
or security under this Indenture, and all covenants, agreements, and
obligations of the Issuer to the Registered Owners thereof and each Swap
Counterparty shall thereupon cease, terminate, and become void and be
discharged and satisfied.
(b) Notes or interest installments shall be deemed to have been paid
within the meaning of Section 10.02(a) hereof if money for the payment or
redemption thereof has been set aside and is being held in trust by the
Trustee at the Stated Maturity or earlier redemption date thereof. All
Outstanding Notes shall, prior to the Stated Maturity or earlier redemption
thereof, be deemed to have been paid within the meaning and with the effect
expressed in Section 10.02(a) hereof if (i) such Notes are to be redeemed
on any date prior to their Stated Maturity and (ii) the Issuer shall have
given notice of redemption as provided herein on said date, there shall
have been deposited with the Trustee either money (fully insured by the
Federal Deposit Insurance Issuer or fully collateralized by Governmental
Obligations) in an amount which shall be sufficient, or Governmental
Obligations (including any Governmental Obligations issued or held in
book-entry form on the books of the Department of Treasury of the United
States of America) the principal of and the interest on which when due will
provide money which, together with the money, if any, deposited with the
Trustee at the same time, shall be sufficient, to pay when due the
principal of and interest to become due on such Notes on and prior to the
redemption date or Stated Maturity thereof, as the case may be.
Notwithstanding anything herein to the contrary, however, no such deposit
shall have the effect specified in this subsection (b) if made during the
existence of an Event of Default, unless made with respect to all of the
Notes then Outstanding. Neither Governmental Obligations nor money
deposited with the Trustee pursuant to this subsection (b) nor principal or
interest payments on any such Governmental Obligations shall be withdrawn
or used for any purpose other than, and shall be held irrevocably in trust
in an escrow account for, the payment of the principal of and interest on
such Notes. Any cash received from such principal of and interest on such
Governmental Obligations deposited with the Trustee, if not needed for such
purpose, shall, to the extent practicable, be reinvested in Governmental
Obligations maturing at times and in amounts sufficient to pay when due the
principal of and interest on such Notes on and prior to such redemption
date or Stated Maturity thereof, as the case may be, and interest earned
from such reinvestments shall be paid over to the Issuer, as received by
the Trustee, free and clear of any trust, lien, or pledge, subject to
verification by a certified public accountant or firm thereof that the
remaining amounts in escrow are sufficient to pay the principal of and
interest on the Notes as aforesaid. Any payment for Governmental
Obligations purchased for the purpose of reinvesting cash as aforesaid
shall be made only against
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delivery of such Governmental Obligations. For the purposes of this
Section, "Governmental Obligations" shall mean and include only
non-callable direct obligations of the Department of the Treasury of the
United States of America, and such Governmental Obligations shall be
certified by an independent public accounting firm of national
reputation to be of such amounts, maturities, and interest payment dates
and to bear such interest as will, without further investment or
reinvestment of either the principal amount thereof or the interest
earnings therefrom, be sufficient to make the payments required herein,
and which obligations have been deposited in an escrow account which is
irrevocably pledged as security for the Notes. Such term shall not
include mutual funds and unit investment trusts.
(c) Any Issuer Swap Payments are deemed to have been paid and the
applicable Swap Agreement terminated when payment of all Issuer Swap
Payments due and payable to each Swap Counterparty under its respective
Swap Agreement have been made or duly provided for to the satisfaction of
each Swap Counterparty and the respective Swap Agreement has been
terminated.
(d) In no event shall the Trustee deliver over to the Issuer any
Guaranteed Student Loans unless the Issuer is an Eligible Lender, if the
Act or Regulations then in effect require the owner or holder of Guaranteed
Student Loans to be an Eligible Lender.
(e) The provisions of this Section are applicable to the Notes and
the Issuer Swap Payments and any portion of the Notes.
Section 10.03. CANCELLATION OF PAID NOTES. Any Notes which have been paid
or purchased by the Issuer, mutilated Notes replaced by new Notes, and any
temporary Note for which definitive Notes have been delivered shall forthwith be
cancelled by the Trustee and, except for temporary Notes, returned to the
Issuer.
ARTICLE XI
TERMINATION
Section 11.01. TERMINATION OF THE TRUST.
(a) The trust created by this Indenture (the "Trust") shall terminate
upon the earlier of (i) the later of (A) payment to the Registered Owners
and to the Trustee of all amounts required to be paid to them pursuant to
this Indenture and any Supplemental Indenture and the disposition of all
property held as part of the Trust Estate or (B) the day following the date
on which all reimbursement obligations to the Swap Counterparty, if any,
and any other Person as may be provided for in any Supplemental Indenture
have been paid in full, (ii) the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy (the late
ambassador of the United States to the Court of St. James) living on the
date of this Indenture or (iii) subject to Section 11.01(d), upon
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the occurrence of a Liquidation Event (as hereinafter defined). The
Issuer shall promptly notify the Trustee of any prospective termination
pursuant to this Section 11.01.
(b) Notice of any prospective termination, specifying the Interest
Payment Date for payment of the final distribution and requesting the
surrender of the Notes for cancellation, shall be given promptly by the
Trustee by letter to Registered Owners mailed not less than ten nor more
than fifteen days preceding the specified Interest Payment Date stating (i)
the Interest Payment Date upon which final payment of the Notes shall be
made, (ii) the amount of any such final payment, and (iii) the location for
presentation and surrender of the Notes. Payment of the final distribution
which shall be made only upon presentation and surrender of the Notes at
the Corporate Trust Office of the Trustee specified in the notice.
(c) A "Liquidation Event" shall be deemed to have occurred, subject
to Section 11.01(d), upon Dissolution of the Issuer.
(d) The Issuer shall not voluntarily take any action that would cause
it to be deemed dissolved within the meaning of this Article XI.
In the event of the Dissolution of the Issuer or any action that would
cause the Issuer to cease being deemed a general partner of the Trust if
the Trust were deemed a limited partnership formed under the Delaware
Revised Uniform Limited Partnership Act, and the Issuer's interest were
deemed to represent the sole general partnership interest in such a
partnership, the Trust shall terminate 90 days after the date of such event
and its assets liquidated in accordance with Section 11.01(e) unless both
of the following occur:
(i) The Registered Owners representing Registered Owner
Approval, as defined in Section 6.01 hereof, inform the Trustee in
writing before the end of such 90 day period that they disapprove of
the liquidation of the assets of the Trust; and
(ii) The Issuer, the Trustee and the Swap Counterparty, if any,
shall receive an Opinion of Counsel to the effect that the
continuation of the Trust shall not cause the Trust to be treated as
an association taxable as a corporation for federal income tax
purposes.
(e) Upon receipt by the Trustee from the Issuer of notice of the
occurrence of a Liquidation Event (as defined in Section 11.01(c)), the
Trustee shall, subject to the direction of the Registered Owners
constituting Registered Owner Approval (provided that, if Registered Owners
constituting Registered Owner Approval shall not have provided such
direction to the Trustee within 30 days of the Trustee having sent a
written request for such direction to the Registered Owners, the Trustee
shall proceed without such direction) sell the remaining assets of the
Trust Estate, if any, at public or private
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sale, in a commercially reasonable manner and on commercially reasonable
terms. The Issuer agrees to cooperate with the Trustee to effect any
such sale, including by executing such instruments of conveyance or
assignment as shall be necessary or required by the purchaser. Proceeds
of sale, net of expenses, shall be treated as collections on the assets
of the Trust and shall be deposited into the Revenue Fund. On the next
Interest Payment Date the Trustee shall cause to be paid to Registered
Owners and the Issuer amounts distributable on such Interest Payment
Date pursuant to Article V. Following the termination of the Trust, all
right, title and interest in and to the Financed Eligible Loans and
other property and funds in the Trust Estate (other than funds on
deposit in certain accounts for the payment of expenses) shall be
conveyed and transferred to the Issuer.
Section 11.02. NOTICE. The Trustee shall give notice of termination of
the Trust to the Issuer and each Rating Agency.
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IN WITNESS WHEREOF, the Issuer has caused this Indenture to be executed in
its corporate name and behalf by the President, and the Trustee, to evidence its
acceptance of the trusts hereby created, has caused this Indenture to be
executed in its corporate name and behalf, has caused its corporate seal to be
hereunto affixed by its duly authorized officer, all in multiple counterparts,
each of which shall be deemed an original, and the Issuer and the Trustee have
caused this Indenture to be dated as of the date herein above first shown,
although actually executed on the dates shown in the acknowledgments hereafter
appearing.
UNION FINANCIAL SERVICES-1, INC.
By
---------------------------------------
Stephen F. Butterfield
President
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as
Trustee
By
---------------------------------------
Assistant Vice President
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ACKNOWLEDGMENTS
STATE OF COLORADO ]
] ss.
CITY AND COUNTY OF DENVER ]
The foregoing instrument was acknowledged before me on June 18, 1996 by
Stephen F. Butterfield, President of the Union Financial Services-1, Inc., a
Nevada corporation, on behalf of such corporation.
[SEAL] ------------------------------------------------
Notary Public in and for the State of Colorado
My commission expires:
- ------------------------------
STATE OF COLORADO ]
] ss.
CITY AND COUNTY OF DENVER ]
The foregoing instrument was acknowledged before me on June 18, 1996 by
Roxanne Rouleau, an Assistant Vice President of Norwest Bank Minnesota, National
Association, a banking corporation, on behalf of such corporation.
------------------------------------------------
Notary Public in and for the State of Colorado
My commission expires:
- ------------------------------
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APPENDIX A
CERTAIN TERMS AND PROVISIONS OF THE AUCTION NOTES
ARTICLE I
Section 1.01. DEFINITIONS. Except as provided below in this Section, all
terms which are defined in Article I of the Indenture shall have the same
meanings, respectively, in this Appendix A as such terms are given in the
Indenture. In addition, the following terms shall have the following respective
meanings:
"AFTER-TAX EQUIVALENT" means the "AA" Composite Commercial Paper Rate.
"ALL HOLD RATE" means the Applicable LIBOR Rate less .20%; provided that in
no event shall the applicable All Hold Rate be greater than the applicable
Maximum Auction Rate.
"APPLICABLE LIBOR RATE" means, (a) for Auction Periods of 35 days or less,
One-Month LIBOR, (b) for Auction Periods of more than 35 days but less than 91
days, Three-Month LIBOR, (c) for Auction Periods of more than 90 days but less
than 181 days, Six-Month LIBOR, and (d) for Auction Periods of more than 180
days, One-Year LIBOR.
"AUCTION" means the implementation of the Auction Procedures on an Auction
Date.
"AUCTION AGENT" means the Initial Auction Agent under the Initial Auction
Agent Agreement unless and until a Substitute Auction Agent Agreement becomes
effective, after which "Auction Agent" shall mean the Substitute Auction Agent.
"AUCTION AGENT AGREEMENT" means the Initial Auction Agent Agreement unless
and until a Substitute Auction Agent Agreement is entered into, after which
"Auction Agent Agreement" shall mean such Substitute Auction Agent Agreement.
"AUCTION AGENT FEE" has the meaning set forth in the Auction Agent
Agreement.
"AUCTION DATE" means, initially, March 20, 1996 with respect to the
Class 1996A-1 Notes, April 1, 1996 with respect to the Class 1996A-2 Notes,
July 15, 1996 with respect to the Class 1996A-3 Notes and July 29, 1996 with
respect to the Class 1996A-4 Notes and thereafter, the Business Day immediately
preceding the first day of each Auction Period for each respective Class, other
than:
(a) each Auction Period commencing after the ownership of the
applicable Auction Notes is no longer maintained in Book-entry Form by the
Securities Depository;
(b) each Auction Period commencing after and during the continuance
of a Payment Default; or
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(c) each Auction Period commencing less than two Business Days after
the cure or waiver of a Payment Default.
Notwithstanding the foregoing, the Auction Date for one or more Auction Periods
may be changed pursuant to Section 2.02(h) of this Appendix A.
"AUCTION NOTES" means, collectively, the Class 1996A Notes and the
Additional Class 1996A Notes.
"AUCTION NOTE INTEREST RATE" means each variable rate of interest per annum
borne by an Auction Note for each Auction Period and determined in accordance
with the provisions of Sections 2.01 and 2.02 hereof; provided, however, that in
the event of a Payment Default, the Auction Note Interest Rate shall equal the
applicable Non-Payment Rate; provided, further, however that such Auction Note
Interest Rate shall in no event exceed the applicable Maximum Auction Rate.
"AUCTION PERIOD" means the Interest Period applicable to the Auction Notes
during which time the Interest Rate is determined pursuant to Section 2.02(a)
hereof, which Auction Period (after the Initial Period for such Class) initially
shall consist generally of (a) 7 days for the Class 1996A-1 Notes, (b) 28 days
for the Class 1996A-2 Notes, (c) 28 days for the Class 1996A-3 Notes and (d) 28
days for the Class 1996A-4 Notes, as the same may be adjusted pursuant to
Section 2.02(g) hereof.
"AUCTION PERIOD ADJUSTMENT" means an adjustment to the Auction Period as
provided in Section 2.02(g) hereof.
"AUCTION PROCEDURES" means the procedures set forth in Section 2.02(a)
hereof by which the Auction Rate is determined.
"AUCTION RATE" means the rate of interest per annum that results from
implementation of the Auction Procedures and is determined as described in
Section 2.02(a)(iii)(B) hereof.
"AUTHORIZED DENOMINATIONS" means $100,000 and any integral multiple
thereof.
"AVAILABLE AUCTION NOTES" has the meaning set forth in Section
2.02(a)(iii)(A)(1) hereof.
"BID" has the meaning set forth in Section 2.02(a)(i)(A) hereof.
"BID AUCTION RATE" has the meaning set forth in Section 2.02(a)(iii)(A)
hereof.
"BIDDER" has the meaning set forth in Section 2.02(a)(i)(A) hereof.
"BOND EQUIVALENT YIELD" means, in respect of any security the rate for
which is quoted in THE WALL STREET JOURNAL on a bank discount basis, the "bond
equivalent yield" (expressed as
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a percentage) for such security which appears on Telerate's United States
Treasury and Money Market Composite Page 0223, rounded up to the nearest one
one-hundredth of one percent.
"BOOK-ENTRY FORM" or "BOOK-ENTRY SYSTEM" means a form or system under which
(a) the beneficial right to principal and interest may be transferred only
through a book entry, (b) physical securities in registered form are issued only
to a Securities Depository or its nominee as registered owner, with the
securities "immobilized" to the custody of the Securities Depository, and (c)
the book entry is the record that identifies the owners of beneficial interests
in that principal and interest.
"BROKER-DEALER" means Smith Barney Inc. or any other broker or dealer (each
as defined in the Securities Exchange Act of 1934, as amended), commercial bank
or other entity permitted by law to perform the functions required of a Broker-
Dealer set forth in the Auction Procedures that (a) is a Participant (or an
affiliate of a Participant), (b) has been appointed as such by the Issuer
pursuant to Section 2.02(f) hereof and by Smith Barney Inc., if applicable, and
(c) has entered into a Broker-Dealer Agreement that is in effect on the date of
reference.
"BROKER-DEALER AGREEMENT" means each agreement between the Auction Agent
and a Broker-Dealer, and approved by the Issuer, pursuant to which the Broker-
Dealer agrees to participate in Auctions as set forth in the Auction Procedures,
as from time to time amended or supplemented. Each Broker-Dealer Agreement
shall be in substantially the form of the Amended and Restated Broker-Dealer
Agreement dated as of June 15, 1996, among the Issuer, Bankers Trust Company, as
Auction Agent, and Smith Barney Inc., as Broker-Dealer.
"BROKER-DEALER FEE" has the meaning set forth in the Auction Agent
Agreement.
"BROKER-DEALER FEE RATE" has the meaning set forth in the Auction Agent
Agreement.
"BUSINESS DAY" means a day of the year on which (a) banks located in the
city in which the Principal Office of the Trustee is located are not required or
authorized to remain closed, (b) banks located in the city in which the
Principal Office of the Auction Agent, as set forth in and for purposes of the
Auction Agent Agreement, is located are not required or authorized to remain
closed and (c) The New York Stock Exchange is not closed.
"CARRY-OVER AMOUNT" means the excess, if any, of (a) the amount of interest
on an Auction Note that would have accrued with respect to the related Interest
Period at the applicable Auction Rate over (b) the amount of interest on such
Auction Note actually accrued with respect to such Auction Note with respect to
such Interest Period based on the applicable Maximum Auction Rate (without
regard to the last two clauses of the definition thereof) together with the
unreduced portion of any such excess from prior Interest Periods; provided that
any reference to "principal" or "interest" in this Appendix A and the Auction
Notes shall not include within the meanings of such words any Carry-over Amount
or any interest accrued on any Carry-over Amount.
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"CLOSING DATE" means the Date of Issuance of the Series 1996A Notes
(March 8, 1996) and the Date of Issuance of the Series 1996B Notes (June 19,
1996).
"COMMERCIAL PAPER DEALER" means Smith Barney Inc., its successors and
assigns, and any other commercial paper dealer appointed pursuant to Section
2.02(c) of this Appendix A.
"ELIGIBLE CARRY-OVER MAKE-UP AMOUNT" means, with respect to each Interest
Period relating to the Auction Notes as to which, as of the first day of such
Interest Period, there is any unpaid Carry-over Amount, an amount equal to the
lesser of (a) interest computed on the principal balance of the Auction Notes in
respect to such Interest Period at a per annum rate equal to the excess, if any,
of applicable Maximum Auction Rate (without regard to the last two clauses of
the definition thereof) over the Auction Rate, together with the unreduced
portion of any such excess from prior Interest Periods and (b) the aggregate
Carry-over Amount remaining unpaid as of the first day of such Interest Period
together with interest accrued and unpaid thereon through the end of such
Interest Period.
"EXISTING OWNER" means (a) with respect to and for the purpose of dealing
with the Auction Agent in connection with an Auction, a Person who is a Broker-
Dealer listed in the Existing Owner Registry at the close of business on the
Business Day immediately preceding the Auction Date for such Auction and (b)
with respect to and for the purpose of dealing with the Broker-Dealer in
connection with an Auction, a Person who is a beneficial owner of Auction Notes.
"EXISTING OWNER REGISTRY" means the registry of Persons who are owners of
the Auction Notes, maintained by the Auction Agent as provided in the Auction
Agent Agreement.
"HOLD ORDER" has the meaning set forth in Section 2.02(a)(i)(A) hereof.
"INITIAL AUCTION AGENT" means Bankers Trust Company, a New York banking
corporation, its successors and assigns.
"INITIAL AUCTION AGENT AGREEMENT" means, collectively, the Amended and
Restated Auction Agent Agreement dated as of June 15, 1996, by and among the
Issuer, the Trustee and the Initial Auction Agent, including any amendment
thereof or supplement thereto.
"INITIAL PERIOD" means, as to Auction Notes, the period commencing on the
Closing Date and continuing through the day immediately preceding the Initial
Rate Adjustment Date for such Auction Notes.
"INITIAL RATE" means 5.40% for the Class 1996A-1 Notes, 5.35% for the
Class 1996A-2 Notes, 5.52% for the Class 1996A-3 Notes and 5.51% for the Class
1996A-4 Notes.
"INITIAL RATE ADJUSTMENT DATE" means (a) with respect to the Class 1996A-1
Notes, March 21, 1996, (b) with respect to the Class 1996A-2 Notes, April 2,
1996, (c) with respect
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to the Class 1996A-3 Notes, July 16, 1996 and (d) with respect to the Class
1996A-4 Notes, July 30, 1996.
"INTEREST PAYMENT DATE" means (a) so long as the Auction Notes bear
interest at an Auction Note Interest Rate for an Interest Period of not greater
than 180 days, the Business Day immediately following the expiration of the
Initial Period for such Class, and each related Auction Period thereafter and
(b) if and for so long as the Auction Notes bear interest at an Auction Note
Interest Rate for an Interest Period of greater than 180 days, each January 1
and July 1.
"INTEREST PERIOD" means, with respect to the Auction Notes, the Initial
Period and each period commencing on an Interest Rate Adjustment Date for such
Class and ending on the day before (a) the next Interest Rate Adjustment Date
for such Class or (b) the Stated Maturity of such Class, as applicable.
"INTEREST RATE ADJUSTMENT DATE" means the date on which an Auction Note
Interest Rate is effective, and means, with respect to the Auction Notes, the
date of commencement of each Auction Period.
"INTEREST RATE DETERMINATION DATE" means, with respect to the Auction
Notes, the Auction Date, or if no Auction Date is applicable to such Class, the
Business Day immediately preceding the date of commencement of an Auction
Period.
"MARKET AGENT" means Smith Barney Inc., New York, New York, in such
capacity hereunder, or any successor to it in such capacity hereunder.
"MAXIMUM AUCTION RATE" means the least of (a) either (i) the Applicable
LIBOR Rate plus 1.50% (if the ratings assigned by the Rating Agency to the
Auction Notes are "Aa3" and "AA-," respectively, or better) or (ii) the
Applicable LIBOR Rate plus 2.50% (if any one of the ratings assigned by the
Rating Agency to the Auction Notes is less than "Aa3" or "AA-," respectively),
(b) the Net Loan Rate, (c) 18% and (d) the highest rate the Issuer may legally
pay, from time to time, as interest on the Auction Notes. For purposes of the
Auction Agent and the Auction Procedures, the ratings referred to in this
definition shall be the last ratings of which the Auction Agent has been given
written notice pursuant to the Auction Agent Agreement.
"NET LOAN RATE" means, with respect to the Auction Notes, the rate of
interest per annum (rounded to the next highest one one-hundredth of one
percent) equal to the applicable United States Treasury Security Rate plus
1.50%. For Auction Periods of 180 days or less, the applicable United States
Treasury Security Rate is for 91-day United States Treasury securities, and for
Auction Periods of more than 180 days, the applicable United States Treasury
Security Rate is for one-year United States Treasury securities.
"NON-PAYMENT RATE" means One-Month LIBOR plus 1.50%.
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"ONE-MONTH LIBOR," "THREE-MONTH LIBOR," "SIX-MONTH LIBOR" or "ONE-YEAR
LIBOR," means the rate of interest per annum equal to the rate per annum at
which United States dollar deposits having a maturity of one month, three
months, six months or one year, respectively, are offered to prime banks in the
London interbank market which appear on the Reuters Screen LIBOR Page as of
approximately 11:00 a.m., London time, on the Interest Rate Determination Date.
If at least two such quotations appear, One-Month LIBOR, Three-Month LIBOR, Six-
Month LIBOR or One-Year LIBOR, respectively, will be the arithmetic mean
(rounded upwards, if necessary, to the nearest one-hundredth of one percent) of
such offered rates. If fewer than two such quotes appear, One-Month LIBOR,
Three-Month LIBOR, Six-Month LIBOR or One-Year LIBOR, respectively, with respect
to such Interest Period will be determined at approximately 11:00 a.m., London
time, on such Interest Rate Determination Date on the basis of the rate at which
deposits in United States dollars having a maturity of one month, three months,
six months or one year, respectively, are offered to prime banks in the London
interbank market by four major banks in the London interbank market selected by
(a) the Auction Agent or (b) the Trustee, as applicable, and in a principal
amount of not less than U.S. $1,000,000 and that is representative for a single
transaction in such market at such time. The Auction Agent or the Trustee, as
applicable, will request the principal London office of each of such banks to
provide a quotation of its rate. If at least two quotations are provided, One-
Month LIBOR, Three-Month LIBOR, Six-Month LIBOR or One-Year LIBOR, respectively,
will be the arithmetic mean (rounded upwards, if necessary, to the nearest one-
hundredth of one percent) of such offered rates. If fewer than two quotations
are provided, One-Month LIBOR, Three-Month LIBOR, Six-Month LIBOR or One-Year
LIBOR, respectively, with respect to such Interest Period will be the arithmetic
mean (rounded upwards, if necessary, to the nearest one-hundredth of one
percent) of the rates quoted at approximately 11:00 a.m., New York City time on
such Interest Rate Determination Date by three major banks in New York, New York
selected by (i) the Auction Agent or (ii) the Trustee, as applicable, for loans
in United States dollars to leading European banks having a maturity of one
month, three months, six months or one year, respectively, and in a principal
amount equal to an amount of not less than U.S. $1,000,000 and that is
representative for a single transaction in such market at such time; provided,
however, that if the banks selected as aforesaid are not quoting as mentioned in
this sentence, One-Month LIBOR, Three-Month LIBOR, Six-Month LIBOR or One-Year
LIBOR, respectively, in effect for the applicable Interest Period will be One-
Month LIBOR, Three-Month LIBOR, Six-Month LIBOR or One-Year LIBOR, respectively,
in effect for the immediately preceding Interest Period.
"ORDER" has the meaning set forth in Section 2.02(a)(i)(A) hereof.
"PAYMENT DEFAULT" means, with respect to a Class of the Auction Notes, (a)
a default in the due and punctual payment of any installment of interest on such
Class, or (b) a default in the due and punctual payment of any interest on and
principal of such Class at their maturity.
"POTENTIAL OWNER" means any Person (including an Existing Owner that is (a)
a Broker-Dealer when dealing with the Auction Agent and (b) a potential
beneficial owner when dealing
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with a Broker-Dealer) who may be interested in acquiring Auction Notes (or,
in the case of an Existing Owner thereof, an additional principal amount of
Auction Notes).
"PSA" means the Public Securities Association, its successors and assigns.
"QUARTERLY AVERAGE AUCTION RATE" means the simple average of the Auction
Rates for the Auction Dates preceding the current Auction Date by 91 days or
less, including the current Auction Date.
"QUARTERLY AVERAGE T-BILL RATE" means the simple average of the Bond
Equivalent Yields of 91-day Treasury bills auctioned in the 91 days preceding
(but not including) the current Auction Date.
"REGULAR RECORD DATE" means the Business Day next preceding the applicable
Auction Date.
"REUTERS SCREEN LIBOR PAGE" means the display designated as page "LIBOR" on
the Reuters Monitor Money Rates Service (or such other page as may replace the
LIBOR page for the purposes of displaying London interbank offered rates of
major banks).
"S&P" means Standard & Poor's Ratings Services, a Division of The McGraw-
Hill Companies, Inc., its successors and assigns.
"SELL ORDER" has the meaning set forth in Section 2.02(a)(i)(A) hereof.
"SUBMISSION DEADLINE" means 12:30 p.m., eastern time, on any Auction Date
or such other time on any Auction Date by which Broker-Dealers are required to
submit Orders to the Auction Agent as specified by the Auction Agent from time
to time.
"SUBMITTED BID" has the meaning set forth in Section 2.02(a)(iii)(A)
hereof.
"SUBMITTED HOLD ORDER" has the meaning set forth in Section 2.02(a)(iii)(A)
hereof.
"SUBMITTED ORDER" has the meaning set forth in Section 2.02(a)(iii)(A)
hereof.
"SUBMITTED SELL ORDER" has the meaning set forth in Section 2.02(a)(iii)(A)
hereof.
"SUBSTITUTE AUCTION AGENT" means the Person with whom the Issuer and the
Trustee enter into a Substitute Auction Agent Agreement.
"SUBSTITUTE AUCTION AGENT AGREEMENT" means an auction agent agreement
containing terms substantially similar to the terms of the Initial Auction Agent
Agreement, whereby a Person having the qualifications required by Section
2.02(e) of this Appendix A agrees with the Trustee and the Issuer to perform the
duties of the Auction Agent under this Appendix A.
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"SUFFICIENT BIDS" has the meaning set forth in Section 2.02(a)(iii)(A)
hereof.
"UNITED STATES TREASURY SECURITY RATE" means, for purposes of calculating
the Net Loan Rate applicable to the Auction Notes, that rate of interest per
annum equal to the Bond Equivalent Yield on the applicable United States
Treasury securities sold at the last auction thereof that immediately precedes
the Interest Rate Adjustment Date for the Auction Notes.
"VARIABLE RATE" means the variable rate of interest per annum, including
the Initial Rate, borne by each Class of Auction Notes during the Initial Period
for such Class, and each Interest Period thereafter as such rate of interest is
determined in accordance with the provisions of Article II hereof.
ARTICLE II
TERMS AND ISSUANCE
Section 2.01. AUCTION NOTES. The Initial Rate Adjustment Date for the
Class 1996A-1 Notes shall be March 21, 1996, the Initial Rate Adjustment Date
for the Class 1996A-2 Notes shall be April 2, 1996, the Initial Rate Adjustment
Date for the Class 1996A-3 Notes shall be July 16, 1996 and the Initial Rate
Adjustment Date for the Class 1996A-4 Notes shall be July 30, 1996.
During the Initial Period, each Class of the Auction Notes shall bear
interest at the Initial Rate for such Class. Thereafter, and except with
respect to an Auction Period Adjustment, the Auction Notes shall bear interest
at an Auction Note Interest Rate based on (a) a 7-day Auction Period for the
Class 1996A-1 Notes, (b) a 28-day Auction Period for the Class 1996A-2 Notes,
(c) a 28-day Auction Period for the Class 1996A-3 Notes and (d) a 28-day Auction
Period for the Class 1996A-4 Notes, as determined pursuant to this Section 2.01
and Section 2.02 hereof.
For each Class of the Auction Notes during the Initial Period for such
Class and each Auction Period thereafter, interest at the applicable Auction
Notes Interest Rate shall accrue daily and shall be computed for the actual
number of days elapsed on the basis of a year consisting of 360 days.
The Auction Note Interest Rate to be borne by each Class of the Auction
Notes after such Initial Period for each Auction Period until an Auction Period
Adjustment, if any, shall be determined as described below. Each such Auction
Period after the Initial Period shall commence on and include the day following
the expiration of the immediately preceding Auction Period and terminate on and
include (i) the fourth Business Day of the following week in the case of the
Class 1996A-1 Notes and (ii) the first Business Day of the fourth following week
in the case of the Class 1996A-2 Notes, the Class 1996A-3 Notes and the Class
1996A-4 Notes; provided, however, that in the case of the Auction Period that
immediately follows the Initial Period for a Class of the Auction Notes, such
Auction Period shall commence on the Initial Rate Adjustment Date for such
Class. The Auction Note Interest Rate on each Class of the Auction
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Notes for each Auction Period shall be the Auction Rate in effect for such
Auction Period as determined in accordance with Section 2.02(a) hereof;
provided that if, on any Interest Rate Determination Date, an Auction is not
held for any reason, then the Auction Note Interest Rate on such Auction
Notes for the next succeeding Auction Period shall be the applicable Maximum
Auction Rate.
Notwithstanding the foregoing:
1. if the ownership of an Auction Note is no longer maintained in
Book-entry Form, the Auction Note Interest Rate on the Auction Notes of
such Class for any Interest Period commencing after the delivery of
certificates representing Auction Notes of such Class pursuant to the
Indenture shall equal the applicable Maximum Auction Rate on the Business
Day immediately preceding the first day of such subsequent Interest Period;
or
2. if a Payment Default shall have occurred, the Auction Note
Interest Rate on a Class of the Auction Notes for the Interest Period for
such Class commencing on or immediately after such Payment Default, and for
each Interest Period thereafter, to and including the Interest Period, if
any, during which, or commencing less than two Business Days after, such
Payment Default is cured, shall equal the applicable Non-Payment Rate on
the first day of each such Interest Period.
In accordance with Section 2.02(a)(iii)(B) hereof, the Auction Agent shall
promptly give written notice to the Trustee and the Issuer of each Auction Note
Interest Rate (unless the Auction Note Interest Rate is the applicable Non-
Payment Rate) and the Maximum Auction Rate when such rate is not the Auction
Note Interest Rate, applicable to each Class of the Auction Notes. The Trustee
shall notify the Registered Owners of Auction Notes of the applicable Auction
Note Interest Rate applicable to each such Class of Auction Notes for each
Auction Period not later than the third Business Day of such Auction Period.
Notwithstanding any other provision of the Auction Notes or this Indenture
and except for the occurrence of a Payment Default, interest payable on each
Class of the Auction Notes for an Auction Period shall never exceed for such
Auction Period the amount of interest payable at the applicable Maximum Auction
Rate in effect for such Auction Period.
If the Auction Rate for a Class of Auction Notes is greater than the
applicable Maximum Auction Rate, then the Variable Rate applicable to such
Auction Notes for that Interest Period will be the applicable Maximum Auction
Rate. If the Variable Rate applicable to such Auction Notes for any Interest
Period is the applicable Maximum Auction Rate (without regard to the last two
clauses of the definition thereof), the Trustee shall determine the Carry-over
Amount, if any, with respect to such Auction Notes for such Interest Period.
Such determination of the Carry-over Amount shall be made separately for each
Class of the Auction Notes. Such Carry-over Amount shall bear interest
calculated at a rate equal to One-Month LIBOR (as determined by the Auction
Agent, provided the Trustee has received notice of One-Month LIBOR from the
Auction Agent, and if the Trustee shall not have received such notice from the
Auction Agent,
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then as determined by the Trustee) from the Interest Payment Date for the
Interest Period with respect to which such Carry-over Amount was calculated,
until paid. Any payment in respect of Carry-over Amount shall be applied,
first, to any accrued interest payable thereon and, second, in reduction of
such Carry-over Amount. For purposes of this Appendix A, any reference to
"principal" or "interest" herein shall not include within the meaning of such
words Carry-over Amount or any interest accrued on any such Carry-over
Amount. Such Carry-over Amount shall be separately calculated for each
Auction Note of such Class by the Trustee during such Interest Period in
sufficient time for the Trustee to give notice to each Registered Owner of
such Carry-over Amount as required in the next succeeding sentence. Not less
than four days before the Interest Payment Date for an Interest Period with
respect to which such Carry-over Amount has been calculated by the Trustee,
the Trustee shall give written notice to each Registered Owner of the
Carry-over Amount applicable to each Registered Owner's Auction Note of such
Class, which written notice may accompany the payment of interest by check
made to each such Registered Owner on such Interest Payment Date or otherwise
shall be mailed on such Interest Payment Date by first-class mail, postage
prepaid, to each such Registered Owner at such Registered Owner's address as
it appears on the registration records maintained by the Registrar. Such
notice shall state, in addition to such Carry-over Amount, that, unless and
until an Auction Note of such Class has been redeemed (other than by optional
redemption), after which all accrued Carry-over Amounts (and all accrued
interest thereon) that remains unpaid shall be canceled and no Carry-over
Amount (and interest accrued thereon) shall be paid with respect to an
Auction Note of such Class, (a) the Carry-over Amount (and interest accrued
thereon calculated at a rate equal to One-Month LIBOR) shall be paid by the
Trustee on a Auction Note of such Class on the earliest of (i) the date of
defeasance of any of the Auction Notes of such Class or (ii) the first
occurring Interest Payment Date (or on the date of any such optional
redemption) if and to the extent that (A) the Eligible Carry-over Make-Up
Amount with respect to such subsequent Interest Period is greater than zero,
and (B) moneys are available pursuant to the terms of this Appendix A in an
amount sufficient to pay all or a portion of such Carry-over Amount (and
interest accrued thereon), and (b) interest shall accrue on the Carry-over
Amount at a rate equal to One-Month LIBOR until such Carry-over Amount is
paid in full or is cancelled.
The Carry-over Amount (and interest accrued thereon) for a Class of Auction
Notes shall be paid by the Trustee on Outstanding Auction Notes of such Class on
the earliest of (a) the date of defeasance of any of the Auction Notes of such
Class or (b) the first occurring Interest Payment Date if and to the extent that
(i) the Eligible Carry-over Make-Up Amount with respect to such Interest Period
is greater than zero, and (ii) on such Interest Payment Date there are
sufficient moneys in the Senior Interest Account of the Revenue Fund to pay all
interest due on the Auction Notes on such Interest Payment Date. Any Carry-over
Amount (and any interest accrued thereon) on any Auction Note which is due and
payable on an Interest Payment Date, which Auction Note is to be redeemed (other
than by optional redemption) on said Interest Payment Date, shall be paid to the
Registered Owner thereof on said Interest Payment Date to the extent that moneys
are available therefor in accordance with the provisions of this Appendix A;
provided, however, that any Carry-over Amount (and any interest accrued thereon)
which is not yet due and payable on said Interest Payment Date shall be
cancelled with respect
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to said Auction Note that is to be redeemed (other than by optional
redemption) on said Interest Payment Date and shall not be paid on any
succeeding Interest Payment Date. To the extent that any portion of the
Carry-over Amount (and any interest accrued thereon) remains unpaid after
payment of a portion thereof, such unpaid portion shall be paid in whole or
in part as required hereunder until fully paid by the Trustee on the earliest
of (a) the date of defeasance of any of the Auction Notes of such Class or
(b) the next occurring Interest Payment Date or Dates, as necessary, if and
to the extent that the conditions in the second preceding sentence are
satisfied. On any Interest Payment Date on which the Trustee pays only a
portion of the Carry-over Amount (and any interest accrued thereon) on
Auction Notes of such Class, the Trustee shall give written notice in the
manner set forth in the immediately preceding paragraph to the Registered
Owner of such Auction Note receiving such partial payment of the Carry-over
Amount remaining unpaid on such Auction Note.
The Interest Payment Date or other date on which such Carry-over Amount (or
any interest accrued thereon) for a Class of Auction Notes shall be paid shall
be determined by the Trustee in accordance with the provisions of the
immediately preceding paragraph, and the Trustee shall make payment of the
Carry-over Amount (and any interest accrued thereon) in the same manner as, and
from the same Account from which, it pays interest on the Auction Notes on an
Interest Payment Date. Any payment of Carry-over Amounts (and interest accrued
thereon) shall reduce the amount of Eligible Carry-Over Make-Up Amount.
In the event that the Auction Agent no longer determines, or fails to
determine, when required, the Auction Note Interest Rate with respect to a Class
of Auction Notes, or, if for any reason such manner of determination shall be
held to be invalid or unenforceable, the Auction Note Interest Rate for the next
succeeding Interest Period, which Interest Period shall be an Auction Period,
for such Class of Auction Notes shall be the applicable Maximum Auction Rate as
determined by the Auction Agent for such next succeeding Auction Period, and if
the Auction Agent shall fail or refuse to determine the Maximum Auction Rate,
the Maximum Auction Rate shall be determined by the securities dealer appointed
by the Issuer capable of making such a determination in accordance with the
provisions hereof and written notice of such determination shall be given by
such securities dealer to the Trustee.
Section 2.02. AUCTION NOTE INTEREST RATE.
(a) DETERMINING THE AUCTION NOTE INTEREST RATE. By purchasing
Auction Notes, whether in an Auction or otherwise, each purchaser of the
Auction Notes, or its Broker-Dealer, must agree and shall be deemed by such
purchase to have agreed (x) to participate in Auctions on the terms
described herein, (y) to have its beneficial ownership of the Auction Notes
maintained at all times in Book-entry Form for the account of its
Participant, which in turn will maintain records of such beneficial
ownership and (z) to authorize such Participant to disclose to the Auction
Agent such information with respect to such beneficial ownership as the
Auction Agent may request.
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So long as the ownership of a Class of Auction Notes is maintained in
Book-entry Form by the Securities Depository, an Existing Owner may sell,
transfer or otherwise dispose of Auction Notes of such Class only pursuant
to a Bid or Sell Order placed in an Auction or otherwise sell, transfer or
dispose of Auction Notes through a Broker-Dealer, provided that, in the
case of all transfers other than pursuant to Auctions, such Existing Owner,
its Broker-Dealer or its Participant advises the Auction Agent of such
transfer. Auctions shall be conducted on each Auction Date, if there is an
Auction Agent on such Auction Date, in the following manner (such
procedures to be applicable separately to each Class of the Auction Notes):
(i) (A) Prior to the Submission Deadline on each Auction
Date;
(1) each Existing Owner of Auction Notes may submit to
a Broker-Dealer by telephone or otherwise any information as
to:
a. the principal amount of Outstanding Auction
Notes, if any, owned by such Existing Owner which such
Existing Owner desires to continue to own without
regard to the Auction Note Interest Rate for the next
succeeding Auction Period;
b. the principal amount of Outstanding Auction
Notes, if any, which such Existing Owner offers to sell
if the Auction Note Interest Rate for the next
succeeding Auction Period shall be less than the rate
per annum specified by such Existing Owner; and/or
c. the principal amount of Outstanding Auction
Notes, if any, owned by such Existing Owner which such
Existing Owner offers to sell without regard to the
Auction Note Interest Rate for the next succeeding
Auction Period;
and
(2) one or more Broker-Dealers may contact Potential
Owners to determine the principal amount of Auction Notes
which each Potential Owner offers to purchase, if the
Auction Note Interest Rate for the next succeeding Auction
Period shall not be less than the rate per annum specified
by such Potential Owner.
The statement of an Existing Owner or a Potential Owner referred to in
(1) or (2) of this paragraph (A) is herein referred to as an "Order," and
each Existing Owner and
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each Potential Owner placing an Order is herein referred to as a "Bidder";
an Order described in clause (1)a is herein referred to as a "Hold Order";
an Order described in clauses (1)b and (2) is herein referred to as a
"Bid"; and an Order described in clause (1)c is herein referred to as a
"Sell Order."
(B) (1) Subject to the provisions of Section 2.02(a)(ii)
hereof, a Bid by an Existing Owner shall constitute an
irrevocable offer to sell:
a. the principal amount of Outstanding Auction
Notes specified in such Bid if the Auction Note
Interest Rate determined as provided in this Section
2.02(a) shall be less than the rate specified therein;
or
b. such principal amount, or a lesser principal
amount of Outstanding Auction Notes to be determined as
set forth in Section 2.02(a)(iv)(A)(4) hereof, if the
Auction Note Interest Rate determined as provided in
this Section 2.02(a) shall be equal to the rate
specified therein; or
c. such principal amount, or a lesser principal
amount of Outstanding Auction Notes to be determined as
set forth in Section 2.02(a)(iv)(B)(3) hereof, if the
rate specified therein shall be higher than the
applicable Maximum Auction Rate and Sufficient Bids
have not been made.
(2) Subject to the provisions of Section 2.02(a)(ii)
hereof, a Sell Order by an Existing Owner shall constitute
an irrevocable offer to sell:
a. the principal amount of Outstanding Auction
Notes specified in such Sell Order; or
b. such principal amount, or a lesser principal
amount of Outstanding Auction Notes set forth in
Section 2.02(a)(iv)(B)(3) hereof, if Sufficient Bids
have not been made.
(3) Subject to the provisions of Section 2.02(a)(ii)
hereof, a Bid by a Potential Owner shall constitute an
irrevocable offer to purchase:
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a. the principal amount of Outstanding Auction
Notes specified in such Bid if the Auction Note
Interest Rate determined as provided in this
Section 2.02(a) shall be higher than the rate specified
in such Bid; or
b. such principal amount, or a lesser principal
amount of Outstanding Auction Notes set forth in
Section 2.02(a)(iv)(A)(5) hereof, if the Auction Note
Interest Rate determined as provided in this
Section 2.02(a) shall be equal to the rate specified in
such Bid.
(ii) (A) Each Broker-Dealer shall submit in writing to the
Auction Agent prior to the Submission Deadline on each Auction
Date all Orders obtained by such Broker-Dealer and shall specify
with respect to each such Order:
(1) the name of the Bidder placing such Order;
(2) the aggregate principal amount of Auction Notes
that are the subject of such Order;
(3) to the extent that such Bidder is an Existing
Owner:
a. the principal amount of Auction Notes, if
any, subject to any Hold Order placed by such Existing
Owner;
b. the principal amount of Auction Notes, if
any, subject to any Bid placed by such Existing Owner
and the rate specified in such Bid; and
c. the principal amount of Auction Notes, if
any, subject to any Sell Order placed by such Existing
Owner;
and
(4) to the extent such Bidder is a Potential Owner,
the rate specified in such Potential Owner's Bid.
(B) If any rate specified in any Bid contains more than
three figures to the right of the decimal point, the Auction
Agent shall round such rate up to the next higher one thousandth
of 1%.
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(C) If an Order or Orders covering all Outstanding Auction
Notes owned by an Existing Owner is not submitted to the Auction
Agent prior to the Submission Deadline, the Auction Agent shall
deem a Hold Order to have been submitted on behalf of such
Existing Owner covering the principal amount of Outstanding
Auction Notes owned by such Existing Owner and not subject to an
Order submitted to the Auction Agent.
(D) Neither the Issuer, the Trustee nor the Auction Agent
shall be responsible for any failure of a Broker-Dealer to submit
an Order to the Auction Agent on behalf of any Existing Owner or
Potential Owner.
(E) If any Existing Owner submits through a Broker-Dealer
to the Auction Agent one or more Orders covering in the aggregate
more than the principal amount of Outstanding Auction Notes owned
by such Existing Owner, such Orders shall be considered valid as
follows and in the following order of priority:
(1) All Hold Orders shall be considered valid, but
only up to the aggregate principal amount of Outstanding
Auction Notes owned by such Existing Owner, and if the
aggregate principal amount of Auction Notes subject to such
Hold Orders exceeds the aggregate principal amount of
Auction Notes owned by such Existing Owner, the aggregate
principal amount of Auction Notes subject to each such Hold
Order shall be reduced pro rata so that the aggregate
principal amount of Auction Notes subject to such Hold Order
equals the aggregate principal amount of Outstanding Auction
Notes owned by such Existing Owner.
(2) a. Any Bid shall be considered valid up to an
amount equal to the excess of the principal amount of
Outstanding Auction Notes owned by such Existing Owner
over the aggregate principal amount of Auction Notes
subject to any Hold Order referred to in clause (A) of
this paragraph (v);
b. subject to subclause (1) of this clause (B),
if more than one Bid with the same rate is submitted on
behalf of such Existing Owner and the aggregate
principal amount of Outstanding Auction Notes subject
to such Bids is greater than such excess, such Bids
shall be considered valid up to an amount equal to such
excess;
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c. subject to subclauses (1) and (2) of this
clause (B), if more than one Bid with different rates
are submitted on behalf of such Existing Owner, such
Bids shall be considered valid first in the ascending
order of their respective rates until the highest rate
is reached at which such excess exists and then at such
rate up to the amount of such excess; and
d. in any such event, the amount of Outstanding
Auction Notes, if any, subject to Bids not valid under
this clause (B) shall be treated as the subject of a
Bid by a Potential Owner at the rate therein specified;
and
(3) All Sell Orders shall be considered valid up to an
amount equal to the excess of the principal amount of
Outstanding Auction Notes owned by such Existing Owner over
the aggregate principal amount of Auction Notes subject to
Hold Orders referred to in clause (1) of this paragraph (v)
and valid Bids referred to in clause (2) of this paragraph
(E).
(F) If more than one Bid for Auction Notes is submitted on
behalf of any Potential Owner, each Bid submitted shall be a
separate Bid with the rate and principal amount therein
specified.
(G) An Existing Owner that offers to purchase additional
Auction Notes is, for purposes of such offer, treated as a
Potential Owner.
(H) Any Bid or Sell Order submitted by an Existing Owner
covering an aggregate principal amount of Auction Notes not equal
to an Authorized Denomination shall be rejected and shall be
deemed a Hold Order. Any Bid submitted by a Potential Owner
covering an aggregate principal amount of Auction Notes not equal
to an Authorized Denomination shall be rejected.
(I) Any Bid specifying a rate higher than the applicable
Maximum Auction Rate will (1) be treated as a Sell Order if
submitted by an Existing Owner and (2) not be accepted if
submitted by a Potential Owner.
(J) Any Order submitted in an Auction by a Broker-Dealer to
the Auction Agent prior to the Submission Deadline on any Auction
Date shall be irrevocable.
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(iii) (A) Not earlier than the Submission Deadline on each
Auction Date, the Auction Agent shall assemble all valid Orders
submitted or deemed submitted to it by the Broker-Dealers (each
such Order as submitted or deemed submitted by a Broker-Dealer
being herein referred to individually as a "Submitted Hold
Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order," and collectively as
"Submitted Hold Orders," "Submitted Bids" or "Submitted Sell
Orders," as the case may be, or as "Submitted Orders") and shall
determine:
(1) the excess of the total principal amount of
Outstanding Auction Notes over the sum of the aggregate
principal amount of Outstanding Auction Notes subject to
Submitted Hold Orders (such excess being herein referred to
as the "Available Auction Notes"), and
(2) from the Submitted Orders whether:
a. the aggregate principal amount of Outstanding
Auction Notes subject to Submitted Bids by Potential
Owners specifying one or more rates equal to or lower
than the applicable Maximum Auction Rate;
exceeds or is equal to the sum of:
b. the aggregate principal amount of Outstanding
Auction Notes subject to Submitted Bids by Existing
Owners specifying one or more rates higher than the
applicable Maximum Auction Rate; and
c. the aggregate principal amount of Outstanding
Auction Notes subject to Submitted Sell Orders;
(in the event such excess or such equality exists, other
than because all of the Outstanding Auction Notes are
subject to Submitted Hold Orders, such Submitted Bids
described in subclause a. above shall be referred to
collectively as "Sufficient Bids"); and
(3) if Sufficient Bids exist, the Bid Auction Rate,
which shall be the lowest rate specified in such Submitted
Bids such that if:
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a. (x) each Submitted Bid from Existing Owners
specifying such lowest rate and (y) all other Submitted
Bids from Existing Owners specifying lower rates were
rejected, thus entitling such Existing Owners to
continue to own the principal amount of Auction Notes
subject to such Submitted Bids; and
b. (x) each such Submitted Bid from Potential
Owners specifying such lowest rate and (y) all other
Submitted Bids from Potential Owners specifying lower
rates were accepted;
the result would be that such Existing Owners described in
subclause a. above would continue to own an aggregate principal
amount of Outstanding Auction Notes which, when added to the
aggregate principal amount of Outstanding Auction Notes to be
purchased by such Potential Owners described in subclause b.
above, would equal not less than the Available Auction Notes.
(B) Promptly after the Auction Agent has made the
determinations pursuant to Section 2.02(a)(iii)(A) hereof, the
Auction Agent shall advise the Trustee, the Broker-Dealers and
the Issuer of the Maximum Auction Rate and the All Hold Rate and
the components thereof on the Auction Date and, based on such
determinations, the Auction Rate for the next succeeding Interest
Period as follows:
(1) if Sufficient Bids exist, that the Auction Rate
for the next succeeding Interest Period shall be equal to
the Bid Auction Rate so determined;
(2) if Sufficient Bids do not exist (other than
because all of the Outstanding Auction Notes are subject to
Submitted Hold Orders), that the Auction Rate for the next
succeeding Interest Period shall be equal to the applicable
Maximum Auction Rate; or
(3) if all Outstanding Auction Notes are subject to
Submitted Hold Orders, that the Auction Rate for the next
succeeding Interest Period shall be equal to the applicable
All Hold Rate.
(C) Promptly after the Auction Agent has determined the
Auction Rate, the Auction Agent shall determine and advise the
Trustee of the Auction Note Interest Rate, which rate shall be
the Auction Rate;
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provided, however, that in no event shall the Auction Note
Interest Rate exceed the applicable Maximum Auction Rate.
(iv) Existing Owners shall continue to own the principal amount
of Auction Notes that are subject to Submitted Hold Orders. If
Sufficient Bids have been received by the Auction Agent, the Bid
Auction Rate will be the Auction Note Interest Rate, and Submitted
Bids and Submitted Sell Orders will be accepted or rejected and the
Auction Agent will take such other action as described below in
subparagraph (A).
If the Auction Rate is greater than the applicable Maximum
Auction Rate, the Auction Note Interest Rate shall be equal to the
applicable Maximum Auction Rate. If the Auction Agent has not
received Sufficient Bids (other than because all of the Outstanding
Auction Notes are subject to Submitted Hold Orders), the Auction Note
Interest Rate will be the applicable Maximum Auction Rate. In any of
the cases described above, Submitted Orders will be accepted or
rejected and the Auction Agent will take such other action as
described below in subparagraph (B).
(A) If Sufficient Bids have been made and if the applicable
Maximum Auction Rate does not apply (in which case the Auction
Note Interest Rate shall be the Bid Auction Rate), all Submitted
Sell Orders shall be accepted and, subject to the provisions of
clauses (4) and (5) of this Section 2.02(a)(iv), Submitted Bids
shall be accepted or rejected as follows in the following order
of priority, and all other Submitted Bids shall be rejected:
(1) Existing Owners' Submitted Bids specifying any
rate that is higher than the Auction Note Interest Rate
shall be accepted, thus requiring each such Existing Owner
to sell the aggregate principal amount of Auction Notes
subject to such Submitted Bids;
(2) Existing Owners' Submitted Bids specifying any
rate that is lower than the Auction Note Interest Rate shall
be rejected, thus entitling each such Existing Owner to
continue to own the aggregate principal amount of Auction
Notes subject to such Submitted Bids;
(3) Potential Owners' Submitted Bids specifying any
rate that is lower than the Auction Note Interest Rate shall
be accepted;
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(4) Each Existing Owners' Submitted Bid specifying a
rate that is equal to the Auction Note Interest Rate shall
be rejected, thus entitling such Existing Owner to continue
to own the aggregate principal amount of Auction Notes
subject to such Submitted Bid, unless the aggregate
principal amount of Outstanding Auction Notes subject to all
such Submitted Bids shall be greater than the principal
amount of Auction Notes (the "remaining principal amount")
equal to the excess of the Available Auction Notes over the
aggregate principal amount of Auction Notes subject to
Submitted Bids described in clauses (2) and (3) of this
Section 2.02(a)(iv)(D)(1), in which event such Submitted Bid
of such Existing Owner shall be rejected in part, and such
Existing Owner shall be entitled to continue to own the
principal amount of Auction Notes subject to such Submitted
Bid, but only in an amount equal to the aggregate principal
amount of Auction Notes obtained by multiplying the
remaining principal amount by a fraction, the numerator of
which shall be the principal amount of Outstanding Auction
Notes owned by such Existing Owner subject to such Submitted
Bid and the denominator of which shall be the sum of the
principal amount of Outstanding Auction Notes subject to
such Submitted Bids made by all such Existing Owners that
specified a rate equal to the Auction Note Interest Rate,
subject to the provisions of Section 2.02(a)(iv)(D) hereof;
and
(5) Each Potential Owner's Submitted Bid specifying a
rate that is equal to the Auction Note Interest Rate shall
be accepted, but only in an amount equal to the principal
amount of Auction Notes obtained by multiplying the excess
of the aggregate principal amount of Available Auction Notes
over the aggregate principal amount of Auction Notes subject
to Submitted Bids described in clauses (2), (3) and (4) of
this Section 2.02(a)(iv)(A) by a fraction the numerator of
which shall be the aggregate principal amount of Outstanding
Auction Notes subject to such Submitted Bid and the
denominator of which shall be the sum of the principal
amount of Outstanding Auction Notes subject to Submitted
Bids made by all such Potential Owners that specified a rate
equal to the Auction Note Interest Rate, subject to the
provisions of Section 2.02(a)(iv)(D) hereof.
(B) If Sufficient Bids have not been made (other than
because all of the Outstanding Auction Notes are subject to
submitted Hold Orders), or if the applicable Maximum Auction Rate
applies, subject to the provisions of Section 2.02(a)(iv)(D)
hereof, Submitted Orders shall be
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accepted or rejected as follows in the following order of
priority and all other Submitted Bids shall be rejected:
(1) Existing Owners' Submitted Bids specifying any
rate that is equal to or lower than the Auction Note
Interest Rate shall be rejected, thus entitling such
Existing Owners to continue to own the aggregate principal
amount of Auction Notes subject to such Submitted Bids;
(2) Potential Owners' Submitted Bids specifying (x)
any rate that is equal to or lower than the Auction Note
Interest Rate shall be accepted and (y) any rate that is
higher than the Auction Note Interest Rate shall be
rejected; and
(3) each Existing Owner's Submitted Bid specifying any
rate that is higher than the Auction Note Interest Rate and
the Submitted Sell Order of each Existing Owner shall be
accepted, thus entitling each Existing Owner that submitted
any such Submitted Bid or Submitted Sell Order to sell the
Auction Notes subject to such Submitted Bid or Submitted
Sell Order, but in both cases only in an amount equal to the
aggregate principal amount of Auction Notes obtained by
multiplying the aggregate principal amount of Auction Notes
subject to Submitted Bids described in clause (2)(x) of this
Section 2.02(a)(iv)(B) by a fraction the numerator of which
shall be the aggregate principal amount of Outstanding
Auction Notes owned by such Existing Owner subject to such
submitted Bid or Submitted Sell Order and the denominator of
which shall be the aggregate principal amount of Outstanding
Auction Notes subject to all such Submitted Bids and
Submitted Sell Orders.
(C) If all Auction Notes are subject to Submitted Hold
Orders, all Submitted Bids shall be rejected.
(D) If, as a result of the procedures described in
paragraph (A) or (B) of this Section 2.02(a)(iv), any Existing
Owner would be entitled or required to sell, or any Potential
Owner would be entitled or required to purchase, a principal
amount of Auction Notes that is not equal to an Authorized
Denomination, the Auction Agent shall, in such manner as in its
sole discretion it shall determine, round up or down the
principal amount of Auction Notes to be purchased or sold by any
Existing Owner or Potential Owner so that the principal amount of
Auction Notes purchased or sold by each Existing Owner or
Potential Owner shall be equal to an Authorized Denomination.
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(E) If, as a result of the procedures described in
paragraph (B) of this Section 2.02(a)(iv), any Potential Owner
would be entitled or required to purchase less than an Authorized
Denomination of Auction Notes, the Auction Agent shall, in such
manner as in its sole discretion it shall determine, allocate
Auction Notes for purchase among Potential Owners so that only
Auction Notes in Authorized Denominations are purchased by any
Potential Owner, even if such allocation results in one or more
of such Potential Owners not purchasing any Auction Notes.
(v) Based on the result of each Auction, the Auction Agent shall
determine the aggregate principal amount of Auction Notes to be
purchased and the aggregate principal amount of Auction Notes to be
sold by Potential Owners and Existing Owners on whose behalf each
Broker-Dealer submitted Bids or Sell Orders and, with respect to each
Broker-Dealer, to the extent that such aggregate principal amount of
Auction Notes to be sold differs from such aggregate principal amount
of Auction Notes to be purchased, determine to which other Broker-
Dealer or Broker-Dealers acting for one or more purchasers such
Broker-Dealer shall deliver, or from which other Broker-Dealer or
Broker-Dealers acting for one or more sellers such Broker-Dealer shall
receive, as the case may be, Auction Notes.
(vi) Any calculation by the Auction Agent or the Trustee, as
applicable, of the Auction Note Interest Rate, the Maximum Auction
Rate, the All Hold Rate and the Non-Payment Rate shall, in the absence
of manifest error, be binding on all other parties.
(vii) Notwithstanding anything in this Appendix A to the
contrary, (A) no Auction for the Auction Notes for an Auction Period
of less than 180 days will be held on any Auction Date hereunder on
which there are insufficient moneys in the Senior Interest Account of
the Revenue Fund and the Senior Redemption Account of the Note
Redemption Fund to pay, or otherwise held by the Trustee under the
Indenture and available to pay, the principal of and interest due on
the Auction Notes on the Interest Payment Date immediately following
such Auction Date, and (B) no Auction will be held on any Auction Date
hereunder during the continuance of a Payment Default. The Trustee
shall promptly notify the Auction Agent of any such occurrence.
(b) APPLICATION OF INTEREST PAYMENTS FOR THE AUCTION NOTES.
(i) The Trustee shall determine not later than 2:00 p.m.,
eastern time, on the Business Day next succeeding an Interest Payment
Date, whether a Payment Default has occurred. If a Payment Default
has occurred, the Trustee shall, not later than 2:15 p.m., eastern
time, on such Business Day, send a notice thereof in substantially the
form of Exhibit G attached hereto to the Auction
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Agent by telecopy or similar means and, if such Payment Default is
cured, the Trustee shall immediately send a notice in substantially
the form of Exhibit H attached hereto to the Auction Agent by
telecopy or similar means.
(ii) Not later than 2:00 p.m., eastern time, on each anniversary
of the Closing Date, the Trustee shall pay to the Auction Agent, in
immediately available funds out of amounts in the Revenue Fund, an
amount equal to the Auction Agent Fee as set forth in the Auction
Agent Agreement. Not later than 2:00 p.m., eastern time, on each
Auction Date, the Trustee shall pay to the Auction Agent, in
immediately available funds out of amounts in the Revenue Fund, an
amount equal to the Broker-Dealer Fee as calculated in the Auction
Agent Agreement. The Trustee shall, from time to time at the request
of the Auction Agent and at the direction of an Authorized Officer,
reimburse the Auction Agent for its reasonable expenses as provided in
the Auction Agent Agreement, such expenses to be paid out of amounts
in the Revenue Fund.
(c) CALCULATION OF MAXIMUM AUCTION RATE, ALL HOLD RATE AND NON-
PAYMENT RATE. The Auction Agent shall calculate the applicable Maximum
Auction Rate and All Hold Rate, as the case may be, on each Auction Date
and shall notify the Trustee and the Broker-Dealers of the applicable
Maximum Auction Rate and All Hold Rate, as the case may be, as provided in
the Auction Agent Agreement; provided, that if the ownership of the Auction
Notes is no longer maintained in Book-entry Form, or if a Payment Default
has occurred, then the Trustee shall determine the applicable Maximum
Auction Rate, All Hold Rate and Non-Payment Rate for each such Interest
Period. The Market Agent shall calculate the Index (if the Index is other
than the PSA Municipal Swap Index) on each Interest Rate Determination Date
and shall notify the Trustee and the Auction Agent of the Index prior to
9:30 a.m., eastern time, on each Interest Rate Determination Date. If the
ownership of the Auction Notes is no longer maintained in Book-entry Form
by the Securities Depository, the Trustee shall calculate the applicable
Maximum Auction Rate on the Business Day immediately preceding the first
day of each Interest Period after the delivery of certificates representing
the Auction Notes pursuant to the Indenture. If a Payment Default shall
have occurred, the Trustee shall calculate the Non-Payment Rate on the
Interest Rate Determination Date for (i) each Interest Period commencing
after the occurrence and during the continuance of such Payment Default and
(ii) any Interest Period commencing less than two Business Days after the
cure of any Payment Default. The determination by the Trustee or the
Auction Agent, as the case may be, of the applicable Maximum Auction Rate,
All Hold Rate and Non-Payment Rate shall (in the absence of manifest error)
be final and binding upon all parties. If calculated or determined by the
Auction Agent, the Auction Agent shall promptly advise the Trustee of the
applicable Maximum Auction Rate and All Hold Rate. The determination by
the Market Agent of the Index shall (in the absence of manifest error) be
final and binding upon all parties.
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If the Federal Reserve Bank of New York does not make available its
30-day commercial paper rate for purposes of determining the "AA" Composite
Commercial Paper Rate, the Auction Agent shall notify the Trustee of such
fact and the Trustee shall thereupon request that an Authorized Officer
promptly appoint at least two Commercial Paper Dealers (in addition to
Smith Barney Inc.) to provide commercial paper quotes for purposes of
determining the "AA" Composite Commercial Paper Rate. Pending appointment
of both such additional Commercial Paper Dealers, Smith Barney Inc. and any
other Commercial Paper Dealer appointed and serving as such shall provide
the required quotations, and such quotations shall be used for purposes of
this Appendix A. Smith Barney Inc. is hereby appointed as a Commercial
Paper Dealer to provide commercial paper quotes for purposes of determining
the "AA" Composite Commercial Paper Rate as provided above.
(d) NOTIFICATION OF RATES, AMOUNTS AND PAYMENT DATES.
(i) By 12:00 noon, eastern time, on the Business Day following
each Regular Record Date, the Trustee shall determine the aggregate
amounts of interest distributable on the next succeeding Interest
Payment Date to the beneficial owners of Auction Notes.
(ii) At least four days prior to any Interest Payment Date, the
Trustee shall:
(A) confirm with the Auction Agent, so long as no Payment
Default has occurred and is continuing and the ownership of the
Auction Notes is maintained in Book-entry Form by the Securities
Depository, (1) the date of such next Interest Payment Date and
(2) the amount payable to the Auction Agent on the Auction Date
pursuant to Section 2.02(b)(ii) hereof;
(B) pursuant to Section 2.01 hereof, advise the Registered
Owners of a Class of Auction Notes of any Carry-over Amount
accruing on such Auction Notes; and
(C) advise the Securities Depository, so long as the
ownership of the Auction Notes is maintained in Book-entry Form
by the Securities Depository, upon request, of the aggregate
amount of interest distributable on such next Interest Payment
Date to the beneficial owners of each Class of the Auction Notes.
If any day scheduled to be an Interest Payment Date shall be changed
after the Trustee shall have given the notice or confirmation referred to
in clause (i) of the preceding sentence, the Trustee shall, not later than
11:15 a.m., eastern time, on the Business Day next preceding the earlier of
the new Interest Payment Date or the old
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Interest Payment Date, by such means as the Trustee deems practicable, give
notice of such change to the Auction Agent, so long as no Payment Default
has occurred and is continuing and the ownership of the Auction Notes is
maintained in Book-entry Form by the Securities Depository.
(e) AUCTION AGENT.
(i) Bankers Trust Company is hereby appointed as Initial Auction
Agent to serve as agent for the Issuer in connection with Auctions.
The Trustee and the Issuer will, and the Trustee is hereby directed
to, enter into the Initial Auction Agent Agreement with Bankers Trust
Company, as the Initial Auction Agent. Any Substitute Auction Agent
shall be (A) a bank, national banking association or trust company
duly organized under the laws of the United States of America or any
state or territory thereof having its principal place of business in
the Borough of Manhattan, New York, or such other location as approved
by the Trustee in writing and having a combined capital stock or
surplus of at least $50,000,000, or (B) a member of the National
Association of Securities Dealers, Inc., having a capitalization of at
least $50,000,000, and, in either case, authorized by law to perform
all the duties imposed upon it hereunder and under the Auction Agent
Agreement. The Auction Agent may at any time resign and be discharged
of the duties and obligations created by this Appendix A by giving at
least 90 days' notice to the Trustee, the Market Agent and the Issuer.
The Auction Agent may be removed at any time by the Trustee upon the
written direction of an Authorized Officer or the Registered Owners of
51% of the aggregate principal amount of the Auction Notes then
Outstanding, and if by such Registered Owners, by an instrument signed
by such Registered Owners or their attorneys and filed with the
Auction Agent, the Issuer and the Trustee upon at least 90 days'
written notice. Neither resignation nor removal of the Auction Agent
pursuant to the preceding two sentences shall be effective until and
unless a Substitute Auction Agent has been appointed and has accepted
such appointment. If required by the Issuer, a Substitute Auction
Agent Agreement shall be entered into with a Substitute Auction Agent.
Notwithstanding the foregoing, the Auction Agent may terminate the
Auction Agent Agreement if, within 25 days after notifying the
Trustee, the Market Agent and the Issuer in writing that it has not
received payment of any Auction Agent Fee due it in accordance with
the terms of the Auction Agent Agreement, the Auction Agent does not
receive such payment.
(ii) If the Auction Agent shall resign or be removed or be
dissolved, or if the property or affairs of the Auction Agent shall be
taken under the control of any state or federal court or
administrative body because of bankruptcy or insolvency, or for any
other reason, the Trustee at the direction of an Authorized Officer,
shall use its best efforts to appoint a Substitute Auction Agent.
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(iii) The Auction Agent is acting as agent for the Issuer in
connection with Auctions. In the absence of bad faith, negligent
failure to act or negligence on its part, the Auction Agent shall not
be liable for any action taken, suffered or omitted or any error of
judgment made by it in the performance of its duties under the Auction
Agent Agreement and shall not be liable for any error of judgment made
in good faith unless the Auction Agent shall have been negligent in
ascertaining (or failing to ascertain) the pertinent facts.
(f) BROKER-DEALERS.
(i) The Auction Agent will enter into a Broker-Dealer Agreement
with Smith Barney Inc., as the initial Broker-Dealer. An Authorized
Officer may, from time to time, approve one or more additional persons
to serve as Broker-Dealers under Broker-Dealer Agreements and shall be
responsible for providing such Broker-Dealer Agreements to the Trustee
and the Auction Agent, provided, however that while Smith Barney Inc.
is serving as a Broker-Dealer, Smith Barney Inc. shall have the right
to consent to the approval of any additional Broker-Dealers, which
consent will not be unreasonably withheld.
(ii) Any Broker-Dealer may be removed at any time, at the request
of an Authorized Officer, but there shall, at all times, be at least
one Broker-Dealer appointed and acting as such.
(g) CHANGES IN AUCTION PERIOD OR PERIODS AND CERTAIN PERCENTAGES.
(i) While any of the Auction Notes are Outstanding, the Issuer
may, from time to time, change the length of one or more Auction
Periods (an "Auction Period Adjustment"), in order to conform with
then current market practice with respect to similar securities or to
accommodate economic and financial factors that may affect or be
relevant to the length of the Auction Period and the interest rate
borne by the Auction Notes. The Issuer shall not initiate an Auction
Period Adjustment unless it shall have received the written consent of
the Market Agent, which consent shall not be unreasonably withheld,
not later than nine days prior to the Auction Date for such Auction
Period. The Issuer shall initiate the Auction Period Adjustment by
giving written notice by Issuer Order to the Trustee, the Auction
Agent, the Market Agent, each Rating Agency and the Securities
Depository in substantially the form of, or containing substantially
the information contained in, Exhibit I attached hereto at least 10
days prior to the Auction Date for such Auction Period.
(ii) Any such adjusted Auction Period shall not be less than 7
days nor more than 366 days.
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(iii) An Auction Period Adjustment shall take effect only if (A)
the Trustee and the Auction Agent receive, by 11:00 a.m., eastern
time, on the Business Day before the Auction Date for the first such
Auction Period, an Issuer Certificate in substantially the form
attached as, or containing substantially the same information
contained in, Exhibit J attached hereto, authorizing the Auction
Period Adjustment specified in such certificate along with a copy of
the written consent of the Market Agent and, (B) Sufficient Bids exist
as of the Auction on the Auction Date for such first Auction Period.
If the condition referred to in (A) above is not met, the applicable
Auction Note Interest Rate for the next Auction Period shall be
determined pursuant to the above provisions of this Section 2.02 and
the Auction Period shall be the Auction Period determined without
reference to the proposed change. If the condition referred to in (A)
is met but the condition referred in (B) above is not met, the
applicable Auction Note Interest Rate for the next Auction Period
shall be the applicable Maximum Auction Rate and the Auction Period
shall be the Auction Period determined without reference to the
proposed change.
In connection with any Auction Period Adjustment, the Auction
Agent shall provide such further notice to such parties as is
specified in Section 2.03 of the Auction Agent Agreement.
(h) CHANGES IN THE AUCTION DATE. The Market Agent, with the written
consent of an Authorized Officer and, if applicable, upon receipt of the
opinion of Note Counsel as required below, may specify an earlier Auction
Date (but in no event more than five Business Days earlier) than the
Auction Date that would otherwise be determined in accordance with the
definition of "Auction Date" in Section 1.01 of this Appendix A with
respect to one or more specified Auction Periods in order to conform with
then current market practice with respect to similar securities or to
accommodate economic and financial factors that may affect or be relevant
to the day of the week constituting an Auction Date and the interest rate
borne on the Auction Notes. The Market Agent shall deliver a written
request for consent to such change in the length of the Auction Date to the
Issuer at least 14 days prior to the effective date of such change. If the
Issuer shall have delivered such written consent to the Market Agent, the
Market Agent shall provide notice of its determination to specify an
earlier Auction Date for one or more Auction Periods by means of a written
notice delivered at least 10 days prior to the proposed changed Auction
Date to the Trustee, the Auction Agent, the Issuer, each Rating Agency and
the Securities Depository. Such notice shall be substantially in the form
of, or contain substantially the information contained in, Exhibit K
attached hereto.
In connection with any change described in this Section 2.02(h), the
Auction Agent shall provide such further notice to such parties as is
specified in Section 2.03 of the Auction Agent Agreement.
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Section 2.03. ADDITIONAL PROVISIONS REGARDING THE INTEREST RATES ON THE
AUCTION NOTES. The determination of a Variable Rate by the Auction Agent or any
other Person pursuant to the provisions of the applicable Section of this
Article II shall be conclusive and binding on the Registered Owners of the Class
of Auction Notes to which such Variable Rate applies, and the Issuer and the
Trustee may rely thereon for all purposes.
In no event shall the cumulative amount of interest paid or payable on a
Class of Auction Notes (including interest calculated as provided herein, plus
any other amounts that constitute interest on the Auction Notes of such Class
under applicable law, which are contracted for, charged, reserved, taken or
received pursuant to the Auction Notes of such Class or related documents)
calculated from the date of issuance of the Auction Notes of such Class through
any subsequent day during the term of the Auction Notes of such Class or
otherwise prior to payment in full of the Auction Notes of such Class exceed the
amount permitted by applicable law. If the applicable law is ever judicially
interpreted so as to render usurious any amount called for under the Auction
Notes of such Class or related documents or otherwise contracted for, charged,
reserved, taken or received in connection with the Auction Notes of such Class,
or if the redemption or acceleration of the maturity of the Auction Notes of
such Class results in payment to or receipt by the Registered Owner or any
former Registered Owner of the Auction Notes of such Class of any interest in
excess of that permitted by applicable law, then, notwithstanding any provision
of the Auction Notes of such Class or related documents to the contrary, all
excess amounts theretofore paid or received with respect to the Auction Notes of
such Class shall be credited on the principal balance of the Auction Notes of
such Class (or, if the Auction Notes of such Class have been paid or would
thereby be paid in full, refunded by the recipient thereof), and the provisions
of the Auction Notes of such Class and related documents shall automatically and
immediately be deemed reformed and the amounts thereafter collectible hereunder
and thereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for under the Auction Notes of
such Class and under the related documents.
Section 2.04. QUALIFICATIONS OF MARKET AGENT. The Market Agent shall be a
member of the National Association of Securities Dealers, Inc., have a
capitalization of at least $50,000,000 and be authorized by law to perform all
the duties imposed upon it by this Appendix A. The Market Agent may resign and
be discharged of the duties and obligations created by this Appendix A by giving
at least 30 days notice to the Issuer and the Trustee, provided that such
resignation shall not be effective until the appointment of a successor market
agent by the Issuer and the acceptance of such appointment by such successor
market agent. The Market Agent may be replaced at the direction of the Issuer,
by an instrument signed by an Authorized Officer, filed with the Market Agent
and the Trustee at least 30 days before the effective date of such replacement,
provided that such replacement shall not be effective until the appointment of a
successor market agent by the Issuer and the acceptance of such appointment by
such successor market agent.
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In the event that the Market Agent shall be removed or be dissolved, or if
the property or affairs of the Market Agent shall be taken under the control of
any state or federal court or administrative body because of bankruptcy or
insolvency, or for any other reason, and there is no Market Agent and the Issuer
shall not have appointed its successor as Market Agent, the Trustee,
notwithstanding the provisions of the first paragraph of this Section, shall be
deemed to be the Market Agent for all purposes of this Appendix A until the
appointment by the Issuer of the successor Market Agent. Nothing in this
Section shall be construed as conferring on the Trustee additional duties other
than as set forth herein.
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APPENDIX B
CERTAIN TERMS AND PROVISIONS OF
THE CLASS 1996B NOTES AND THE CLASS 1996B-2 NOTES
ARTICLE I
Section 1.01. DEFINITIONS. In addition to the terms defined elsewhere in
this Indenture, the following terms shall have the following meanings with
respect to the Class 1996B Notes and the Class 1996B-2 Notes, unless the context
otherwise requires:
"APPLICABLE RATE" shall have the meaning set forth in Section 2.01(b)
hereof.
"AUTHORIZED DENOMINATIONS" shall mean $100,000 and any multiple thereof.
"BOND-EQUIVALENT YIELD" shall mean, in respect of any security with a
maturity of six months or less the rate for which is quoted in THE WALL STREET
JOURNAL on a bank discount basis, a yield (expressed as a percentage) calculated
in accordance with the following formula and rounded up to the nearest one
one-hundredth of one percent:
Bond Equivalent Yield = Q x N x 100
---------------
360 - (T x Q)
where "Q" refers to the per annum rate for the security quoted on a bank
discount basis and expressed as a decimal, "N" refers to 365 or 366 (days), as
the case may be, and "T" refers to the number of days to maturity.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday, holiday or
day on which banks in New York, New York, or the New York Stock Exchange, the
Trustee or the Calculation Agent, are authorized or permitted by law or
executive order to close.
"CALCULATION AGENT" shall mean any person appointed as such pursuant to
Section 2.07 hereof.
"DEPOSITORY" shall mean The Depository Trust Company or any successor
securities depository selected or approved by the Issuer.
"HOLDER" as used in this Appendix B shall mean the beneficial owner of any
Class 1996B Note or any Class 1996B-2 Note.
"INITIAL INTEREST PAYMENT DATE" shall mean April 1, 1996 for the Class
1996B Notes and August 1, 1996 for the Class 1996B-2 Notes.
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"INITIAL INTEREST PERIOD" shall mean (i) for the Series 1996B Notes, the
period from and including the date of delivery of the Class 1996B Notes and
ending on March 31, 1996 and (ii) for the Class 1996B-2 Notes, the period from
and including the date of delivery of the Class 1996B-2 Notes and ending on
July 31, 1996.
"INTEREST AMOUNT" shall mean the amount of interest distributable in
respect of each $100,000 in principal amount (taken, without rounding, to .0001
of one cent) of Class 1996B Notes and Class 1996B-2 Notes for any Interest
Period or part thereof, as calculated in accordance with Section 2.07 hereof.
"INTEREST PAYMENT DATE" means (i) April 1, 1996 and the first day of each
month thereafter, and the maturity date for any Class 1996B Note, (ii) August 1,
1996 and the first day of each month thereafter, and the maturity date from any
Class 1996B-2 Note, or if any such date is not a Business Day, the next
succeeding Business Day (but only for interest accrued through the last day of
the calendar month next preceding such Interest Payment Date).
"INTEREST PERIOD" means the Initial Interest Period for the Class 1996B
Notes and the Class 1996B-2 Notes and the period beginning on the first day of
each month and ending on the last day of each month.
"LIBOR DETERMINATION DATE" shall mean the Business Day immediately
preceding the first day of each Interest Period.
"LIBOR-BASED RATE" shall mean One-Month LIBOR plus .74%.
"MAXIMUM INTEREST RATE" shall mean the lesser of (a) 16% per annum or (b)
the maximum rate of interest permitted under State law for student loan notes of
the Issuer.
"ONE-MONTH LIBOR" means the rate of interest per annum equal to the rate
per annum at which United States dollar deposits having a maturity of one month
are offered to prime banks in the London interbank market which appear on the
Telerate Service LIBOR Page as of approximately 11:00 a.m., London time, on the
LIBOR Determination Date. If at least two such quotations appear, One-Month
LIBOR will be the arithmetic mean (rounded upwards, if necessary, to the nearest
one-hundredth of one percent) of such offered rates. If fewer than two such
quotes appear, One-Month LIBOR with respect to such Interest Period will be
determined at approximately 11:00 a.m., London time, on such LIBOR Determination
Date on the basis of the rate at which deposits in United States dollars having
a maturity of three months are offered to prime banks in the London interbank
market by four major banks in the London interbank market selected by (i) the
Calculation Agent (if the Calculation Agent is other than the Trustee) or (ii)
the Trustee, and in a principal amount of not less than U.S. $1,000,000 and that
is representative for a single transaction in such market at such time. The
Calculation Agent or the Trustee, as applicable, will request the principal
London office of each of such banks to provide a quotation of its rate. If at
least two quotations are provided, One-Month LIBOR will be the arithmetic mean
(rounded upwards, if necessary, to the nearest one-hundredth of one
B-2
<PAGE>
percent) of such offered rates. If fewer than two quotations are provided,
One-Month LIBOR with respect to such Interest Period will be the arithmetic
mean (rounded upwards, if necessary, to the nearest one-hundredth of one
percent) of the rates quoted at approximately 11:00 a.m., New York City time
on such LIBOR Determination Date by three major banks in New York, New York
selected by (x) the Calculation Agent or (y) the Trustee, as applicable, for
loans in United States dollars to leading European banks having a maturity of
three months and in a principal amount equal to an amount of not less than
U.S. $1,000,000 and that is representative for a single transaction in such
market at such time; provided, however, that if the banks selected as
aforesaid are not quoting as mentioned in this sentence, One-Month LIBOR in
effect for the applicable Interest Period, will be One-Month LIBOR in effect
for the immediately preceding Interest Period.
"PARTICIPANT" shall mean a member of or participant in, the Depository.
"PAYMENT DEFAULT" shall mean failure to make payment of interest on,
premium, if any, and principal of the Class 1996B Notes or the Class 1996B-2
Notes when due, by the Issuer.
"PERSON" means and includes, unless otherwise specified, an individual,
corporation, company, trust, estate partnership or association.
"RECORD DATE" shall mean the Business Day immediately preceding the
Interest Payment Date.
"REDEMPTION DATE," when used with respect to any Class 1996B Notes or any
Class 1996B-2 Notes to be redeemed, shall mean the date fixed for such
redemption.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
ARTICLE II
TERMS AND ISSUANCE
Section 2.01. INTEREST ON THE CLASS 1996B NOTES AND THE CLASS 1996B-2
NOTES.
(a) Interest on the Class 1996B Notes and the Class 1996B-2 Notes
shall accrue for each Interest Period and shall be payable in arrears, on
each Interest Payment Date.
(b) The rate of interest on the Class 1996B Notes for the first
Interest Period shall be 6.0625%. The rate of interest on the Class
1996B-2 Notes for the first Interest Period shall be 6.1892%. The rate of
interest on the Class 1996B Notes and the Class
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1996B-2 Notes for each subsequent Interest Period shall be determined by
the Calculation Agent on the LIBOR Determination Date and shall be the
LIBOR-Based Rate.
If a Payment Default occurs, the Applicable Rate (as defined below) with
respect to the Class 1996B Notes or the Class 1996B-2 Notes shall be the same
rate per annum as if no such Payment Default had occurred.
The rate per annum at which interest is payable on the Class 1996B Notes
and the Class 1996B-2 Notes for any Interest Period is herein referred to as the
"Applicable Rate." Notwithstanding anything herein to the contrary, the
Applicable Rate cannot exceed the Maximum Interest Rate.
Section 2.02. PAYMENTS. So long as the Class 1996B Notes and the Class
1996B-2 Notes are registered in the name of the Depository or the nominee
thereof, payment of interest (other than at maturity) and premium, if any, on,
and of principal at redemption of, the Class 1996B Notes and the Class 1996B-2
Notes shall be made to the Depository by wire transfer provided proper wire
instructions are received. Each Holder of Class 1996B Notes and Class 1996B-2
Notes, by such Holder's purchase of Class 1996B Notes and Class 1996B-2 Notes,
appoints the Trustee as its agent in connection with the payment by such Holder
of its share, if any, of the amounts payable to the Calculation Agent pursuant
to Section 2.07(a) hereof.
Section 2.03. NOTICE OF PAYMENT DEFAULTS AND CURES. By 12:30 p.m. on the
Business Day immediately succeeding each Interest Payment Date, the Trustee will
determine if a Payment Default has occurred. If a Payment Default has occurred,
the Trustee shall, if the Calculation Agent is other than the Trustee, notify
the Calculation Agent by 1:00 p.m. of such Payment Default. If a Payment
Default has been cured, the Trustee shall, if the Calculation Agent is other
than the Trustee, so notify the Calculation Agent by 5:00 p.m. on the day such
Payment Default is cured.
Section 2.04. CALCULATION OF RATES; TERMINATION OF BOOK ENTRY SYSTEM. The
Calculation Agent shall calculate the LIBOR-Based Rate on the Business Day
immediately preceding the first day of each Interest Period. The determination
by the Calculation Agent of the Applicable Rate will (in the absence of manifest
error) be final and binding upon the Owners of the Class 1996B Notes and the
Class 1996B-2 Notes and all other parties.
If the ownership of the Class 1996B Notes or the Class 1996B-2 Notes is
no longer maintained in book-entry form such Class 1996B Notes or such Class
1996B-2 Notes may be exchanged for other Class 1996B Notes or Class 1996B-2
Notes, in Authorized Denominations, and of a like aggregate principal amount,
upon surrender of the Class 1996B Notes or the Class 1996B-2 Notes to be
exchanged at the principal office of the Trustee. Class 1996B Notes and
Class 1996B-2 Notes, upon surrender thereof at the principal office of the
Trustee, duly endorsed for transfer or accompanied by an assignment duly
executed by the Holder of its attorney duly authorized in writing, will be
transferred to a transferee or transferees, in the form of one or more new
fully registered Class 1996B Notes or Class 1996B-2 Notes, in Authorized
B-4
<PAGE>
Denomination, and of a like aggregate principal amount having the same
interest rate and bearing numbers not previously assigned.
In all cases in which the privilege of exchanging or transferring Class
1996B Notes or Class 1996B-2 Notes is exercised, the Issuer will cause to be
executed and delivered Class 1996B Notes or Class 1996B-2 Notes in accordance
with the provisions of the Resolution. For every such exchange or transfer of
Class 1996B Notes or Class 1996B-2 Notes, the Trustee will require payment by
the Holder of any tax or other governmental charge required to be paid with
respect to such exchange or transfer. All expenses, other than any tax or other
government charge, incurred by the Trustee or the Issuer with respect to each
such transfer or exchange will be paid by the Issuer.
The Trustee will not be required to transfer any Class 1996B Note or any
Class 1996B-2 Note during the period of five Business Days next preceding the
mailing of notice of redemption as described herein. After giving of such
notice of redemption, the Trustee will not be required to transfer or exchange
any Class 1996B Note or any Class 1996B-2 Note, which Class 1996B Note or Class
1996B-2 Note or portion thereof has been called for redemption.
Section 2.05. COMPUTATION OF INTEREST. The amount of interest
distributable to Holders of Class 1996B Notes and Class 1996B-2 Notes in respect
of each $100,000 in principal amount thereof for any Interest Period or part
thereof shall be calculated by applying the Applicable Rate for such Interest
Period or part thereof to the principal amount of $100,000, multiplying such
product by the actual number of days in the Interest Period or part thereof
concerned divided by 360, and truncating the resultant figure to the nearest one
cent. Interest on the Class 1996B Notes and the Class 1996B-2 Notes shall be
computed by the Trustee on the basis of a 360-day year for the number of days
actually elapsed. In the event an Interest Payment Date occurs with respect to
any Interest Period on a date other than the first day of the next Interest
Period, the Trustee, after confirming the calculation required above, shall
calculate the portion of the Interest Amount payable on such Interest Payment
Date and the portion payable on the next succeeding Interest Payment Date.
Section 2.06. NOTIFICATION OF RATES, AMOUNTS AND PAYMENT DATES.
(a) The Trustee shall determine the aggregate amount of interest
distributable on the next succeeding Interest Payment Date to the Holders
of the Class 1996B Notes and the Class 1996B-2 Notes. So long as the
ownership of the Class 1996B Notes or the Class 1996B-2 Notes is maintained
in book-entry form by the Depository, the Trustee shall advise the
Depository of each Record Date for the Class 1996B Notes or the
Class 1996B-2 Notes at least two Business Days prior thereto.
(b) Promptly after the Date of Issue and each Interest Payment Date,
and in any event at least 10 days prior to each Interest Payment Date
following the Initial Interest Payment Date, the Trustee shall:
B-5
<PAGE>
(i) so long as no Payment Default has occurred and is continuing
and the ownership of the Class 1996B Notes or the Class 1996B-2 Notes
is maintained in book-entry form by the Depository, confirm the
Calculation Agent's determination of (1) the date of such next
Interest Payment Date and (2) the amount payable to the Calculation
Agent and notify the Calculation Agent of any discrepancy therein; and
(ii) advise the Depository, so long as the ownership of the Class
1996B Notes or the Class 1996B-2 Notes is maintained in book-entry
form by the Depository, of the Applicable Rate and the Interest Amount
in respect of the next succeeding Interest Period.
Section 2.07. CALCULATION AGENT.
(a) Smith Barney Inc. shall serve as the initial Calculation Agent
for the Class 1996B Notes and the Class 1996B-2 Notes. The Calculation
Agent shall be (i) a bank or trust company duly organized under the laws of
the United States of America or any state or territory thereof, and having
a combined capital stock, surplus and undivided profits of at least
$15,000,000 or (ii) a member of the National Association of Securities
Dealers, Inc., having a capitalization of at least $15,000,000 and, in
either case, authorized by law to perform all the duties imposed upon it
hereunder. The Calculation Agent may resign and be discharged of the
duties and obligations created hereunder by giving at least 90 days'
written notice to the Issuer and the Trustee (30 days' written notice if
the Calculation Agent has not been paid its fee for more than 30 days). The
Calculation Agent may be removed at any time by the Trustee if the
Calculation Agent is an entity other than the Trustee, acting at the
direction of the Issuer or the holders of 51% of the aggregate principal
amount of the Class 1996B Notes or the Class 1996B-2 Notes, by an
instrument signed by the Trustee and filed with the Calculation Agent and
the Issuer upon at least 90 days' notice. If the Calculation Agent and the
Trustee are the same entity, the Calculation Agent may be removed as
described above, with the Issuer acting in lieu of the Trustee.
(b) In the event that the Calculation Agent shall resign or be
removed or dissolved, or if the property or affairs of the Calculation
Agent shall be taken under the control of any state or federal court or
administrative body because of bankruptcy or insolvency, or for any other
reason, the Issuer shall use its best efforts to appoint a successor as
Calculation Agent, and the Trustee shall thereupon enter into an agreement
with such successor to perform the duties of the Calculation Agent as
described herein.
(c) The Calculation Agent (if other than the Trustee) shall be acting
as agent for the Trustee, as trustee, registrar and paying agent for the
Class 1996B Notes and the Class 1996B-2 Notes, in connection with its
duties hereunder. In the absence of bad faith or negligence on its part,
the Calculation Agent shall not be liable for any action taken, suffered or
omitted or for any error of judgment made by it in the performance
B-6
<PAGE>
of its duties hereunder and shall not be liable for any error of
judgment made in good faith unless the Calculation Agent shall have been
negligent in ascertaining (or failing to ascertain) the pertinent facts
necessary to make such judgment.
Section 2.08. CREDIT RATINGS. The Issuer shall take all reasonable action
necessary to enable at least one nationally recognized statistical rating
organization (as that term is used in the rules and regulations of the SEC under
the Securities Exchange Act) to provide credit ratings for the Class 1996B Notes
and the Class 1996B-2 Notes.
Section 2.09. NOTICE. The Issuer shall use its best efforts to provide
the Trustee and, so long as no Payment Default has occurred and is continuing
and the ownership of the Class 1996B Notes or the Class 1996B-2 Notes is
maintained in book-entry form by the Depository, the Calculation Agent with
notice of any change in the maximum rate permitted by law on the Class 1996B
Notes and the Class 1996B-2 Notes.
Section 2.10. NOTICE OF PAYMENT DEFAULT.
(a) If the Issuer determines that a Payment Default has occurred the
Issuer shall promptly notify the Trustee thereof.
(b) So long as the ownership of the Class 1996B Notes or the Class
1996B-2 Notes is maintained in book-entry form by the Depository, upon the
occurrence of a Payment Default the Trustee shall immediately send a notice
thereof to the Calculation Agent by telecopy or similar means.
(c) So long as the ownership of the Class 1996B Notes or the Class
1996B-2 Notes is maintained in book-entry form by the Depository, the
Trustee shall immediately send notice to the Calculation Agent by telecopy
or similar means if a Payment Default is cured.
B-7
<PAGE>
EXHIBIT A-1
FORM OF CLASS 1996A[-1][-2] SENIOR
(AUCTION RATE SECURITIES (ARS-SM-))
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), IN RELIANCE UPON EXEMPTIONS PROVIDED BY THE ACT. AS
PROVIDED IN THE INDENTURE DESCRIBED BELOW, NO RESALE OR OTHER TRANSFER OF THIS
NOTE MAY BE MADE UNLESS SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION COMPLYING WITH THE
PROVISIONS OF RULE 144A UNDER THE ACT OR TO INSTITUTIONAL ACCREDITED INVESTORS
AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE ACT AND EXEMPT FROM
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS AND IN ACCORDANCE WITH THE
INDENTURE. NEITHER THE ISSUER NOR THE TRUSTEE IS OBLIGATED TO REGISTER THE
NOTES UNDER THE ACT OR ANY OTHER SECURITIES OR "BLUE SKY" LAW.
EXCEPT AS OTHERWISE PROVIDED IN THE INDENTURE, THIS GLOBAL NOTE MAY BE
TRANSFERRED, IN WHOLE BUT NOT IN PART, ONLY TO ANOTHER NOMINEE OF THE SECURITIES
DEPOSITORY (AS DEFINED HEREIN) OR TO A SUCCESSOR SECURITIES DEPOSITORY OR TO A
NOMINEE OF A SUCCESSOR SECURITIES DEPOSITORY.
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTE
SENIOR CLASS 1996A[-1] [-2]
AUCTION RATE SECURITIES
(ARS-SM-)
REGISTERED NO. R- REGISTERED $__________
MATURITY DATE: INTEREST RATE: ORIGINAL ISSUE DATE CUSIP NO.
July 1, 2014 Variable March 8, 1996 906619A__
PRINCIPAL SUM: DOLLARS
REGISTERED OWNER: CEDE & CO.
UNION FINANCIAL SERVICES-1, INC., a corporation organized under the
corporation laws of the State of Nevada (the "Issuer," which term includes any
successor corporation under
A-1-1
<PAGE>
the Amended and Restated Indenture of Trust, dated as of June 15, 1996
(as amended, the "Indenture"), between the Issuer and Norwest Bank
Minnesota, National Association, as trustee (the "Trustee," which term
includes any successor trustee under the Indenture)) for value received,
hereby promises to pay to the Registered Owner (stated above) or
registered assigns, the Principal Sum of (stated above), but solely from
the revenues and receipts hereinafter specified and not otherwise, on
the Maturity Date specified above (subject to the right of prior
redemption hereinafter described), upon presentation and surrender of
this note at the Principal Office of the Trustee, as paying agent,
trustee, authenticating agent and registrar for the Notes, or a duly
appointed successor paying agent, and to pay interest in arrears on said
Principal Sum, but solely from the revenues and receipts hereinafter
specified and not otherwise, to the Registered Owner hereof from the
most recent Interest Payment Date to which interest has been paid
hereon, until the payment of said principal sum in full.
Any capitalized words and terms used as defined words and terms in this
note and not otherwise defined herein shall have the meanings given them in the
Indenture.
This note shall initially bear interest at the rate of interest per annum
established by the Broker-Dealer for the initial Auction Period pursuant to the
Broker-Dealer Agreement, written notice of which shall be given to the Trustee.
For each Auction Period thereafter, the unpaid principal amount hereof from time
to time outstanding shall bear interest at the Auction Rate determined in
accordance with the provisions of Appendix A of the Indenture, payable on each
Interest Payment Date and on the date of payment or redemption of principal
hereof to the extent of interest accrued on the principal then being paid or
redeemed, such interest to accrue from the later of the date hereof or the date
through which interest has been paid or duly provided for. Interest at the
Auction Rate established from time to time pursuant to Appendix A of the
Indenture shall be computed for the actual number of days elapsed on the basis
of a year consisting of 360 days.
This note shall bear interest at an Auction Rate based on an Auction Period
that shall, until adjusted pursuant to Appendix A of the Indenture, generally
consist of [7 or 28] days, all as determined in Appendix A of the Indenture.
THE AUCTION PERIOD, THE AUCTION RATE, THE METHOD OF DETERMINING THE AUCTION
RATE ON THIS NOTE AND THE AUCTION PROCEDURES RELATED THERETO, AN AUCTION PERIOD
ADJUSTMENT, A CHANGE IN THE AUCTION DATE AND THE INTEREST PAYMENT DATES WILL BE
DETERMINED IN ACCORDANCE WITH THE TERMS, CONDITIONS AND PROVISIONS OF,
INCLUDING, WITHOUT LIMITATION, REQUIRED NOTICES THEREOF TO THE EXISTING OWNERS
OF THE AUCTION NOTES, THE INDENTURE AND THE AUCTION AGENT AGREEMENT, TO WHICH
TERMS, CONDITIONS AND PROVISIONS SPECIFIC REFERENCE IS HEREBY MADE, AND ALL OF
WHICH TERMS, CONDITIONS AND PROVISIONS ARE HEREBY SPECIFICALLY INCORPORATED
HEREIN BY REFERENCE.
Such interest is payable by check or draft drawn upon the Trustee and
mailed or wire transfer on the Interest Payment Date to the person who is the
Registered Owner hereof on
A-1-2
<PAGE>
the Record Date at the address of such Registered Owner as it appears on
the registration books (the "Note Register") maintained by the Trustee.
The principal of and interest on this note are payable in lawful money of
the United States of America. If the specified date for any payment of
principal or interest accrued to such specified date shall be a day other than a
Business Day then such payment may be made on the next succeeding Business Day,
with the same force and effect as if made on the specified date for such payment
without additional interest.
This note is one of a series of notes of the Issuer designated Taxable
Student Loan Asset-Backed Notes, Senior Class 1996A[-1] [-2] Auction Rate
Securities (ARS-SM-), dated the Original Issue Date, in the aggregate original
principal amount of $48,300,000 (the "Class 1996A[-1][-2] Notes") which,
together with the Issuer's Taxable Student Loan Asset-Backed Notes, Senior Class
1996A[-1][-2] Auction Rate Securities (ARS-SM-) issued in the collective
aggregate principal amount of $48,300,000 (the "Class 1996A[-1][-2]")
(collectively, the "Class 1996A Notes") and the Issuer's Taxable Student Loan
Asset-Backed Notes, Subordinate Class 1996B LIBOR Rate issued in the aggregate
principal amount of $11,100,000 (the "Class 1996B Notes") have been authorized
by the Issuer under a certain resolution, and issued by the Issuer pursuant to
the Indenture. The proceeds of such notes will be used by the Issuer, together
with other moneys of the Issuer, for the purpose of financing the acquisition of
student loans, fund a reserve fund and to pay certain costs and expenses in
connection with the issuance of such notes. The Indenture provides for the
issuance of additional notes (the "Additional Notes") which may be secured on a
parity with or subordinate to the Class 1996A Notes and the Class 1996B Notes as
may be determined by the Issuer. The Class 1996A Notes and the Class 1996B
Notes and any Additional Notes are collectively referred to herein as the
"Notes."
MANDATORY REDEMPTION. This note is subject to mandatory redemption by the
Issuer, in whole or in part, on any Interest Payment Date from certain moneys in
the Senior Note Redemption Account of the Note Redemption Fund created pursuant
to the Indenture at a redemption price equal to the principal amount thereof
plus accrued interest to the redemption date.
This note is also subject to mandatory redemption by the Issuer at a
redemption price equal to the principal amount thereof plus accrued interest, if
any, to the date of redemption thereof from moneys in the Senior Note Redemption
Account of the Note Redemption Fund on the Interest Payment Date next succeeding
January 1, 1998, to the extent that moneys remain in the Series 1996 Loan
Account of the Student Loan Fund on such date, unless, no such mandatory
redemption is needed to maintain the ratings on certain of the Notes as provided
in the Indenture.
This note is also subject to mandatory redemption at a redemption price
equal to the principal amount thereof plus accrued interest on any Interest
Payment Date when excess revenue moneys are deposited in the Senior Note
Redemption Account from the Revenue Fund.
A-1-3
<PAGE>
OPTIONAL REDEMPTION. This note is subject to redemption at the option of
the Issuer, in whole or in part, from any source of funds on any Interest
Payment Date at a redemption price equal to the principal amount of this note
being redeemed, plus accrued interest, if any, to the redemption date.
EXTRAORDINARY OPTIONAL REDEMPTION. This note is also subject to
extraordinary optional redemption, at the option of the Issuer, at a redemption
price equal to the principal amount of this note being redeemed, plus accrued
interest to the date of redemption, without premium in whole or in part on any
Interest Payment Date, if the Issuer reasonably determines that it is unable to
acquire Financed Eligible Loans, that the rate of return on Financed Eligible
Loans has materially decreased, or that the costs of administering the Trust
have place unreasonable burdens upon the ability of the Issuer to perform its
obligations under the Indenture.
OPTIONAL PURCHASE. The Issuer may purchase or cause to be purchased all of
the Notes on any Interest Payment Date on which the aggregate current principal
balance of the Notes shall be less than or equal to 10% of the initial aggregate
principal balance of the Notes on the Date of Issuance, at a purchase price
equal to the aggregate current principal balance of such Notes, plus accrued
interest on the Notes through the day preceding the Interest Payment Date on
which the purchase occurs.
NOTICE OF REDEMPTION OR PURCHASE. Notice of the call for redemption shall
be given by the Trustee by mailing a copy of the notice at least 15 days prior
to the redemption or purchase date to the Registered Owners of the Notes to be
redeemed in whole or in part at the address of such Registered Owner last
showing on the registration books. Failure to give such notice or any defect
therein shall not affect the validity of any proceedings for the redemption or
purchase of such Auction Notes for which no such failure or defect occurs. All
Notes called for redemption or purchase will cease to bear interest after the
specified redemption or purchase date, provided funds for their payment are on
deposit at the place of payment at the time. If less than all Notes are to be
redeemed or purchased, Notes shall be selected for redemption or purchase as
provided in the Indenture.
MANDATORY EXCHANGE OF NOTES. The Notes are subject to mandatory exchange,
from time to time, in whole or in part, for Exchange Notes on any Exchange Date.
Such mandatory exchange shall be effective on the Exchange Date specified by the
Trustee in a notice, upon receipt by the Trustee of immediately available funds
from the Issuer equal to the amount of accrued interest to the Exchange Date due
and payable with respect to the Notes subject to mandatory exchange. Notice of
exchange of the Notes will be given by the Trustee not less than 10 calendar
days prior to the Exchange Date to the Registered Owners of the Notes.
SWAP AGREEMENTS. The Indenture provides that the Issuer may enter into an
interest rate swap or basis agreement between the Issuer and a swap provider (a
"Swap Counterparty"), as originally executed and as amended or supplemented, or
other interest rate hedge agreement between the Issuer and a Swap Counterparty,
as originally executed and as amended or supplemented, in each case approved in
writing by the Rating Agency, for the purpose of
A-1-4
<PAGE>
converting in whole or in part the Issuer's variable interest rate
liability on all or a portion of the Notes bearing interest at a
variable rate issued on a parity therewith to a fixed rate liability or
for the purpose of converting in whole or in part the Issuer's fixed
interest rate liability on all or a portion of any Additional Notes
bearing interest at a fixed rate issued on a parity therewith to a
variable rate liability. Payments due to a Swap Counterparty from the
Issuer pursuant to the applicable Swap Agreement (including, but not
limited to, payments in respect of an Early Termination Date, as defined
in the applicable Swap Agreement) are referred to herein as "Issuer Swap
Payments."
The principal of and interest on the Class 1996A Notes and any Additional
Notes issued on a parity with the Class 1996A Notes and any Issuer Swap Payments
secured on a parity with the Class 1996A Notes are payable on a superior basis
to such payments on the Class 1996B Notes and any Additional Notes issued on a
parity or subordinate to the Class 1996B Notes; provided, however, that current
principal and interest may be paid on the Class 1996B Notes and any Additional
Notes issued on a parity with the Class 1996B Notes or subordinate to the Class
1996B Notes if all principal and interest payments due and owing at such time on
the Class 1996A Notes and any Additional Notes issued on a parity with the Class
1996A Notes and any Issuer Swap Payments secured on a parity with the Class
1996A Notes have been previously made or provided for as provided in the
Indenture.
Reference is hereby made to the Indenture, copies of which are on file in
the Principal Office of the Trustee, and to all of the provisions of which any
Registered Owner of this note by his acceptance hereof hereby assents, for
definitions of terms; the description of and the nature and extent of the
security for the Notes; the Issuer's student loan origination and acquisition
program; the revenues and other money pledged to the payment of the principal of
and interest on the Notes; the nature and extent and manner of enforcement of
the pledge; the conditions upon which the Indenture may be amended or
supplemented with or without the consent of the Registered Owners of the Notes
and any Swap Counterparty; the rights and remedies of the Registered Owner
hereof with respect hereto and thereto, including the limitations upon the right
of a Registered Owner hereof to institute any suit, action, or proceeding in
equity or at law with respect hereto and thereto; the rights, duties, and
obligations of the Issuer and the Trustee thereunder; the terms and provisions
upon which the liens, pledges, charges, trusts, and covenants made therein may
be discharged at or prior to the stated maturity or earlier redemption of this
note, and this note thereafter shall no longer be secured by the Indenture or be
deemed to be Outstanding, as defined in the Indenture, thereunder; and for the
other terms and provisions thereof.
THE NOTES ARE LIMITED OBLIGATIONS OF THE ISSUER, PAYABLE SOLELY FROM, AND
FURTHER SECURED BY, THE TRUST ESTATE, AS DEFINED IN THE INDENTURE.
No recourse, either directly or indirectly, shall be had for the payment of
the principal of and interest on this note or any claim based hereon or in
respect hereof or of the Indenture, against the Trustee, or any incorporator,
director, officer, employee, or agent of the Issuer, nor
A-1-5
<PAGE>
against the State of Nevada, or any official thereof, but the obligation
to pay all amounts required by the Indenture securing this note and the
obligation to do and perform the covenants and acts required of the
Issuer therein and herein shall be and remain the responsibility and
obligation of said Issuer, limited as herein set forth.
This note is transferable on the Note Register kept for that purpose by the
Trustee, as registrar, upon surrender of this note for transfer at the principal
office of the Trustee, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Trustee duly executed by, the Registered
Owner hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes of the same series, Stated Maturity, of authorized denominations,
bearing interest at the same rate, and for the same aggregate principal amount
will be issued to the designated transferee or transferees. At the option of
the Registered Owner, any Note may be exchanged for other Notes in authorized
denominations upon surrender of the Note to be exchanged at the principal office
of the Trustee. Upon any such presentation for exchange, one or more new Notes
of the same series, Stated Maturity, in authorized denominations, bearing
interest at the same rate, and for the same aggregate principal amount as the
Note or Notes so surrendered will be issued to the Registered Owner of the Note
or Notes so surrendered; and the Note or Notes so surrendered shall thereupon be
cancelled by the Trustee.
Notwithstanding the foregoing, so long as the ownership of the Notes is
maintained in book-entry form by The Depository Trust Company (the "Securities
Depository") or a nominee thereof, this note may be transferred in whole but not
in part only to the Securities Depository or a nominee thereof or to a successor
Securities Depository or its nominee.
The Issuer, the Trustee, and any agent of either of them shall treat the
Person in whose name this note is registered as the Registered Owner hereof (i)
on the record date for purposes of receiving timely payment of interest hereon,
and (ii) on the date of surrender of this note for purposes of receiving payment
of principal hereof at its stated maturity and (iii) for all other purposes,
whether or not this note is overdue, and neither the Issuer, the Trustee, nor
any such agent shall be affected by notice to the contrary.
To the extent permitted by the Indenture, modifications or alterations of
the Indenture and any supplemental indenture may be made with the consent of
less than all of the Registered Owners of the Notes then outstanding or without
the consent of any of such Registered Owners (by reason of a change in the Act
or Regulation or to cure ambiguities or conflicts), but such modification or
alteration is not permitted to affect the maturity date, Stated Maturity,
amount, Interest Payment Date, or rate of interest on any outstanding Notes or
affect the rights of the Registered Owners of less than all of the Notes
outstanding.
The Registered Owner hereof shall not have the right to demand payment of
this note or any interest hereon out of funds raised or to be raised by
taxation.
A-1-6
<PAGE>
Any capitalized term used herein and not otherwise defined herein shall
have the same meaning ascribed to such term in the herein defined Indenture
unless the context shall clearly indicate otherwise.
It is hereby certified and recited that all acts and things required by the
laws of the State of Nevada to happen, exist, and be performed precedent to and
in the issuance of this note, and the passage of said resolution and the
execution of said Indenture, have happened, exist and have been performed as so
required.
A-1-7
<PAGE>
IN TESTIMONY WHEREOF, the Board of Directors of UNION FINANCIAL SERVICES-1,
INC. has caused the seal of the Issuer to be impressed or a facsimile thereof to
be printed hereon, and this note to be executed by the President and Secretary
of the Issuer all as of the Original Issue Date.
[SEAL] UNION FINANCIAL SERVICES-1, INC.
By
---------------------------------------
Stephen F. Butterfield
President
By
---------------------------------------
Ronald W. Page
Secretary
A-1-8
<PAGE>
CERTIFICATE OF AUTHENTICATION
This note is one of the Class 1996A[-1][-2] Notes designated therein and
described in the within-mentioned Indenture.
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as
Trustee
By
---------------------------------------
Authorized Signatory
AUTHENTICATION DATE:
- ------------------------------
A-1-9
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto __________ (Social Security or other identifying number __________) the
within note and all rights thereunder and hereby irrevocably appoints __________
attorney to transfer the within note on the books kept for registration thereof,
with full power of substitution in the premises.
DATED: SIGNED:
----------------------- --------------------------------------
NOTICE: The signature on this Assignment must
correspond with the name of the Registered Owner
as it appears on the face of the within note in
every particular.
Signature Guaranteed by:
- --------------------------------
A Member of The New York Stock
Exchange or a State or National
Bank
A-1-10
<PAGE>
EXHIBIT A-2
FORM OF CLASS 1996B SUBORDINATE LIBOR RATE NOTES
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), IN RELIANCE UPON EXEMPTIONS PROVIDED BY THE ACT. AS
PROVIDED IN THE INDENTURE DESCRIBED BELOW, NO RESALE OR OTHER TRANSFER OF THIS
NOTE MAY BE MADE UNLESS SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION COMPLYING WITH THE
PROVISIONS OF RULE 144A UNDER THE ACT OR TO INSTITUTIONAL ACCREDITED INVESTORS
AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE ACT AND EXEMPT FROM
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS AND IN ACCORDANCE WITH THE
INDENTURE. NEITHER THE ISSUER NOR THE TRUSTEE IS OBLIGATED TO REGISTER THE
NOTES UNDER THE ACT OR ANY OTHER SECURITIES OR "BLUE SKY" LAW.
EXCEPT AS OTHERWISE PROVIDED IN THE INDENTURE, THIS GLOBAL NOTE MAY BE
TRANSFERRED, IN WHOLE BUT NOT IN PART, ONLY TO ANOTHER NOMINEE OF THE SECURITIES
DEPOSITORY (AS DEFINED HEREIN) OR TO A SUCCESSOR SECURITIES DEPOSITORY OR TO A
NOMINEE OF A SUCCESSOR SECURITIES DEPOSITORY.
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTE
SUBORDINATE CLASS 1996B
LIBOR RATE
REGISTERED NO. R-1 REGISTERED $__________
MATURITY DATE: INTEREST RATE: ORIGINAL ISSUE DATE CUSIP NO.
July 1, 2014 Variable March 8, 1996 906619 AC5
PRINCIPAL SUM: DOLLARS
REGISTERED OWNER: CEDE & CO.
UNION FINANCIAL SERVICES-1, INC., a corporation organized under the
corporation laws of the State of Nevada (the "Issuer," which term includes any
successor corporation under the Amended and Restated Indenture of Trust, dated
as of June 15, 1996 (as amended, the "Indenture"), between the Issuer and
Norwest Bank Minnesota, National Association, as trustee
A-2-1
<PAGE>
(the "Trustee," which term includes any successor trustee under the
Indenture)), for value received, hereby promises to pay to the Registered
Owner (stated above) or registered assigns, the Principal Sum of (stated
above), but solely from the revenues and receipts hereinafter specified and
not otherwise, on the Maturity Date specified above (subject to the right of
prior redemption hereinafter described), upon presentation and surrender of
this note at the Principal Office of the Trustee, as paying agent, trustee,
authenticating agent and registrar for the Notes, or a duly appointed
successor paying agent, and to pay interest in arrears on said Principal Sum,
but solely from the revenues and receipts hereinafter specified and not
otherwise, to the Registered Owner hereof from the most recent Interest
Payment Date to which interest has been paid hereon, until the payment of
said principal sum in full, at the LIBOR-Based Rate on the first Business Day
of each month (each an "Interest Payment Date"), commencing April 1, 1996.
Such interest is payable by check or draft drawn upon the Trustee and mailed
on the Interest Payment Date to the person who is the Registered Owner hereof
on the Record Date at the address of such Registered Owner as it appears on
the registration books (the "Note Register") maintained by the Trustee.
Any capitalized words and terms used as defined words and terms in this
note and not otherwise defined herein shall have the meanings given them in the
Indenture.
This note shall bear interest at LIBOR-Based Rate until adjusted pursuant
to the Indenture, all as determined in Appendix B of the Indenture.
The principal of and interest on this note are payable in lawful money of
the United States of America. If the specified date for any payment of
principal or interest accrued to such specified date shall be a day other than a
Business Day then such payment may be made on the next succeeding Business Day,
with the same force and effect as if made on the specified date for such payment
without additional interest.
Interest payable on this note shall be computed on the assumption that each
year contains 360 days and actual days elapsed.
This note is one of a series of notes of the Issuer designated Taxable
Student Loan Asset-Backed Notes, Subordinate Class 1996B LIBOR Rate, dated the
Original Issue Date, in the aggregate original principal amount of $11,100,000
(the "Class 1996B Notes") which, together with the Issuer's Taxable Student Loan
Asset-Backed Notes, Senior Class 1996A Auction Rate issued in the aggregate
principal amount of $96,600,000 (the "Class 1996A Notes") have been authorized
by the Issuer under a certain resolution, and issued by the Issuer pursuant to
the Indenture. The proceeds of such notes will be used by the Issuer, together
with other moneys of the Issuer, for the purpose of providing funds to finance
the acquisition of student loans, fund a reserve fund and to pay certain costs
and expenses in connection with the issuance of such notes. The Indenture
provides for the issuance of additional notes (the "Additional Notes") which may
be secured on a parity with or subordinate to the Class 1996A Notes or the Class
1996B Notes as determined by the Issuer. The Class 1996A Notes and the Class
1996B Notes and any Additional Notes are collectively referred to herein as the
"Notes."
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<PAGE>
MANDATORY REDEMPTION. This note is subject to redemption by the Issuer, in
whole or in part, on any Interest Payment Date on or after May 1, 1999, from
certain moneys in the Subordinate Note Redemption Account of the Note Redemption
Fund created pursuant to the Indenture at a redemption price equal to the
principal amount thereof plus accrued interest to the redemption date.
This note is also subject to mandatory redemption by the Issuer at a
redemption price equal to the principal amount thereof plus accrued interest, if
any, to the date of redemption thereof from moneys in the Subordinate Note
Redemption Account of the Note Redemption Fund on an Interest Payment Date
succeeding January 1, 1998, to the extent that moneys remain in the Series 1996
Loan Account of the Student Loan Fund on such date; unless no such mandatory
redemption is needed to maintain the ratings on certain of the Notes as provided
in the Indenture.
EXTRAORDINARY OPTIONAL REDEMPTION. This note is subject to extraordinary
optional redemption, at the option of the Issuer, at a redemption price equal to
the principal amount of this note being redeemed, plus accrued interest to the
date of redemption, without premium in whole or in part on any Interest Payment
Date, if the Issuer reasonably determines that it is unable to acquire Financed
Eligible Loans, that the rate of return on Financed Eligible Loans has
materially decreased, or that the costs of administering the Trust have placed
unreasonable burdens upon the ability of the Issuer to perform its obligations
under the Indenture.
OPTIONAL REDEMPTION. This note is subject to redemption at the option of
the Issuer from any source of funds, in whole or in part, on any Interest
Payment Date on or after May 1, 1999, at a redemption price equal to the
principal amount of this note being redeemed, plus accrued interest on the date
of redemption.
OPTIONAL PURCHASE. The Issuer may purchase or cause to be purchased all of
the Notes on any Interest Payment Date on which the aggregate current principal
balance of the Notes shall be less than or equal to 10% of the initial aggregate
principal balance of the Notes on the Date of Issuance, at a purchase price
equal to the aggregate current principal balance of such Notes, plus accrued
interest on the Notes through the day preceding the Interest Payment Date on
which the purchase occurs.
NOTICE OF REDEMPTION OR PURCHASE. Notice of the call for redemption or
purchase shall be given by the Trustee by mailing a copy of the notice at least
15 days prior to the redemption or purchase date to the Registered Owners of
Notes to be redeemed or purchased in whole or in part at the address of such
Registered Owner last showing on the registration books. Failure to give such
notice or any defect therein shall not affect the validity of any proceedings
for the redemption or purchase of such Notes for which no such failure or defect
occurs. All Notes called for redemption or purchase will cease to bear interest
after the specified redemption or purchase date, provided funds for their
payment are on deposit at the place of payment at the time. If less than all
Notes are to be redeemed or purchased, Notes shall be selected for redemption or
purchase as provided in the Indenture.
A-2-3
<PAGE>
MANDATORY EXCHANGE OF NOTES. The Notes are subject to mandatory exchange,
from time to time, in whole, for Exchange Notes on any Exchange Date. Such
mandatory exchange shall be effective on the Exchange Date specified by the
Trustee in a notice, upon receipt by the Trustee of immediately available funds
from the Issuer equal to the amount of accrued interest to the Exchange Date due
and payable with respect to the Notes subject to mandatory exchange. Notice of
exchange of the Notes will be given by the Trustee not less than 10 calendar
days prior to the Exchange Date to the Registered Owners of the Notes.
SWAP AGREEMENTS. The Indenture provides that the Issuer may enter into an
interest rate swap or basis agreement between the Issuer and a swap provider (a
"Swap Counterparty"), as originally executed and as amended or supplemented, or
other interest rate hedge agreement between the Issuer and a Swap Counterparty,
as originally executed and as amended or supplemented, in each case approved in
writing by each of the Rating Agency, for the purpose of converting in whole or
in part the Issuer's variable interest rate liability on all or a portion of the
Notes bearing interest at a variable rate issued on a parity therewith to a
fixed rate liability or for the purpose of converting in whole or in part the
Issuer's fixed interest rate liability on all or a portion of any Additional
Notes bearing interest at a fixed rate issued on a parity therewith or
subordinate to a variable rate liability. Payments due to a Swap Counterparty
from the Issuer pursuant to the applicable Swap Agreement (including, but not
limited to, payments in respect of an Early Termination Date, as defined in the
applicable Swap Agreement) are referred to herein as "Issuer Swap Payments."
The principal of and interest on the Class 1996A Notes and any Additional
Notes issued on a parity with the Class 1996A Notes and any Issuer Swap Payments
secured on a parity with the Class 1996A Notes are payable on a superior basis
to such payments on the Class 1996B Notes and any Additional Notes issued on a
parity with or subordinate to the Class 1996B Notes; provided, however, that
current principal and interest may be paid on the Class 1996B Notes and any
Additional Notes issued on a parity with or subordinate to the Class 1996B Notes
if all principal and interest payments due and owing at such time on the Class
1996A Notes and any Additional Notes issued on a parity with the Class 1996A
Notes and any Issuer Swap Payments secured on a parity with the Class 1996A
Notes have been previously made or provided for as provided in the Indenture.
The principal of and interest on the Class 1996B Notes and any Additional Notes
issued on a parity with the Class 1996B Notes and any Issuer Swap Payments
secured on a parity with the Class 1996B Notes are payable on a superior basis
to such payments on any Additional Notes issued subordinate to the Class 1996B
Notes.
Reference is hereby made to the Indenture, copies of which are on file in
the Principal Office of the Trustee, and to all of the provisions of which any
Registered Owner of this note by his acceptance hereof hereby assents, for
definitions of terms; the description of and the nature and extent of the
security for the Notes; the Issuer's student loan origination and acquisition
program; the revenues and other money pledged to the payment of the principal of
and interest on the Notes; the nature and extent and manner of enforcement of
the pledge; the conditions upon which the Indenture may be amended or
supplemented with or without the consent of the Registered Owners of the Notes
and any Swap Counterparty; the rights and
A-2-4
<PAGE>
remedies of the Registered Owner hereof with respect hereto and thereto,
including the limitations upon the right of a Registered Owner hereof to
institute any suit, action, or proceeding in equity or at law with respect
hereto and thereto; the rights, duties, and obligations of the Issuer and the
Trustee thereunder; the terms and provisions upon which the liens, pledges,
charges, trusts, and covenants made therein may be discharged at or prior to
the stated maturity or earlier redemption of this note, and this note
thereafter shall no longer be secured by the Indenture or be deemed to be
Outstanding, as defined in the Indenture, thereunder; and for the other terms
and provisions thereof.
THE NOTES ARE LIMITED OBLIGATIONS OF THE ISSUER, PAYABLE SOLELY FROM, AND
FURTHER SECURED BY, THE TRUST ESTATE, AS DEFINED IN THE INDENTURE.
No recourse, either directly or indirectly, shall be had for the payment of
the principal of and interest on this note or any claim based hereon or in
respect hereof or of the Indenture, against the Trustee, or any incorporator,
director, officer, employee, or agent of the Issuer, but the obligation to pay
all amounts required by the Indenture securing this note and the obligation to
do and perform the covenants and acts required of the Issuer therein and herein
shall be and remain the responsibility and obligation of said Issuer, limited as
herein set forth.
This note is transferable on the Note Register kept for that purpose by the
Trustee, as registrar, upon surrender of this note for transfer at the principal
office of the Trustee, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Trustee duly executed by, the Registered
Owner hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes of the same series, Stated Maturity, of authorized denominations,
bearing interest at the same rate, and for the same aggregate principal amount
will be issued to the designated transferee or transferees. At the option of
the Registered Owner, any Note may be exchanged for other Notes in authorized
denominations upon surrender of the Note to be exchanged at the principal office
of the Trustee. Upon any such presentation for exchange, one or more new Notes
of the same series, Stated Maturity, in authorized denominations, bearing
interest at the same rate, and for the same aggregate principal amount as the
Note or Notes so surrendered will be issued to the Registered Owner of the Note
or Notes so surrendered; and the Note or Notes so surrendered shall thereupon be
cancelled by the Trustee.
Notwithstanding the foregoing, so long as the ownership of the Notes is
maintained in book-entry form by The Depository Trust Company (the "Securities
Depository") or a nominee thereof, this note may be transferred in whole but not
in part only to the Securities Depository or a nominee thereof or to a successor
Securities Depository or its nominee.
The Issuer, the Trustee, and any agent of either of them shall treat the
Person in whose name this note is registered as the Registered Owner hereof (i)
on the record date for purposes of receiving timely payment of interest hereon,
and (ii) on the date of surrender of this note for purposes of receiving payment
of principal hereof at its stated maturity and (iii) for all other
A-2-5
<PAGE>
purposes, whether or not this note is overdue, and neither the Issuer, the
Trustee, nor any such agent shall be affected by notice to the contrary.
To the extent permitted by the Indenture, modifications or alterations of
the Indenture and any supplemental indenture may be made with the consent of
less than all of the Registered Owners of the Notes then outstanding or without
the consent of any of such Registered Owners (by reason of a change in the Act
or Regulation or to cure ambiguities or conflicts), but such modification or
alteration is not permitted to affect the maturity date, Stated Maturity,
amount, Interest Payment Date, or rate of interest on any outstanding Notes or
affect the rights of the Registered Owners of less than all of the Notes
outstanding.
The Registered Owner hereof shall not have the right to demand payment of
this note or any interest hereon out of funds raised or to be raised by
taxation.
Any capitalized term used herein and not otherwise defined herein shall
have the same meaning ascribed to such term in the herein defined Indenture
unless the context shall clearly indicate otherwise.
It is hereby certified and recited that all acts and things required by the
laws of the State of Nevada to happen, exist, and be performed precedent to and
in the issuance of this note, and the passage of said resolution and the
execution of said Indenture, have happened, exist and have been performed as so
required.
A-2-6
<PAGE>
IN TESTIMONY WHEREOF, the Board of Directors of UNION FINANCIAL SERVICES-1,
INC. has caused the seal of the Issuer to be impressed or a facsimile thereof to
be printed hereon, and this note to be executed by the President and Secretary
of the Issuer all as of the Original Issue Date.
[SEAL] UNION FINANCIAL SERVICES-1, INC.
By
------------------------------------
Stephen F. Butterfield
President
By
------------------------------------
Ronald W. Page
Secretary
A-2-7
<PAGE>
CERTIFICATE OF AUTHENTICATION
This note is one of the Class 1996B Notes designated therein and described
in the within-mentioned Indenture.
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By
-------------------------------------
Authorized Signatory
AUTHENTICATION DATE:
- ----------------------
A-2-8
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto __________ (Social Security or other identifying number __________) the
within note and all rights thereunder and hereby irrevocably appoints _________
attorney to transfer the within note on the books kept for registration thereof,
with full power of substitution in the premises.
DATED: SIGNED:
------------------- ----------------------------------------
NOTICE: The signature on this Assignment must
correspond with the name of the Registered Owner
as it appears on the face of the within note in
every particular.
Signature Guaranteed by:
- -------------------------------
A Member of The New York Stock
Exchange or a State or National
Bank
(End of Form of Class 1996B Note)
A-2-9
<PAGE>
EXHIBIT A-3
FORM OF CLASS 1996A[-3][-4] SENIOR
(AUCTION RATE SECURITIES (ARS-SM-))
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), IN RELIANCE UPON EXEMPTIONS PROVIDED BY THE ACT. AS
PROVIDED IN THE INDENTURE DESCRIBED BELOW, NO RESALE OR OTHER TRANSFER OF THIS
NOTE MAY BE MADE UNLESS SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION COMPLYING WITH THE
PROVISIONS OF RULE 144A UNDER THE ACT OR TO INSTITUTIONAL ACCREDITED INVESTORS
AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE ACT AND EXEMPT FROM
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS AND IN ACCORDANCE WITH THE
INDENTURE. NEITHER THE ISSUER NOR THE TRUSTEE IS OBLIGATED TO REGISTER THE
NOTES UNDER THE ACT OR ANY OTHER SECURITIES OR "BLUE SKY" LAW.
EXCEPT AS OTHERWISE PROVIDED IN THE INDENTURE, THIS GLOBAL NOTE MAY BE
TRANSFERRED, IN WHOLE BUT NOT IN PART, ONLY TO ANOTHER NOMINEE OF THE SECURITIES
DEPOSITORY (AS DEFINED HEREIN) OR TO A SUCCESSOR SECURITIES DEPOSITORY OR TO A
NOMINEE OF A SUCCESSOR SECURITIES DEPOSITORY.
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTE
SENIOR CLASS 1996A[-3][-4]
AUCTION RATE SECURITIES
(ARS-SM-)
REGISTERED NO. R- REGISTERED $_________
MATURITY DATE: INTEREST RATE: ORIGINAL ISSUE DATE CUSIP NO.
July 1, 2014 Variable March 8, 1996 906619A__
PRINCIPAL SUM: DOLLARS
REGISTERED OWNER: CEDE & CO.
UNION FINANCIAL SERVICES-1, INC., a corporation organized under the
corporation laws of the State of Nevada (the "Issuer," which term includes any
successor corporation under
A-3-1
<PAGE>
the Amended and Restated Indenture of Trust, dated as of June 15, 1996 (as
amended, the "Indenture"), between the Issuer and Norwest Bank Minnesota,
National Association, as trustee (the "Trustee," which term includes any
successor trustee under the Indenture)) for value received, hereby promises
to pay to the Registered Owner (stated above) or registered assigns, the
Principal Sum of (stated above), but solely from the revenues and receipts
hereinafter specified and not otherwise, on the Maturity Date specified above
(subject to the right of prior redemption hereinafter described), upon
presentation and surrender of this note at the Principal Office of the
Trustee, as paying agent, trustee, authenticating agent and registrar for the
Notes, or a duly appointed successor paying agent, and to pay interest in
arrears on said Principal Sum, but solely from the revenues and receipts
hereinafter specified and not otherwise, to the Registered Owner hereof from
the most recent Interest Payment Date to which interest has been paid hereon,
until the payment of said principal sum in full.
Any capitalized words and terms used as defined words and terms in this
note and not otherwise defined herein shall have the meanings given them in the
Indenture.
This note shall initially bear interest at the rate of interest per annum
established by the Broker-Dealer for the initial Auction Period pursuant to the
Broker-Dealer Agreement, written notice of which shall be given to the Trustee.
For each Auction Period thereafter, the unpaid principal amount hereof from time
to time outstanding shall bear interest at the Auction Rate determined in
accordance with the provisions of Appendix A of the Indenture, payable on each
Interest Payment Date and on the date of payment or redemption of principal
hereof to the extent of interest accrued on the principal then being paid or
redeemed, such interest to accrue from the later of the date hereof or the date
through which interest has been paid or duly provided for. Interest at the
Auction Rate established from time to time pursuant to Appendix A of the
Indenture shall be computed for the actual number of days elapsed on the basis
of a year consisting of 360 days.
This note shall bear interest at an Auction Rate based on an Auction Period
that shall, until adjusted pursuant to Appendix A of the Indenture, generally
consist of 28 days, all as determined in Appendix A of the Indenture.
THE AUCTION PERIOD, THE AUCTION RATE, THE METHOD OF DETERMINING THE AUCTION
RATE ON THIS NOTE AND THE AUCTION PROCEDURES RELATED THERETO, AN AUCTION PERIOD
ADJUSTMENT, A CHANGE IN THE AUCTION DATE AND THE INTEREST PAYMENT DATES WILL BE
DETERMINED IN ACCORDANCE WITH THE TERMS, CONDITIONS AND PROVISIONS OF,
INCLUDING, WITHOUT LIMITATION, REQUIRED NOTICES THEREOF TO THE EXISTING OWNERS
OF THE AUCTION NOTES, THE INDENTURE AND THE AUCTION AGENT AGREEMENT, TO WHICH
TERMS, CONDITIONS AND PROVISIONS SPECIFIC REFERENCE IS HEREBY MADE, AND ALL OF
WHICH TERMS, CONDITIONS AND PROVISIONS ARE HEREBY SPECIFICALLY INCORPORATED
HEREIN BY REFERENCE.
Such interest is payable by check or draft drawn upon the Trustee and
mailed or wire transfer on the Interest Payment Date to the person who is the
Registered Owner hereof on the
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<PAGE>
Record Date at the address of such Registered Owner as it appears on the
registration books (the "Note Register") maintained by the Trustee.
The principal of and interest on this note are payable in lawful money of
the United States of America. If the specified date for any payment of
principal or interest accrued to such specified date shall be a day other than a
Business Day then such payment may be made on the next succeeding Business Day,
with the same force and effect as if made on the specified date for such payment
without additional interest.
This note is one of a series of notes of the Issuer designated Taxable
Student Loan Asset-Backed Notes, Senior Class 1996A[-3][-4] Auction Rate
Securities (ARS-SM-), dated the Original Issue Date, in the aggregate original
principal amount of $__________ (the "Class A[-3][-4] Notes") which, together
with the Issuer's Taxable Student Loan Asset-Backed Notes, Senior Class
A[-3][-4] Auction Rate Securities (ARS-SM-) issued in the collective aggregate
principal amount of $__________ (the "Class 1996A[-3][-4]") (collectively, the
"Class A Notes") and the Issuer's Taxable Student Loan Asset-Backed Notes,
Subordinate Class 1996B-2 LIBOR Rate issued in the aggregate principal amount of
$14,200,000 (the "Class B-2 Notes") have been authorized by the Issuer under a
certain resolution, and issued by the Issuer pursuant to the Indenture. The
proceeds of such notes will be used by the Issuer, together with other moneys of
the Issuer, for the purpose of financing the acquisition of student loans, fund
a reserve fund and to pay certain costs and expenses in connection with the
issuance of such notes. The Issuer has previously issued $48,300,000 of its
Taxable Student Loan Asset-Backed Notes, Senior Class 1996A-1 Auction Rate
Securities (ARS-SM-) (the "Class A-1 Notes"), $48,300,000 of its Taxable Student
Loan Asset-Backed Notes, Senior Class 1996A-2 Auction Rate Securities (ARS-SM-)
(the "Class A-2 Notes") and $11,100,000 of its Taxable Student Loan Asset-Backed
Notes, Subordinate Class 1996B LIBOR Rate (the "Class B Notes"). The Class A-1
Notes, the Class A-2 Notes and the Class A Notes are collectively referred to
herein as the "Class 1996A Notes." The Class B Notes and the Class B-2 Notes
are collectively referred to herein as the "Class 1996B Notes." The Indenture
provides for the issuance of additional notes (the "Additional Notes") which may
be secured on a parity with or subordinate to the Class 1996A Notes and the
Class 1996B Notes as may be determined by the Issuer. The Class 1996A Notes and
the Class 1996B Notes and any Additional Notes are collectively referred to
herein as the "Notes."
MANDATORY REDEMPTION. This note is subject to mandatory redemption by the
Issuer, in whole or in part, on any Interest Payment Date from certain moneys in
the Senior Note Redemption Account of the Note Redemption Fund created pursuant
to the Indenture at a redemption price equal to the principal amount thereof
plus accrued interest to the redemption date.
This note is also subject to mandatory redemption by the Issuer at a
redemption price equal to the principal amount thereof plus accrued interest, if
any, to the date of redemption thereof from moneys in the Senior Note Redemption
Account of the Note Redemption Fund on the Interest Payment Date next succeeding
January 1, 1998, to the extent that moneys remain in the Series 1996 Loan
Account of the Student Loan Fund on such date, unless, no such
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<PAGE>
mandatory redemption is needed to maintain the ratings on certain of the
Notes as provided in the Indenture.
This note is also subject to mandatory redemption at a redemption price
equal to the principal amount thereof plus accrued interest on any Interest
Payment Date when excess revenue moneys are deposited in the Senior Note
Redemption Account from the Revenue Fund.
OPTIONAL REDEMPTION. This note is subject to redemption at the option of
the Issuer, in whole or in part, from any source of funds on any Interest
Payment Date at a redemption price equal to the principal amount of this note
being redeemed, plus accrued interest, if any, to the redemption date.
EXTRAORDINARY OPTIONAL REDEMPTION. This note is also subject to
extraordinary optional redemption, at the option of the Issuer, at a redemption
price equal to the principal amount of this note being redeemed, plus accrued
interest to the date of redemption, without premium in whole or in part on any
Interest Payment Date, if the Issuer reasonably determines that it is unable to
acquire Financed Eligible Loans, that the rate of return on Financed Eligible
Loans has materially decreased, or that the costs of administering the Trust
have place unreasonable burdens upon the ability of the Issuer to perform its
obligations under the Indenture.
OPTIONAL PURCHASE. The Issuer may purchase or cause to be purchased all of
the Notes on any Interest Payment Date on which the aggregate current principal
balance of the Notes shall be less than or equal to 10% of the initial aggregate
principal balance of the Notes on the Date of Issuance, at a purchase price
equal to the aggregate current principal balance of such Notes, plus accrued
interest on the Notes through the day preceding the Interest Payment Date on
which the purchase occurs.
NOTICE OF REDEMPTION OR PURCHASE. Notice of the call for redemption shall
be given by the Trustee by mailing a copy of the notice at least 15 days prior
to the redemption or purchase date to the Registered Owners of the Notes to be
redeemed in whole or in part at the address of such Registered Owner last
showing on the registration books. Failure to give such notice or any defect
therein shall not affect the validity of any proceedings for the redemption or
purchase of such Auction Notes for which no such failure or defect occurs. All
Notes called for redemption or purchase will cease to bear interest after the
specified redemption or purchase date, provided funds for their payment are on
deposit at the place of payment at the time. If less than all Notes are to be
redeemed or purchased, Notes shall be selected for redemption or purchase as
provided in the Indenture.
MANDATORY EXCHANGE OF NOTES. The Notes are subject to mandatory exchange,
from time to time, in whole or in part, for Exchange Notes on any Exchange Date.
Such mandatory exchange shall be effective on the Exchange Date specified by the
Trustee in a notice, upon receipt by the Trustee of immediately available funds
from the Issuer equal to the amount of accrued interest to the Exchange Date due
and payable with respect to the Notes subject to
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<PAGE>
mandatory exchange. Notice of exchange of the Notes will be given by the
Trustee not less than 10 calendar days prior to the Exchange Date to the
Registered Owners of the Notes.
SWAP AGREEMENTS. The Indenture provides that the Issuer may enter into an
interest rate swap or basis agreement between the Issuer and a swap provider (a
"Swap Counterparty"), as originally executed and as amended or supplemented, or
other interest rate hedge agreement between the Issuer and a Swap Counterparty,
as originally executed and as amended or supplemented, in each case approved in
writing by the Rating Agency, for the purpose of converting in whole or in part
the Issuer's variable interest rate liability on all or a portion of the Notes
bearing interest at a variable rate issued on a parity therewith to a fixed rate
liability or for the purpose of converting in whole or in part the Issuer's
fixed interest rate liability on all or a portion of any Additional Notes
bearing interest at a fixed rate issued on a parity therewith to a variable rate
liability. Payments due to a Swap Counterparty from the Issuer pursuant to the
applicable Swap Agreement (including, but not limited to, payments in respect of
an Early Termination Date, as defined in the applicable Swap Agreement) are
referred to herein as "Issuer Swap Payments."
The principal of and interest on the Class 1996A Notes and any Additional
Notes issued on a parity with the Class 1996A Notes and any Issuer Swap Payments
secured on a parity with the Class 1996A Notes are payable on a superior basis
to such payments on the Class 1996B Notes and any Additional Notes issued on a
parity or subordinate to the Class 1996B Notes; provided, however, that current
principal and interest may be paid on the Class 1996B Notes and any Additional
Notes issued on a parity with the Class 1996B Notes or subordinate to the Class
1996B Notes if all principal and interest payments due and owing at such time on
the Class 1996A Notes and any Additional Notes issued on a parity with the Class
1996A Notes and any Issuer Swap Payments secured on a parity with the Class
1996A Notes have been previously made or provided for as provided in the
Indenture.
Reference is hereby made to the Indenture, copies of which are on file in
the Principal Office of the Trustee, and to all of the provisions of which any
Registered Owner of this note by his acceptance hereof hereby assents, for
definitions of terms; the description of and the nature and extent of the
security for the Notes; the Issuer's student loan origination and acquisition
program; the revenues and other money pledged to the payment of the principal of
and interest on the Notes; the nature and extent and manner of enforcement of
the pledge; the conditions upon which the Indenture may be amended or
supplemented with or without the consent of the Registered Owners of the Notes
and any Swap Counterparty; the rights and remedies of the Registered Owner
hereof with respect hereto and thereto, including the limitations upon the right
of a Registered Owner hereof to institute any suit, action, or proceeding in
equity or at law with respect hereto and thereto; the rights, duties, and
obligations of the Issuer and the Trustee thereunder; the terms and provisions
upon which the liens, pledges, charges, trusts, and covenants made therein may
be discharged at or prior to the stated maturity or earlier redemption of this
note, and this note thereafter shall no longer be secured by the Indenture or be
deemed to be Outstanding, as defined in the Indenture, thereunder; and for the
other terms and provisions thereof.
A-3-5
<PAGE>
THE NOTES ARE LIMITED OBLIGATIONS OF THE ISSUER, PAYABLE SOLELY FROM, AND
FURTHER SECURED BY, THE TRUST ESTATE, AS DEFINED IN THE INDENTURE.
No recourse, either directly or indirectly, shall be had for the payment of
the principal of and interest on this note or any claim based hereon or in
respect hereof or of the Indenture, against the Trustee, or any incorporator,
director, officer, employee, or agent of the Issuer, nor against the State of
Nevada, or any official thereof, but the obligation to pay all amounts required
by the Indenture securing this note and the obligation to do and perform the
covenants and acts required of the Issuer therein and herein shall be and remain
the responsibility and obligation of said Issuer, limited as herein set forth.
Subject to the restrictions specified in the Indenture, this note is
transferable on the Note Register kept for that purpose by the Trustee, as
registrar, upon surrender of this note for transfer at the principal office of
the Trustee, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Trustee duly executed by, the Registered
Owner hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes of the same series, Stated Maturity, of authorized denominations,
bearing interest at the same rate, and for the same aggregate principal amount
will be issued to the designated transferee or transferees. At the option of
the Registered Owner, any Note may be exchanged for other Notes in authorized
denominations upon surrender of the Note to be exchanged at the principal office
of the Trustee. Upon any such presentation for exchange, one or more new Notes
of the same series, Stated Maturity, in authorized denominations, bearing
interest at the same rate, and for the same aggregate principal amount as the
Note or Notes so surrendered will be issued to the Registered Owner of the Note
or Notes so surrendered; and the Note or Notes so surrendered shall thereupon be
cancelled by the Trustee.
Notwithstanding the foregoing, so long as the ownership of the Notes is
maintained in book-entry form by The Depository Trust Company (the "Securities
Depository") or a nominee thereof, this note may be transferred in whole but not
in part only to the Securities Depository or a nominee thereof or to a successor
Securities Depository or its nominee.
The Issuer, the Trustee, and any agent of either of them shall treat the
Person in whose name this note is registered as the Registered Owner hereof (i)
on the record date for purposes of receiving timely payment of interest hereon,
and (ii) on the date of surrender of this note for purposes of receiving payment
of principal hereof at its stated maturity and (iii) for all other purposes,
whether or not this note is overdue, and neither the Issuer, the Trustee, nor
any such agent shall be affected by notice to the contrary.
To the extent permitted by the Indenture, modifications or alterations of
the Indenture and any supplemental indenture may be made with the consent of
less than all of the Registered Owners of the Notes then outstanding or without
the consent of any of such Registered Owners (by reason of a change in the Act
or Regulation or to cure ambiguities or conflicts), but such modification or
alteration is not permitted to affect the maturity date, Stated Maturity,
amount,
A-3-6
<PAGE>
Interest Payment Date, or rate of interest on any outstanding Notes or affect
the rights of the Registered Owners of less than all of the Notes outstanding.
The Registered Owner hereof shall not have the right to demand payment of
this note or any interest hereon out of funds raised or to be raised by
taxation.
Any capitalized term used herein and not otherwise defined herein shall
have the same meaning ascribed to such term in the herein defined Indenture
unless the context shall clearly indicate otherwise.
It is hereby certified and recited that all acts and things required by the
laws of the State of Nevada to happen, exist, and be performed precedent to and
in the issuance of this note, and the passage of said resolution and the
execution of said Indenture, have happened, exist and have been performed as so
required.
A-3-7
<PAGE>
IN TESTIMONY WHEREOF, the Board of Directors of UNION FINANCIAL SERVICES-1,
INC. has caused the seal of the Issuer to be impressed or a facsimile thereof to
be printed hereon, and this note to be executed by the President and Secretary
of the Issuer all as of the Original Issue Date.
[SEAL] UNION FINANCIAL SERVICES-1, INC.
By
------------------------------------
Stephen F. Butterfield
President
By
------------------------------------
Ronald W. Page
Secretary
A-3-8
<PAGE>
CERTIFICATE OF AUTHENTICATION
This note is one of the Class 1996A[-3][-4] Notes designated therein and
described in the within-mentioned Indenture.
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By
------------------------------------
Authorized Signatory
AUTHENTICATION DATE:
- ----------------------
A-3-9
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto __________ (Social Security or other identifying number __________) the
within note and all rights thereunder and hereby irrevocably appoints __________
attorney to transfer the within note on the books kept for registration thereof,
with full power of substitution in the premises.
DATED: SIGNED:
-----------------------------------------
NOTICE: The signature on this Assignment must
correspond with the name of the Registered Owner
as it appears on the face of the within note in
every particular.
Signature Guaranteed by:
- -------------------------------
A Member of The New York Stock
Exchange or a State or National
Bank
A-3-10
<PAGE>
EXHIBIT A-4
FORM OF CLASS 1996B-2 SUBORDINATE LIBOR RATE NOTES
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), IN RELIANCE UPON EXEMPTIONS PROVIDED BY THE ACT. AS
PROVIDED IN THE INDENTURE DESCRIBED BELOW, NO RESALE OR OTHER TRANSFER OF THIS
NOTE MAY BE MADE UNLESS SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT IN A TRANSACTION COMPLYING WITH THE
PROVISIONS OF RULE 144A UNDER THE ACT OR TO INSTITUTIONAL ACCREDITED INVESTORS
AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE ACT AND EXEMPT FROM
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS AND IN ACCORDANCE WITH THE
INDENTURE. NEITHER THE ISSUER NOR THE TRUSTEE IS OBLIGATED TO REGISTER THE
NOTES UNDER THE ACT OR ANY OTHER SECURITIES OR "BLUE SKY" LAW.
EXCEPT AS OTHERWISE PROVIDED IN THE INDENTURE, THIS GLOBAL NOTE MAY BE
TRANSFERRED, IN WHOLE BUT NOT IN PART, ONLY TO ANOTHER NOMINEE OF THE SECURITIES
DEPOSITORY (AS DEFINED HEREIN) OR TO A SUCCESSOR SECURITIES DEPOSITORY OR TO A
NOMINEE OF A SUCCESSOR SECURITIES DEPOSITORY.
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTE
SUBORDINATE CLASS 1996B-2
LIBOR RATE
REGISTERED NO. R-1 REGISTERED $__________
MATURITY DATE: INTEREST RATE: ORIGINAL ISSUE DATE CUSIP NO.
July 1, 2014 Variable June 19, 1996 906619 AF8
PRINCIPAL SUM: DOLLARS
REGISTERED OWNER: CEDE & CO.
UNION FINANCIAL SERVICES-1, INC., a corporation organized under the
corporation laws of the State of Nevada (the "Issuer," which term includes any
successor corporation under the Amended and Restated Indenture of Trust, dated
as of June 15, 1996 (as amended, the "Indenture"), between the Issuer and
Norwest Bank Minnesota, National Association, as trustee
A-4-1
<PAGE>
(the "Trustee," which term includes any successor trustee under the
Indenture)), for value received, hereby promises to pay to the Registered
Owner (stated above) or registered assigns, the Principal Sum of (stated
above), but solely from the revenues and receipts hereinafter specified and
not otherwise, on the Maturity Date specified above (subject to the right of
prior redemption hereinafter described), upon presentation and surrender of
this note at the Principal Office of the Trustee, as paying agent, trustee,
authenticating agent and registrar for the Notes, or a duly appointed
successor paying agent, and to pay interest in arrears on said Principal Sum,
but solely from the revenues and receipts hereinafter specified and not
otherwise, to the Registered Owner hereof from the most recent Interest
Payment Date to which interest has been paid hereon, until the payment of
said principal sum in full, at the LIBOR-Based Rate on the first Business Day
of each month (each an "Interest Payment Date"), commencing August 1, 1996.
Such interest is payable by check or draft drawn upon the Trustee and mailed
on the Interest Payment Date to the person who is the Registered Owner hereof
on the Record Date at the address of such Registered Owner as it appears on
the registration books (the "Note Register") maintained by the Trustee.
Any capitalized words and terms used as defined words and terms in this
note and not otherwise defined herein shall have the meanings given them in the
Indenture.
This note shall bear interest at LIBOR-Based Rate until adjusted pursuant
to the Indenture, all as determined in Appendix B of the Indenture.
The principal of and interest on this note are payable in lawful money of
the United States of America. If the specified date for any payment of
principal or interest accrued to such specified date shall be a day other than a
Business Day then such payment may be made on the next succeeding Business Day,
with the same force and effect as if made on the specified date for such payment
without additional interest.
Interest payable on this note shall be computed on the assumption that each
year contains 360 days and actual days elapsed.
This note is one of a series of notes of the Issuer designated Taxable
Student Loan Asset-Backed Notes, Subordinate Class 1996B-2 LIBOR Rate, dated the
Original Issue Date, in the aggregate original principal amount of $14,200,000
(the "Class 1996B-2 Notes") which, together with the Issuer's Taxable Student
Loan Asset-Backed Notes, Senior Class 1996A Auction Rate issued in the aggregate
principal amount of $128,000,000 (the "Class A Notes") have been authorized by
the Issuer under a certain resolution, and issued by the Issuer pursuant to the
Indenture. The Issuer has previously issued $48,300,000 of its Taxable Student
Loan Asset-Backed Notes, Senior Class 1996A-1 Auction Rate Securities (ARS-SM-)
(the "Class A-1 Notes"), $48,300,000 of its Taxable Student Loan Asset-Backed
Notes, Senior Class 1996A-2 Auction Rate Securities (ARS-SM-) (the "Class A-2
Notes") and $11,100,000 of its Taxable Student Loan Asset-Backed Notes,
Subordinate Class 1996B LIBOR Rate (the "Class B Notes"). The Class A-1 Notes,
the Class A-2 Notes and the Class A Notes are collectively referred to herein as
the "Class 1996A Notes." The Class B Notes and the Class B-2 Notes are
collectively referred to
A-4-2
<PAGE>
herein as the "Class 1996B Notes." The proceeds of such notes will be used
by the Issuer, together with other moneys of the Issuer, for the purpose of
providing funds to finance the acquisition of student loans, fund a reserve
fund and to pay certain costs and expenses in connection with the issuance of
such notes. The Indenture provides for the issuance of additional notes (the
"Additional Notes") which may be secured on a parity with or subordinate to
the Class 1996A Notes or the Class 1996B Notes as determined by the Issuer.
The Class 1996A Notes and the Class 1996B Notes and any Additional Notes are
collectively referred to herein as the "Notes."
MANDATORY REDEMPTION. This note is subject to redemption by the Issuer, in
whole or in part, on any Interest Payment Date on or after May 1, 1999, from
certain moneys in the Subordinate Note Redemption Account of the Note Redemption
Fund created pursuant to the Indenture at a redemption price equal to the
principal amount thereof plus accrued interest to the redemption date.
This note is also subject to mandatory redemption by the Issuer at a
redemption price equal to the principal amount thereof plus accrued interest, if
any, to the date of redemption thereof from moneys in the Subordinate Note
Redemption Account of the Note Redemption Fund on an Interest Payment Date
succeeding January 1, 1998, to the extent that moneys remain in the Series 1996
Loan Account of the Student Loan Fund on such date; unless no such mandatory
redemption is needed to maintain the ratings on certain of the Notes as provided
in the Indenture.
EXTRAORDINARY OPTIONAL REDEMPTION. This note is subject to extraordinary
optional redemption, at the option of the Issuer, at a redemption price equal to
the principal amount of this note being redeemed, plus accrued interest to the
date of redemption, without premium in whole or in part on any Interest Payment
Date, if the Issuer reasonably determines that it is unable to acquire Financed
Eligible Loans, that the rate of return on Financed Eligible Loans has
materially decreased, or that the costs of administering the Trust have placed
unreasonable burdens upon the ability of the Issuer to perform its obligations
under the Indenture.
OPTIONAL REDEMPTION. This note is subject to redemption at the option of
the Issuer from any source of funds, in whole or in part, on any Interest
Payment Date on or after May 1, 1999, at a redemption price equal to the
principal amount of this note being redeemed, plus accrued interest on the date
of redemption.
OPTIONAL PURCHASE. The Issuer may purchase or cause to be purchased all of
the Notes on any Interest Payment Date on which the aggregate current principal
balance of the Notes shall be less than or equal to 10% of the initial aggregate
principal balance of the Notes on the Date of Issuance, at a purchase price
equal to the aggregate current principal balance of such Notes, plus accrued
interest on the Notes through the day preceding the Interest Payment Date on
which the purchase occurs.
A-4-3
<PAGE>
NOTICE OF REDEMPTION OR PURCHASE. Notice of the call for redemption or
purchase shall be given by the Trustee by mailing a copy of the notice at least
15 days prior to the redemption or purchase date to the Registered Owners of
Notes to be redeemed or purchased in whole or in part at the address of such
Registered Owner last showing on the registration books. Failure to give such
notice or any defect therein shall not affect the validity of any proceedings
for the redemption or purchase of such Notes for which no such failure or defect
occurs. All Notes called for redemption or purchase will cease to bear interest
after the specified redemption or purchase date, provided funds for their
payment are on deposit at the place of payment at the time. If less than all
Notes are to be redeemed or purchased, Notes shall be selected for redemption or
purchase as provided in the Indenture.
MANDATORY EXCHANGE OF NOTES. The Notes are subject to mandatory exchange,
from time to time, in whole, for Exchange Notes on any Exchange Date. Such
mandatory exchange shall be effective on the Exchange Date specified by the
Trustee in a notice, upon receipt by the Trustee of immediately available funds
from the Issuer equal to the amount of accrued interest to the Exchange Date due
and payable with respect to the Notes subject to mandatory exchange. Notice of
exchange of the Notes will be given by the Trustee not less than 10 calendar
days prior to the Exchange Date to the Registered Owners of the Notes.
SWAP AGREEMENTS. The Indenture provides that the Issuer may enter into an
interest rate swap or basis agreement between the Issuer and a swap provider (a
"Swap Counterparty"), as originally executed and as amended or supplemented, or
other interest rate hedge agreement between the Issuer and a Swap Counterparty,
as originally executed and as amended or supplemented, in each case approved in
writing by each of the Rating Agency, for the purpose of converting in whole or
in part the Issuer's variable interest rate liability on all or a portion of the
Notes bearing interest at a variable rate issued on a parity therewith to a
fixed rate liability or for the purpose of converting in whole or in part the
Issuer's fixed interest rate liability on all or a portion of any Additional
Notes bearing interest at a fixed rate issued on a parity therewith or
subordinate to a variable rate liability. Payments due to a Swap Counterparty
from the Issuer pursuant to the applicable Swap Agreement (including, but not
limited to, payments in respect of an Early Termination Date, as defined in the
applicable Swap Agreement) are referred to herein as "Issuer Swap Payments."
The principal of and interest on the Class 1996A Notes and any
Additional Notes issued on a parity with the Class 1996A Notes and any Issuer
Swap Payments secured on a parity with the Class 1996A Notes are payable on a
superior basis to such payments on the Class 1996B Notes and any Additional
Notes issued on a parity with or subordinate to the Class 1996B Notes;
provided, however, that current principal and interest may be paid on the
Class 1996B Notes and any Additional Notes issued on a parity with or
subordinate to the Class 1996B Notes if all principal and interest payments
due and owing at such time on the Class 1996A Notes and any Additional Notes
issued on a parity with the Class 1996A Notes and any Issuer Swap Payments
secured on a parity with the Class 1996A Notes have been previously made or
provided for as provided in the Indenture. The principal of and interest on
the Class 1996B Notes and any Additional Notes issued on a parity with the
Class 1996B Notes and any Issuer Swap Payments
A-4-4
<PAGE>
secured on a parity with the Class 1996B Notes are payable on a superior
basis to such payments on any Additional Notes issued subordinate to the
Class 1996B Notes.
Reference is hereby made to the Indenture, copies of which are on file in
the Principal Office of the Trustee, and to all of the provisions of which any
Registered Owner of this note by his acceptance hereof hereby assents, for
definitions of terms; the description of and the nature and extent of the
security for the Notes; the Issuer's student loan origination and acquisition
program; the revenues and other money pledged to the payment of the principal of
and interest on the Notes; the nature and extent and manner of enforcement of
the pledge; the conditions upon which the Indenture may be amended or
supplemented with or without the consent of the Registered Owners of the Notes
and any Swap Counterparty; the rights and remedies of the Registered Owner
hereof with respect hereto and thereto, including the limitations upon the right
of a Registered Owner hereof to institute any suit, action, or proceeding in
equity or at law with respect hereto and thereto; the rights, duties, and
obligations of the Issuer and the Trustee thereunder; the terms and provisions
upon which the liens, pledges, charges, trusts, and covenants made therein may
be discharged at or prior to the stated maturity or earlier redemption of this
note, and this note thereafter shall no longer be secured by the Indenture or be
deemed to be Outstanding, as defined in the Indenture, thereunder; and for the
other terms and provisions thereof.
THE NOTES ARE LIMITED OBLIGATIONS OF THE ISSUER, PAYABLE SOLELY FROM, AND
FURTHER SECURED BY, THE TRUST ESTATE, AS DEFINED IN THE INDENTURE.
No recourse, either directly or indirectly, shall be had for the payment of
the principal of and interest on this note or any claim based hereon or in
respect hereof or of the Indenture, against the Trustee, or any incorporator,
director, officer, employee, or agent of the Issuer, but the obligation to pay
all amounts required by the Indenture securing this note and the obligation to
do and perform the covenants and acts required of the Issuer therein and herein
shall be and remain the responsibility and obligation of said Issuer, limited as
herein set forth.
Subject to the restrictions specified in the Indenture, this note is
transferable on the Note Register kept for that purpose by the Trustee, as
registrar, upon surrender of this note for transfer at the principal office of
the Trustee, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Trustee duly executed by, the Registered
Owner hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes of the same series, Stated Maturity, of authorized denominations,
bearing interest at the same rate, and for the same aggregate principal amount
will be issued to the designated transferee or transferees. At the option of
the Registered Owner, any Note may be exchanged for other Notes in authorized
denominations upon surrender of the Note to be exchanged at the principal office
of the Trustee. Upon any such presentation for exchange, one or more new Notes
of the same series, Stated Maturity, in authorized denominations, bearing
interest at the same rate, and for the same aggregate principal amount as the
Note or Notes so surrendered will be issued to the
A-4-5
<PAGE>
Registered Owner of the Note or Notes so surrendered; and the Note or Notes
so surrendered shall thereupon be cancelled by the Trustee.
Notwithstanding the foregoing, so long as the ownership of the Notes is
maintained in book-entry form by The Depository Trust Company (the "Securities
Depository") or a nominee thereof, this note may be transferred in whole but not
in part only to the Securities Depository or a nominee thereof or to a successor
Securities Depository or its nominee.
The Issuer, the Trustee, and any agent of either of them shall treat the
Person in whose name this note is registered as the Registered Owner hereof (i)
on the record date for purposes of receiving timely payment of interest hereon,
and (ii) on the date of surrender of this note for purposes of receiving payment
of principal hereof at its stated maturity and (iii) for all other purposes,
whether or not this note is overdue, and neither the Issuer, the Trustee, nor
any such agent shall be affected by notice to the contrary.
To the extent permitted by the Indenture, modifications or alterations of
the Indenture and any supplemental indenture may be made with the consent of
less than all of the Registered Owners of the Notes then outstanding or without
the consent of any of such Registered Owners (by reason of a change in the Act
or Regulation or to cure ambiguities or conflicts), but such modification or
alteration is not permitted to affect the maturity date, Stated Maturity,
amount, Interest Payment Date, or rate of interest on any outstanding Notes or
affect the rights of the Registered Owners of less than all of the Notes
outstanding.
The Registered Owner hereof shall not have the right to demand payment of
this note or any interest hereon out of funds raised or to be raised by
taxation.
Any capitalized term used herein and not otherwise defined herein shall
have the same meaning ascribed to such term in the herein defined Indenture
unless the context shall clearly indicate otherwise.
It is hereby certified and recited that all acts and things required by the
laws of the State of Nevada to happen, exist, and be performed precedent to and
in the issuance of this note, and the passage of said resolution and the
execution of said Indenture, have happened, exist and have been performed as so
required.
A-4-6
<PAGE>
IN TESTIMONY WHEREOF, the Board of Directors of UNION FINANCIAL
SERVICES-1, INC. has caused the seal of the Issuer to be impressed or a
facsimile thereof to be printed hereon, and this note to be executed by the
President and Secretary of the Issuer all as of the Original Issue Date.
[SEAL] UNION FINANCIAL SERVICES-1, INC.
By
---------------------------------------------
Stephen F. Butterfield
President
By
---------------------------------------------
Ronald W. Page
Secretary
A-4-7
<PAGE>
CERTIFICATE OF AUTHENTICATION
This note is one of the Class 1996B-2 Notes designated therein and
described in the within-mentioned Indenture.
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
By
---------------------------------------------
Authorized Signatory
AUTHENTICATION DATE:
- --------------------------------
A-4-8
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto __________ (Social Security or other identifying number __________) the
within note and all rights thereunder and hereby irrevocably appoints
__________ attorney to transfer the within note on the books kept for
registration thereof, with full power of substitution in the premises.
DATED: SIGNED:
---------------------- ----------------------------------------
NOTICE: The signature on this Assignment must
correspond with the name of the Registered Owner
as it appears on the face of the within note in
every particular.
Signature Guaranteed by:
- ---------------------------
A Member of The New York
Stock Exchange or a State
or National Bank
(End of Form of Class 1996B-2 Note)
A-4-9
<PAGE>
EXHIBIT B-1
FORM OF SERIES 1996A INVESTMENT LETTER
March __, 1996
Union Financial Services-1, Inc.
6991 East Camelback Road, Suite B290
Scottsdale, Arizona 85251
Smith Barney Inc.
390 Greenwich Street
New York, New York 10013
Re: Taxable Student Loan Asset-Backed Notes, Series 1996A
Dear Sirs:
The undersigned (the "Purchaser") has purchased, or intends to purchase,
Taxable Student Loan Asset-Backed Notes, Series 1996A (the "Notes") with an
aggregate initial Principal Balance of $__________ issued pursuant to the
Indenture of Trust dated as of March 1, 1996 (the "Indenture"), between Union
Financial Services-1, Inc. (the "Issuer"), and Norwest Bank Minnesota, National
Association, as Trustee (the "Trustee"), relating to the above-referenced series
of Notes. Terms used and not otherwise defined herein shall have the respective
meanings ascribed to them in the Indenture.
THIS LETTER, DATED AS OF MARCH __, 1996, OR A FACSIMILE COPY HEREOF, WILL
BE DELIVERED TO THE ABOVE ADDRESSEES NO LATER THAN MARCH 8, 1996.
CERTIFICATION
The undersigned, as an authorized officer or agent of the Purchaser, hereby
certifies, represents, warrants and agrees on behalf of the Purchaser as
follows:
1. The Purchaser is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it was incorporated
and is authorized to invest
B-1-1
<PAGE>
in the Notes being purchased hereby. The person executing this letter on
behalf of the Purchaser is duly authorized to do so on the Purchaser's
behalf.
2. The Purchaser has received (a) copies of the Preliminary Private
Placement Memorandum, dated March 2, 1996, and the Private Placement
Memorandum (the latter being herein called the "Private Placement
Memorandum") relating to the Notes issued pursuant to the Indenture, and
(b) the other written information, if any, described under Schedule I
below, that has been requested by the Purchaser concerning the Indenture,
the Notes, the Seller, the Issuer, the Servicer, the Guaranty Agencies and
the Trustee. The Purchaser has reviewed and understands the material to
which reference is made in this paragraph 2 and Schedule I below, and
understands that risks are involved in an investment in the Notes. The
Purchaser represents that in making its investment decision to acquire the
Notes, the Purchaser has not relied on representations, warranties,
opinions, projections, financial or other information or analyses, if any,
supplied to it by any person, including Smith Barney Inc., as placement
agent (the "Placement Agent"), the Seller, the Issuer, the Servicer, any
Guaranty Agency, the Trustee or any of their respective affiliates, except
as expressly contained in the Private Placement Memorandum and in the other
written information, if any, described on Schedule I below.
3. The Purchaser has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Notes, and the Purchaser (or any account referred to
below) is able to bear the economic risks of such an investment.
4. The Purchaser is acquiring the Notes for its own account or for
accounts for which it exercises sole investment discretion and not with a
view to or for sale in connection with any distribution thereof, subject
nevertheless to any requirement of law that the disposition of the
Purchaser's property shall at all times be and remain within its control.
5. The Purchaser understands that the Notes have not been and will
not be registered or qualified under the Securities Act or any state
securities act or any other federal or state laws, that none of the
Placement Agent, the Seller, the Issuer, the Servicer, the Guaranty Agency
or the Trustee is required to so register the Notes, and that the Notes may
be resold only if registered pursuant to the provisions of the Securities
Act and all other applicable federal and state securities laws or if an
exemption from any requirement of registration is available.
6. The Purchaser will comply with all applicable federal and state
securities laws, rules and regulations in connection with any subsequent
resale of the Notes by the Purchaser.
7. The Purchaser understands and agrees that it may resell or
otherwise transfer all or any part of its Notes only to an institution
(A) (i) which the Purchaser
B-1-2
<PAGE>
reasonably believes is a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act) that will be purchasing such Notes
in compliance with Rule 144A for its own account or for the account of
a "qualified institutional buyer," and (ii) which is made aware that such
resale or other transfer is being made in reliance on Rule 144A, or (B)
is an Institutional Accredited Investor (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act).
8. The Purchaser acknowledges that any proposed assignee of a
beneficial ownership interest in the Notes will be deemed under the
Indenture to have made agreements and representations substantially similar
to those set forth in paragraph 8 above.
9. If the Purchaser is an Accredited Investor, the Purchaser is
(please check one):
___ (A) A bank (as defined in Section 3(a)(2) of the Securities Act
of 1933) or a savings and loan association or other
institution (as defined in Section 3(a)(5)(A) of the Act).
___ (B) A broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934.
___ (C) An insurance company (as defined in Section 2(13) of the
Act).
___ (D) An investment company registered under the Investment
Company Act of 1940.
___ (E) A business development company (as defined in Section
2(a)(48) of the Investment Company Act of 1940).
___ (F) A Small Business Investment Company licensed by the U.S.
Small Business Administration under Section 301(c) or (d) of
the Small Business Investment Act of 1958.
___ (G) A plan established and maintained by a state, its political
subdivision, or any agency or instrumentality of a state or
its political subdivisions, for the benefit of its
employees, if such plan has total assets in excess of
$5,000,000.
___ (H) An employee benefit plan within the meaning of Title I of
the Employee Retirement Income Security Act of 1974
("ERISA") whose investment decision to purchase the Shares
is made by a plan fiduciary, as defined in Section 3(21) of
ERISA, that is either a bank, a savings and loan
association, an insurance company, or a registered
investment advisor.
B-1-3
<PAGE>
___ (I) An employee benefit plan within the meaning of Title I of
ERISA with total assets in excess of $5,000,000.
___ (J) A self-directed employee benefit plan within the meaning of
Title I of ERISA whose investment decisions are made solely
by persons that are accredited investors as that term is
defined in Regulation D as promulgated by the Securities and
Exchange Commission.
___ (K) A private business development company (as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940).
___ (L) An organization described in Section 501(c)(3) of the
Internal Revenue Code (tax exempt organization),
corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of
acquiring the Shares, having total assets in excess of
$5,000,000.
___ (M) The undersigned is a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring
the Shares, if the purchase of the Shares is directed by a
person who either alone or with his purchaser
representative(s), has such knowledge and experience in
financial and business matters that he is capable of
evaluating the merits and risks of an investment in the
Shares.
___ (N) The undersigned is an entity, all the equity owners of which
are "accredited investors" within one or more of the above
categories. NOTE: An irrevocable trust cannot qualify under
this category. The equity owners of a revocable trust are
its grantors. IF RELYING UPON THIS CATEGORY ALONE, EACH
EQUITY OWNER MUST COMPLETE A SEPARATE COPY OF THIS
TRANSFEREE'S AGREEMENT.
10. The Purchaser understands that each of the Purchaser's Notes
will bear a legend restricting transfer of the Notes.
B-1-4
<PAGE>
11. Attached hereto as Schedule A specifying the payment and
notice instructions with respect to the Purchaser.
Very truly yours,
--------------------------------------
By
------------------------------------
Name:
--------------------------------
Title:
--------------------------------
B-1-5
<PAGE>
SCHEDULE I
Description of other written information that has been requested by the
Purchaser:
None, unless otherwise indicated below.
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
Very truly yours,
------------------------------------------
[Printed Name of Purchaser]
By:
---------------------------------------
Title:
------------------------------------
Address of Purchaser:
------------------------------------------
------------------------------------------
------------------------------------------
B-1-6
<PAGE>
EXHIBIT B-2
FORM OF SERIES 1996B INVESTMENT LETTER
June __, 1996
Union Financial Services-1, Inc.
6991 East Camelback Road, Suite B290
Scottsdale, Arizona 85251
Smith Barney Inc.
390 Greenwich Street
New York, New York 10013
Norwest Bank Minnesota, National Association
Minneapolis, Minnesota
Re: Taxable Student Loan Asset-Backed Notes, Series 1996B
Dear Sirs:
The undersigned (the "Purchaser") has purchased, or intends to purchase,
Taxable Student Loan Asset-Backed Notes, Series 1996B (the "Notes") with an
aggregate initial Principal Balance of $__________ issued pursuant to the
Amended and Restated Indenture of Trust dated as of June 15, 1996 (the
"Indenture"), between Union Financial Services-1, Inc. (the "Issuer"), and
Norwest Bank Minnesota, National Association, as Trustee (the "Trustee"),
relating to the above-referenced series of Notes. Terms used and not otherwise
defined herein shall have the respective meanings ascribed to them in the
Indenture.
THIS LETTER, DATED AS OF JUNE __, 1996, OR A FACSIMILE COPY HEREOF, WILL BE
DELIVERED TO THE ABOVE ADDRESSEES NO LATER THAN JUNE __, 1996.
CERTIFICATION
The undersigned, as an authorized officer or agent of the Purchaser, hereby
certifies, represents, warrants and agrees on behalf of the Purchaser as
follows:
B-2-1
<PAGE>
1. The Purchaser is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it was incorporated
and is authorized to invest in the Notes being purchased hereby. The
person executing this letter on behalf of the Purchaser is duly authorized
to do so on the Purchaser's behalf.
2. The Purchaser has received (a) copies of the Preliminary Private
Placement Memorandum, dated June 12, 1996, and the Private Placement
Memorandum (the latter being herein called the "Private Placement
Memorandum") relating to the Notes issued pursuant to the Indenture, and
(b) the other written information, if any, described under Schedule I
below, that has been requested by the Purchaser concerning the Indenture,
the Notes, the Seller, the Issuer, the Servicer, the Guaranty Agency and
the Trustee. The Purchaser has reviewed and understands the material to
which reference is made in this paragraph 2 and Schedule I below, and
understands that risks are involved in an investment in the Notes. The
Purchaser represents that in making its investment decision to acquire the
Notes, the Purchaser has not relied on representations, warranties,
opinions, projections, financial or other information or analyses, if any,
supplied to it by any person, including Smith Barney Inc., as placement
agent (collectively, the "Placement Agent"), the Seller, the Issuer, the
Servicer, the Guaranty Agency, the Trustee or any of their respective
affiliates, except as expressly contained in the Private Placement
Memorandum and in the other written information, if any, described on
Schedule I below.
3. The Purchaser has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Notes, and the Purchaser (or any account referred to
below) is able to bear the economic risks of such an investment.
4. The Purchaser is acquiring the Notes for its own account or for
accounts for which it exercises sole investment discretion and not with a
view to or for sale in connection with any distribution thereof, subject
nevertheless to any requirement of law that the disposition of the
Purchaser's property shall at all times be and remain within its control.
5. The Purchaser understands that the Notes have not been and will
not be registered or qualified under the Securities Act or any state
securities act or any other federal or state laws, that none of the
Placement Agent, the Seller, the Issuer, the Servicer, the Guaranty Agency
or the Trustee is required to so register the Notes, and that the Notes may
be resold only if registered pursuant to the provisions of the Securities
Act and all other applicable federal and state securities laws or if an
exemption from any requirement of registration is available.
6. The Purchaser will comply with all applicable federal and state
securities laws, rules and regulations in connection with any subsequent
resale of the Notes by the Purchaser.
B-2-2
<PAGE>
7. The Purchaser understands and agrees that it may resell or
otherwise transfer all or any part of its Notes only to an institution
(A) (i) which the Purchaser reasonably believes is a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act)
that will be purchasing such Notes in compliance with Rule 144A for its own
account or for the account of a "qualified institutional buyer," and
(ii) which is made aware that such resale or other transfer is being made
in reliance on Rule 144A or (B) is an Institutional Accredited Investor (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), and
who in either case delivers to the Trustee, the Issuer and Smith Barney
Inc. an executed Investment Letter.
8. The Purchaser acknowledges that any proposed assignee of a
beneficial ownership interest in the Notes will be deemed under the
Indenture to have made agreements and representations substantially similar
to those set forth in paragraph 8 above.
9. If the Purchaser is an Accredited Investor, the Purchaser is
(please check one):
(A) A bank (as defined in Section 3(a)(2) of the Securities Act
- --- of 1933) or a savings and loan association or other
institution (as defined in Section 3(a)(5)(A) of the Act).
(B) A broker or dealer registered pursuant to Section 15 of the
- --- Securities Exchange Act of 1934.
(C) An insurance company (as defined in Section 2(13) of the
- --- Act).
(D) An investment company registered under the Investment
- --- Company Act of 1940.
(E) A business development company (as defined in Section
- --- 2(a)(48) of the Investment Company Act of 1940).
(F) A Small Business Investment Company licensed by the U.S.
- --- Small Business Administration under Section 301(c) or (d) of
the Small Business Investment Act of 1958.
(G) A plan established and maintained by a state, its political
- --- subdivision, or any agency or instrumentality of a state or
its political subdivisions, for the benefit of its
employees, if such plan has total assets in excess of
$5,000,000.
(H) An employee benefit plan within the meaning of Title I of
- --- the Employee Retirement Income Security Act of 1974
("ERISA") whose investment
B-2-3
<PAGE>
decision to purchase the Shares is made by a plan fiduciary,
as defined in Section 3(21) of ERISA, that is either a bank,
a savings and loan association, an insurance company, or a
registered investment advisor.
(I) An employee benefit plan within the meaning of Title I of
- --- ERISA with total assets in excess of $5,000,000.
(J) A self-directed employee benefit plan within the meaning of
- --- Title I of ERISA whose investment decisions are made solely
by persons that are accredited investors as that term is
defined in Regulation D as promulgated by the Securities and
Exchange Commission.
(K) A private business development company (as defined in
- --- Section 202(a)(22) of the Investment Advisers Act of 1940).
(L) An organization described in Section 501(c)(3) of the
- --- Internal Revenue Code (tax exempt organization),
corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of
acquiring the Shares, having total assets in excess of
$5,000,000.
(M) The undersigned is a trust, with total assets in excess of
- --- $5,000,000, not formed for the specific purpose of acquiring
the Shares, if the purchase of the Shares is directed by a
person who either alone or with his purchaser
representative(s), has such knowledge and experience in
financial and business matters that he is capable of
evaluating the merits and risks of an investment in the
Shares.
(N) The undersigned is an entity, all the equity owners of which
- --- are "accredited investors" within one or more of the above
categories. NOTE: An irrevocable trust cannot qualify under
this category. The equity owners of a revocable trust are
its grantors. IF RELYING UPON THIS CATEGORY ALONE, EACH
EQUITY OWNER MUST COMPLETE A SEPARATE COPY OF THIS
TRANSFEREE'S AGREEMENT.
10. The Purchaser understands that each of the Purchaser's Notes will
bear a legend restricting transfer of the Notes.
B-2-4
<PAGE>
11. Attached hereto as Schedule A specifying the payment and notice
instructions with respect to the Purchaser.
Very truly yours,
----------------------------------------
By
--------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
B-2-5
<PAGE>
SCHEDULE I
Description of other written information that has been requested by the
Purchaser:
None, unless otherwise indicated below.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Very truly yours,
-------------------------------------------
[Printed Name of Purchaser]
By:
----------------------------------------
Title:
-------------------------------------
Address of Purchaser:
-------------------------------------------
-------------------------------------------
-------------------------------------------
B-2-6
<PAGE>
EXHIBIT C-1
FORM OF SERIES 1996A TRANSFEREE AGREEMENT
(Date)
Norwest Bank Minnesota, National Association
Norwest Center
6th and Market
Minneapolis, MN 55479-0069
Attention: Corporate Trust Department
Ladies and Gentlemen:
The undersigned (the "Purchaser") proposes to purchase Notes (the
"Purchaser's Notes") representing $_______________ original aggregate principal
amount of the $107,700,000 Taxable Student Loan Asset-Backed Notes, Series 1996
("Notes") of Union Financial Services-1, Inc., a Nevada corporation (the
"Issuer"). The Notes were issued pursuant to an Indenture of Trust dated as of
March 1, 1996 between the Issuer and Norwest Bank Minnesota, National
Association, as trustee for the Registered Owners (the "Trustee") (the
"Indenture"). Capitalized terms used herein but not otherwise defined shall
have the same meaning as in the Indenture.
In connection with the purchase, the Purchaser agrees to the following
terms and conditions and makes the representations and warranties stated herein
with the express understanding that they will be relied upon by the seller of
the Purchaser's Notes, the Issuer and the Trustee.
1. The Purchaser is purchasing the Purchaser's Notes solely for the
Purchaser's own account and the account of its affiliated entities and with no
present intention of distributing the Notes or any portion thereof, subject,
nevertheless, to the understanding that the disposition of the Purchaser's
property shall at all times be and remain within its control.
2. The Purchaser is either:
(A) a Qualified Institutional Buyer as follows (please check one):
C-1-1
<PAGE>
_____ (a) Any of the following entities, acting for its own account or
the accounts of other qualified institutional buyers, that in the aggregate
owns and invests on a discretionary basis at least $100 million in
securities of issuers that are not affiliated with the entity (PLEASE CHECK
ONE):
_____(i) Any insurance company as defined in Section 2(13) of the
Securities Act;
_____(ii) Any investment company registered under the Investment
Company Act of 1940 (the "Investment Company Act") or any business
development company as defined in Section 2(A)(48) of that Act;
_____(iii) Any Small Business Investment Company licensed by the U.S.
Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958;
_____(iv) Any plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state or
its political subdivisions, for the benefit of its employees;
_____(v) Any employee benefit plan within the meaning of Title I of
the Employee Retirement Income Security Act of 1974;
_____(vi) Any business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
_____(vii) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation (other than a bank as defined in
Section 3(a)(2) of the Act or a savings and loan association or other
institution referenced in Section 3(a)(5)(A) of the Act or a foreign
bank or savings and loan association or equivalent institution),
partnership, or Massachusetts or similar business trust; or
_____(viii) Any investment adviser registered under the Investment
Advisers Act; or
(B) an Institutional Accredited Investor as follows (please check one):
_____(i) A bank (as defined in Section 3(a)(2) of the Securities Act
of 1933) or a savings and loan association or other institution (as
defined in Section 3(a)(5)(A) of the Act).
_____(ii) A broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934.
C-1-2
<PAGE>
_____(iii) An insurance company (as defined in Section 2(13) of the
Act).
_____(iv) An investment company registered under the Investment
Company Act of 1940.
_____(v) A business development company (as defined in Section
2(a)(48) of the Investment Company Act of 1940).
_____(vi) A Small Business Investment Company licensed by the U.S.
Small Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958.
_____(vii) A plan established and maintained by a state, its
political subdivision, or any agency or instrumentality of a state
or its political subdivisions, for the benefit of its employees, if
such plan has total assets in excess of $5,000,000.
_____(viii) An employee benefit plan within the meaning of Title I of
the Employee Retirement Income Security Act of 1974 ("ERISA") whose
investment decision to purchase the Shares is made by a plan
fiduciary, as defined in Section 3(21) of ERISA, that is either a
bank, a savings and loan association, an insurance company, or a
registered investment advisor.
_____(ix) An employee benefit plan within the meaning of Title I of
ERISA with total assets in excess of $5,000,000.
_____(x) A self-directed employee benefit plan within the meaning of
Title I of ERISA whose investment decisions are made solely by persons
that are accredited investors as that term is defined in Regulation D
as promulgated by the Securities and Exchange Commission.
_____(xi) A private business development company (as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940).
_____(xii) An organization described in Section 501(c)(3) of the
Internal Revenue Code (tax exempt organization), corporation,
Massachusetts or similar business trust, or partnership, not formed
for the specific purpose of acquiring the Shares, having total assets
in excess of $5,000,000.
_____(xiii) The undersigned is a trust, with total assets in excess
of $5,000,000, not formed for the specific purpose of acquiring the
Shares, if the purchase of the Shares is directed by a person who
either alone or with his purchaser representative(s), has such
knowledge and experience in financial and
C-1-3
<PAGE>
business matters that he is capable of evaluating the merits and
risks of an investment in the Shares.
_____(xiv) The undersigned is an entity, all the equity owners of
which are "accredited investors" within one or more of the above
categories. NOTE: An irrevocable trust cannot qualify under this
category. The equity owners of a revocable trust are its grantors.
IF RELYING UPON THIS CATEGORY ALONE, EACH EQUITY OWNER MUST
COMPLETE A SEPARATE COPY OF THIS TRANSFEREE'S AGREEMENT.
_____ (b) Any investment company registered under the Investment
Company Act, acting for its own account or for the accounts of other
qualified institutional buyers, that is part of a family of investment
companies which own in the aggregate at least $100 million in securities of
issuers, other than issuers that are affiliated with the investment company
or are part of such family of investment companies. "Family of investment
companies" means any two or more investment companies registered under the
Investment Company Act, except for a unit investment trust whose assets
consist solely of shares of one or more registered investment companies,
that have the same investment adviser (or, in the case of unit investment
trusts, the same depositor), provided that, for the purposes of this
section:
(i) Each series of a series company (as defined in Rule 18f-2
under the Investment Company Act) shall be deemed to be a separate
investment company; and
(ii) Investment companies shall be deemed to have the same
adviser (or depositor) if their advisers (or depositors) are
majority-owned subsidiaries of the same parent, or if one investment
company's adviser (or depositor) is a majority-owned subsidiary of the
other investment company's adviser (or depositor);
_____ (c) Any entity, all of the equity owners of which are qualified
institutional buyers, acting for its own account or the accounts of other
qualified institutional buyers;
_____ (d) Any bank as defined in section 3(a)(2) of the Securities
Act, any savings and loan association or other institution as referenced in
section 3(a)(5)(A) of the Act, or any foreign bank or savings and loan
association or equivalent institution, acting for its own account or the
accounts of other qualified institutional buyers, that in the aggregate
owns and invests on a discretionary basis at least $100 million in
securities of issuers that are not affiliated with it and that has an
audited net worth of at least $25 million as demonstrated in its latest
annual financial statements, as of a date not more than 16 months preceding
the date of sale under the Rule in the case of a U.S. bank or savings and
loan association, and not more than 18 months preceding such date of sale
for a foreign bank or savings and loan association or for a equivalent
institution;
C-1-4
<PAGE>
_____ (e) Any dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), acting
for its own account or the accounts of other qualified institutional
buyers, that in the aggregate owns and invests on a discretionary basis at
least $10 million of securities of issuers that are not affiliated with the
dealer; provided, that securities constituting the whole or a part of an
unsold allotment to or subscription by a dealer as a participant in a
public offering shall not be deemed to be owned by such dealer; and
_____ (f) Any dealer registered pursuant to Section 15 of the Exchange
Act acting in a riskless principal transaction on behalf of a Qualified
Institutional Buyer.
3. The Purchaser understands that the Issuer, any person acting on its
behalf and the seller of the Purchaser's Notes shall be entitled to rely upon
certain non-exclusive methods of establishing the Purchaser's ownership and
discretionary investments of securities as stated in Rule 144A promulgated under
the Securities Act of 1933, as amended ("Rule 144A").
4. The Purchaser represents that, if it has so requested, it has received
the following reasonably current information: a brief statement of the nature of
the business of the Issuer and the products and services it offers; the Issuer's
most recent balance sheet and profit and loss and retained earnings statement,
and similar financial statements for such part of the two preceding fiscal years
as the Issuer has been in operation; and Servicer Statements of payments on the
Notes on each Payment Date or for a shorter period as may be requested by the
Purchaser.
5. The Purchaser understands that the Purchaser's Notes have not been
registered under the Securities Act or any state securities or "Blue Sky" laws
and are being sold in reliance on exemptions from the registration requirements
of the Securities Act and any such laws for nonpublic offerings. The Purchaser
understands that the exemptions from the registration requirements under state
securities laws upon which the Issuer is relying require that the Purchaser be
one of the types of investors specified in paragraph 2 above under the
applicable state securities law and the Purchaser is such an investor. The
Purchaser further understands that the Purchaser's Notes must be held
indefinitely unless subsequently registered under the Securities Act, any
applicable state securities or "Blue Sky" laws or unless exemptions from the
registration requirements of the Securities Act (particularly, Rule 144A) and
such laws are available. If at some future time the Purchaser wishes to dispose
of or exchange any of the Purchaser's Notes, the Purchaser will not do so unless
before any such sale, transfer or other disposition the Purchaser has furnished
to the Issuer and the Trustee an express agreement substantially in the form of
this Transferee's Agreement by the proposed transferee to be bound by and to
abide by the provisions of the Indenture, the restrictions noted on the face of
the Purchaser's Notes and the Transferee's Agreement.
6. The Purchaser understands that each of the Purchaser's Notes will bear
a legend restricting transfer of the Notes.
C-1-5
<PAGE>
7. The Purchaser understands that there may be restrictions on the
ability of certain investors, including, without limitation, depository
institutions, either to purchase the Purchaser's Notes or to purchase
investments having characteristics similar to those of the Purchaser's Notes
representing more than a specified percentage of the investor's assets. The
Purchaser has consulted, and relied on the advice of, the Purchaser's own legal
advisor in determining whether and to what extent the Purchaser's Notes
constitute a legal investment for the Purchaser.
8. The Purchaser recognizes that an investment in the Purchaser's Notes
involves significant risks.
9. The Purchaser understands that there is no established market for the
Purchaser's Notes and that none will develop and, accordingly, that the
Purchaser must bear the economic risk of an investment in the Purchaser's Notes
for an indefinite period of time unless the Notes are sold to a Qualified
Institutional Buyer of the type specified in Paragraph 2 above.
10. The Purchaser agrees that the Purchaser is bound by and will abide by
the provisions of the Indenture, the restrictions noted on the face of the
Purchaser's Notes and this Transferee's Agreement.
Very truly yours,
----------------------------------------
By
--------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
C-1-6
<PAGE>
EXHIBIT C-2
FORM OF SERIES 1996B TRANSFEREE AGREEMENT
(Date)
Norwest Bank Minnesota, National Association
Norwest Center
6th and Market
Minneapolis, MN 55479-0069
Attention: Corporate Trust Department
Ladies and Gentlemen:
The undersigned (the "Purchaser") proposes to purchase Notes (the
"Purchaser's Notes") representing $_______________ original aggregate principal
amount of the $142,200,000 Taxable Student Loan Asset-Backed Notes, Series 1996B
("Notes") of Union Financial Services-1, Inc., a Nevada corporation (the
"Issuer"). The Notes were issued pursuant to an Amended and Restated Indenture
of Trust dated as of June 15, 1996 between the Issuer and Norwest Bank
Minnesota, National Association, as trustee for the Registered Owners (the
"Trustee") (the "Indenture"). Capitalized terms used herein but not otherwise
defined shall have the same meaning as in the Indenture.
In connection with the purchase, the Purchaser agrees to the following
terms and conditions and makes the representations and warranties stated herein
with the express understanding that they will be relied upon by the seller of
the Purchaser's Notes, the Issuer and the Trustee.
1. The Purchaser is purchasing the Purchaser's Notes solely for the
Purchaser's own account and the account of its affiliated entities and with no
present intention of distributing the Notes or any portion thereof, subject,
nevertheless, to the understanding that the disposition of the Purchaser's
property shall at all times be and remain within its control.
2. The Purchaser is either:
(A) a Qualified Institutional Buyer as follows (please check one):
C-2-1
<PAGE>
_____ (a) Any of the following entities, acting for its own account or
the accounts of other qualified institutional buyers, that in the aggregate
owns and invests on a discretionary basis at least $100 million in
securities of issuers that are not affiliated with the entity (PLEASE CHECK
ONE):
_____(i) Any insurance company as defined in Section 2(13) of the
Securities Act;
_____(ii) Any investment company registered under the Investment
Company Act of 1940 (the "Investment Company Act") or any business
development company as defined in Section 2(A)(48) of that Act;
_____(iii) Any Small Business Investment Company licensed by the U.S.
Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958;
_____(iv) Any plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state or
its political subdivisions, for the benefit of its employees;
_____(v) Any employee benefit plan within the meaning of Title I of
the Employee Retirement Income Security Act of 1974;
_____(vi) Any business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
_____(vii) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation (other than a bank as defined in
Section 3(a)(2) of the Act or a savings and loan association or other
institution referenced in Section 3(a)(5)(A) of the Act or a foreign
bank or savings and loan association or equivalent institution),
partnership, or Massachusetts or similar business trust; or
_____(viii) Any investment adviser registered under the Investment
Advisers Act; or
(B) an Institutional Accredited Investor as follows (please check one):
_____(i) A bank (as defined in Section 3(a)(2) of the Securities Act
of 1933) or a savings and loan association or other institution (as
defined in Section 3(a)(5)(A) of the Act).
_____(ii) A broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934.
C-2-2
<PAGE>
_____(iii) An insurance company (as defined in Section 2(13) of the
Act).
_____(iv) An investment company registered under the Investment
Company Act of 1940.
_____(v) A business development company (as defined in Section
2(a)(48) of the Investment Company Act of 1940).
_____(vi) A Small Business Investment Company licensed by the U.S.
Small Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958.
_____(vii) A plan established and maintained by a state, its political
subdivision, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, if such plan
has total assets in excess of $5,000,000.
_____(viii) An employee benefit plan within the meaning of Title I of
the Employee Retirement Income Security Act of 1974 ("ERISA") whose
investment decision to purchase the Shares is made by a plan
fiduciary, as defined in Section 3(21) of ERISA, that is either a
bank, a savings and loan association, an insurance company, or a
registered investment advisor.
_____(ix) An employee benefit plan within the meaning of Title I of
ERISA with total assets in excess of $5,000,000.
_____(x) A self-directed employee benefit plan within the meaning of
Title I of ERISA whose investment decisions are made solely by persons
that are accredited investors as that term is defined in Regulation D
as promulgated by the Securities and Exchange Commission.
_____(xi) A private business development company (as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940).
_____(xii) An organization described in Section 501(c)(3) of the
Internal Revenue Code (tax exempt organization), corporation,
Massachusetts or similar business trust, or partnership, not formed
for the specific purpose of acquiring the Shares, having total assets
in excess of $5,000,000.
_____(xiii) The undersigned is a trust, with total assets in excess
of $5,000,000, not formed for the specific purpose of acquiring the
Shares, if the purchase of the Shares is directed by a person who
either alone or with his purchaser representative(s), has such
knowledge and experience in financial and
C-2-3
<PAGE>
business matters that he is capable of evaluating the merits and risks
of an investment in the Shares.
_____(xiv) The undersigned is an entity, all the equity owners of
which are "accredited investors" within one or more of the above
categories. NOTE: An irrevocable trust cannot qualify under this
category. The equity owners of a revocable trust are its grantors.
IF RELYING UPON THIS CATEGORY ALONE, EACH EQUITY OWNER MUST COMPLETE
A SEPARATE COPY OF THIS TRANSFEREE'S AGREEMENT.
_____ (b) Any investment company registered under the Investment
Company Act, acting for its own account or for the accounts of other
qualified institutional buyers, that is part of a family of investment
companies which own in the aggregate at least $100 million in securities of
issuers, other than issuers that are affiliated with the investment company
or are part of such family of investment companies. "Family of investment
companies" means any two or more investment companies registered under the
Investment Company Act, except for a unit investment trust whose assets
consist solely of shares of one or more registered investment companies,
that have the same investment adviser (or, in the case of unit investment
trusts, the same depositor), provided that, for the purposes of this
section:
(i) Each series of a series company (as defined in Rule 18f-2
under the Investment Company Act) shall be deemed to be a separate
investment company; and
(ii) Investment companies shall be deemed to have the same
adviser (or depositor) if their advisers (or depositors) are
majority-owned subsidiaries of the same parent, or if one investment
company's adviser (or depositor) is a majority-owned subsidiary of the
other investment company's adviser (or depositor);
_____ (c) Any entity, all of the equity owners of which are qualified
institutional buyers, acting for its own account or the accounts of other
qualified institutional buyers;
_____ (d) Any bank as defined in section 3(a)(2) of the Securities
Act, any savings and loan association or other institution as referenced in
section 3(a)(5)(A) of the Act, or any foreign bank or savings and loan
association or equivalent institution, acting for its own account or the
accounts of other qualified institutional buyers, that in the aggregate
owns and invests on a discretionary basis at least $100 million in
securities of issuers that are not affiliated with it and that has an
audited net worth of at least $25 million as demonstrated in its latest
annual financial statements, as of a date not more than 16 months preceding
the date of sale under the Rule in the case of a U.S. bank or savings and
loan association, and not more than 18 months preceding such date of sale
for a foreign bank or savings and loan association or for a equivalent
institution;
C-2-4
<PAGE>
_____ (e) Any dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), acting
for its own account or the accounts of other qualified institutional
buyers, that in the aggregate owns and invests on a discretionary basis at
least $10 million of securities of issuers that are not affiliated with the
dealer; provided, that securities constituting the whole or a part of an
unsold allotment to or subscription by a dealer as a participant in a
public offering shall not be deemed to be owned by such dealer; and
_____ (f) Any dealer registered pursuant to Section 15 of the Exchange
Act acting in a riskless principal transaction on behalf of a Qualified
Institutional Buyer.
3. The Purchaser understands that the Issuer, any person acting on its
behalf and the seller of the Purchaser's Notes shall be entitled to rely upon
certain non-exclusive methods of establishing the Purchaser's ownership and
discretionary investments of securities as stated in Rule 144A promulgated under
the Securities Act of 1933, as amended ("Rule 144A").
4. The Purchaser represents that, if it has so requested, it has received
the following reasonably current information: a brief statement of the nature of
the business of the Issuer and the products and services it offers; the Issuer's
most recent balance sheet and profit and loss and retained earnings statement,
and similar financial statements for such part of the two preceding fiscal years
as the Issuer has been in operation; and Servicer Statements of payments on the
Notes on each Payment Date or for a shorter period as may be requested by the
Purchaser.
5. The Purchaser understands that the Purchaser's Notes have not been
registered under the Securities Act or any state securities or "Blue Sky" laws
and are being sold in reliance on exemptions from the registration requirements
of the Securities Act and any such laws for nonpublic offerings. The Purchaser
understands that the exemptions from the registration requirements under state
securities laws upon which the Issuer is relying require that the Purchaser be
one of the types of investors specified in paragraph 2 above under the
applicable state securities law and the Purchaser is such an investor. The
Purchaser further understands that the Purchaser's Notes must be held
indefinitely unless subsequently registered under the Securities Act, any
applicable state securities or "Blue Sky" laws or unless exemptions from the
registration requirements of the Securities Act (particularly, Rule 144A) and
such laws are available. If at some future time the Purchaser wishes to dispose
of or exchange any of the Purchaser's Notes, the Purchaser will not do so unless
before any such sale, transfer or other disposition the Purchaser has furnished
to the Issuer and the Trustee an express agreement substantially in the form of
this Transferee's Agreement by the proposed transferee to be bound by and to
abide by the provisions of the Indenture, the restrictions noted on the face of
the Purchaser's Notes and the Transferee's Agreement.
6. The Purchaser understands that each of the Purchaser's Notes will bear
a legend restricting transfer of the Notes.
C-2-5
<PAGE>
7. The Purchaser understands that there may be restrictions on the
ability of certain investors, including, without limitation, depository
institutions, either to purchase the Purchaser's Notes or to purchase
investments having characteristics similar to those of the Purchaser's Notes
representing more than a specified percentage of the investor's assets. The
Purchaser has consulted, and relied on the advice of, the Purchaser's own legal
advisor in determining whether and to what extent the Purchaser's Notes
constitute a legal investment for the Purchaser.
8. The Purchaser recognizes that an investment in the Purchaser's Notes
involves significant risks.
9. The Purchaser understands that there is no established market for the
Purchaser's Notes and that none will develop and, accordingly, that the
Purchaser must bear the economic risk of an investment in the Purchaser's Notes
for an indefinite period of time unless the Notes are sold to a Qualified
Institutional Buyer of the type specified in Paragraph 2 above.
10. The Purchaser agrees that the Purchaser is bound by and will abide by
the provisions of the Indenture, the restrictions noted on the face of the
Purchaser's Notes and this Transferee's Agreement.
Very truly yours,
-----------------------------------------------
By
---------------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
C-2-6
<PAGE>
EXHIBIT C-3
FORM OF MASTER PURCHASER'S LETTER
TO BE SUBMITTED TO YOUR BROKER-DEALER
Relating to Securities Involving Rate Settings
Through Auctions or Remarketings
To: The Company
Remarketing Agent
The Trust Company
A Broker-Dealer
An Agent Member
Other Persons
Dear Sirs:
1. This letter is designed to apply to publicly or privately offered debt
or equity securities ("Securities") of any issuer (the "Company") which are
described in any final prospectus, private placement memorandum, offering
circular or other offering materials relating to such Securities as the same may
be amended or supplemented (collectively, with respect to the particular
Securities concerned, the "Prospectus") and which involve periodic rate auctions
("Auctions") or remarketing procedures ("Remarketing"). This letter shall be
for the benefit of the Company and of any trust company, auction agent, paying
agent (collectively, "trust company"), remarketing agent, broker-dealer, agent
member, securities depository or other interested person in connection with any
Securities and related Auctions or Remarketings (it being understood that such
persons may be required to execute specified agreements and nothing herein shall
alter such requirements). The terminology used herein is intended to be general
in its application and not to exclude any Securities in respect of which (in the
Prospectus or otherwise) alternative terminology is used.
2. We may from time to time offer to purchase, purchase, offer to sell
and/or sell Securities of the Company as described in the Prospectus relating
thereto. We agree that this letter shall apply to all such purchases, sales and
offers and to Securities owned by us. We understand that the dividend/interest
rate on Securities may be based from time to time on the results of Auctions or
Remarketings as set forth in the Prospectus.
3. We agree that any bid or sell order placed by us in an Auction or a
Remarketing shall constitute an irrevocable offer (except as otherwise
described in the Prospectus) by us to purchase or sell the Securities subject
to such bid or sell order, or such lesser amount of Securities as we shall be
required to sell or purchase as a result of such Auction or Remarketing, at
the applicable price, all as set forth in the Prospectus, and that if we fail
to place a bid or sell
C-3-1
<PAGE>
order with respect to Securities owned by us with a broker-dealer on any
Auction or Remarketing date, or a broker-dealer to which we communicate a bid
or sell order fails to submit such bid or sell order to the trust company or
remarketing agent concerned, we shall be deemed to have placed a hold order
with respect to such Securities as described in the Prospectus. We authorize
any broker-dealer that submits a bid or sell order as our agent in Auctions
or Remarketings to execute contracts for the sale of Securities covered by
such bid or sell order. We recognize that the payment by such broker-dealer
with respect to Securities purchased on our behalf shall not relieve us of
any liability to such broker-dealer for payment for such Securities.
4. We understand that in a Remarketing, the dividend or interest rate or
rates on the Securities and the allocation of Securities tendered for sale
between dividend or interest periods of different lengths will be based from
time to time on the determinations of one or more remarketing agent(s), and we
agree to be conclusively bound by such determinations. We further agree to the
payment of different dividend or interest rates to different holders of
Securities depending on the length of the dividend or interest period elected by
such holders. We agree that any notice given by us to a remarketing agent (or
to a broker-dealer for transmission to a remarketing agent) of our desire to
tender Securities in a Remarketing shall constitute an irrevocable (except to
the limited extent set forth in the Prospectus) offer by us to sell the
Securities specified in such notice, or such lesser number of Securities as we
shall be required to sell as a result of such Remarketing, in accordance with
the terms set forth in the Prospectus, and we authorize the remarketing agent to
sell, transfer or otherwise dispose of such Securities as set forth in the
Prospectus.
5. We agree that, during the applicable period as described in the
Prospectus, dispositions of Securities can be made only in the denominations set
forth in the Prospectus and we will sell, transfer or otherwise dispose of any
Securities held by us from time to time only pursuant to a bid or sell order
placed in an Auction, in a Remarketing, to or through a broker-dealer or, when
permitted in the Prospectus, to a person that has signed and delivered to the
applicable trust company or remarketing agent a letter substantially in the form
of this letter (or other applicable purchaser's letter), provided that in the
case of all transfers, other than pursuant to Auctions, the form of this letter
(or other applicable purchaser's letter), provided that in the case of all
transfers other than pursuant to Auctions or Remarketings we or our broker-
dealer or our agent member shall advise such trust company or remarketing agent
of such transfer. We understand that a restrictive legend will be placed on
certificates representing the Securities and stop-transfer instructions will be
issued to the transfer agent and/or registrar, all as set forth in the
Prospectus.
6. We agree that, during the applicable period as described in the
Prospectus, ownership of Securities shall be represented by one or more global
certificates registered in the name of the applicable securities depository or
its nominee, that we will not be entitled to receive any certificate
representing the Securities and that our ownership of any Securities will be
maintained in book-entry form by the securities depository for the account of
our agent member, which in turn will maintain records of our beneficial
ownership. We authorize and
C-3-2
<PAGE>
instruct our agent member to disclose to the applicable trust company or
remarketing agent such information concerning our beneficial ownership of
Securities as such trust company shall request.
7. We acknowledge that partial deliveries of Securities purchased in
Auctions or Remarketings may be made to us and such deliveries shall constitute
good delivery as set forth in the Prospectus.
8. This letter is not a commitment by us to purchase any Securities.
9. This letter supersedes any prior-dated version of this master
purchaser's letter, and supplements any prior or postdated purchaser's letter
specific to any particular Securities, and this letter may only be revoked by a
signed writing delivered to the original recipients hereof.
10. The descriptions of Auction or Remarketing Procedures set forth in
each applicable Prospectus are incorporated by reference herein and in case of
any conflict between this letter, any purchaser's letter specific to particular
Securities and any such description, such description shall control.
11. Any xerographic or other copy of this letter shall be deemed of equal
effect as a signed original.
12. In the case of each offer to purchase, purchase, offer to sell or sale
by us of Securities not registered under the Securities Act of 1933, as amended
(the "Securities Act"), we represent and agree as follows:
(a) We understand and expressly acknowledge that the Securities have
not been and will not be registered under the Securities Act and,
accordingly, that the Securities may not be reoffered, resold or otherwise
pledged, hypothecated or transferred unless an applicable exemption from
the registration requirements of the Securities Act is available.
(b) We hereby confirm that any purchase of Securities made by us will
be for our own account, or for the account of one or more parties for which
we are acting as trustee or agent with complete investment discretion and
with authority to bind such parties, and not with a view to any public
resale or distribution thereof. We and each other party for which we are
acting which will acquire Securities will be "accredited investors" within
the meaning of Regulation D under the Securities Act with respect to the
Securities to be purchased by us or such party, as the case may be, will
have previously invested in similar types of instruments and will be able
and prepared to bear the economic risk of investing in and holding such
Securities.
C-3-3
<PAGE>
(c) We acknowledge that prior to purchasing any Securities we have
had access to such financial and other information as we deem necessary in
connection with our decision to purchase Securities.
(d) We recognize that the Company and broker-dealers or remarketing
agents will rely upon the truth and accuracy of the foregoing investment
representations and agreements, and we agree that each of our purchases of
Securities now or in the future shall be deemed to constitute our
concurrence in, and affirmation of, all of the foregoing, which shall be
binding on us and each party for which we are acting as set forth in
subparagraph (b) above.
Date:
--------------------- -----------------------------------------------
(Name of Institution, if applicable)
By
---------------------------------------------
Print Name:
------------------------------------
Title:
-----------------------------------------
SMITH BARNEY
Account Number
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
C-3-4
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
Norwest Bank Minnesota, National Association,
as the Trustee under the
Indenture identified below
Minneapolis, Minnesota
This Compliance Certificate is submitted pursuant to the provisions of
Section 5.02 of the Amended and Restated Indenture of Trust, dated as of
June 15, 1996 (the "Indenture"), by and between Union Financial Services-1, Inc.
(the "Issuer") and Norwest Bank Minnesota, National Association, as the Trustee.
All capitalized terms used in this Certificate and not otherwise defined herein
shall have the same meanings given to such terms in the Indenture. In your
capacity as the Trustee, you are hereby authorized and requested to disburse to
__________ (the "Eligible Lender") the sum of $__________ from the [specify
Series 1996 Loan Account and/or Series 1996 Recycling Account] for the
acquisition of Eligible Loans. With respect to the Eligible Loans so to be
acquired, the Issuer hereby certifies as follows:
1. The Eligible Loans to be acquired are those specified in Schedule I
attached hereto (the "Financed Eligible Loans").
2. The remaining unpaid principal amount of each Financed Eligible Loan
is as shown on said Schedule I attached hereto.
3. Each Financed Eligible Loan is an Eligible Loan authorized by the
Indenture to be so acquired.
4. Except as previously furnished to you, attached hereto, if an
acquisition, is a copy of the form of the applicable Student Loan Purchase
Agreement between the Issuer and the Eligible Lender with respect to the
Financed Eligible Loans.
5. The promissory note evidencing each Financed Eligible Loan is subject
to a blanket endorsement and that Uniform Commercial Code Financing Statements
with respect thereto have been filed in such place or places specified by the
opinion of counsel for the Issuer.
6. Each action necessary to perfect a first security interest in each
Financed Eligible Loan in favor of the Trustee has been accomplished.
7. The Issuer is not, on the date hereof, in default under the Indenture
or any applicable Student Loan Purchase Agreement applicable to the Financed
Eligible Loans, and,
D-1
<PAGE>
to the best knowledge of the Issuer, the Eligible Lender is not in default
under any Student Loan Purchase Agreement applicable to the Financed Eligible
Loans. No Event of Default, or event or condition which, with the passage of
time or giving of notice or both, would be an Event of Default, has occurred
and is continuing under and as defined in the Indenture, and each
representation and warranty of the Issuer contained in any such document is
true and correct on and as of the date hereof as if made on and as of such
date. With respect to all Financed Eligible Loans that are Insured, the
insurance is in effect with respect thereto and the applicable Contract of
Insurance and Certificate of Insurance are valid and binding upon the parties
thereto in all respects material to the security of the Notes. With respect
to all Financed Eligible Loans that are Guaranteed Student Loans, the
Guarantee Agreements are in effect with respect thereto and are valid and
binding on the parties thereto in all respects material to the security of
the Notes. The Issuer is not in default in the performance of any of its
covenants and agreements made in the Guarantee Agreements applicable to the
Financed Eligible Loans.
8. All the conditions specified in the Student Loan Purchase Agreements
applicable to the acquired Financed Eligible Loans and in the Indenture for the
acquisition or origination of the Financed Eligible Loans and the disbursement
hereby authorized and requested have been duly satisfied.
9. The Servicer has received the following for each Financed Eligible
Loan: (a) copy of original student application; (b) original promissory note
and, if applicable, disclosure statement and loan information statement; (c)
evidence of disbursement; (d) if applicable, notice of deferment; and (e) the
Certificate of Insurance (with respect to each Insured Loan) and the
Notification of Loan Approval by the Guarantee Agency with respect to each
Guaranteed Loan.
10. All origination fees with respect to each Financed Eligible Loan have
been paid and all guarantee fees with respect thereto have been paid or, if an
origination, will be paid by the Issuer within 45 days.
11. The undersigned, as an Authorized Officer of the Issuer, is authorized
to sign and submit this Certificate on behalf of the Issuer.
WITNESS my hand this ____ day of __________ ____.
UNION FINANCIAL SERVICES-1, INC.
By
---------------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
D-2
<PAGE>
EXHIBIT E-1
SERIES 1996A CASH FLOW ASSUMPTIONS
E-1-1
<PAGE>
EXHIBIT E-2
SERIES 1996B CASH FLOW ASSUMPTIONS
E-2-1
<PAGE>
EXHIBIT F-1
SERIES 1996A CLOSING CASH FLOW PROJECTIONS
F-1-1
<PAGE>
EXHIBIT F-2
SERIES 1996B CLOSING CASH FLOW PROJECTIONS
F-2-1
<PAGE>
EXHIBIT G
NOTICE OF PAYMENT DEFAULT
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES,
CLASS 1996[A-1][A-2][A-3][A-4]
AUCTION RATE SECURITIES
(ARS-SM-)
NOTICE IS HEREBY GIVEN that a Payment Default has occurred and is
continuing with respect to the Auction Notes identified above. The next Auction
for the Auction Notes will not be held. The Auction Rate for the Auction Notes
for the next succeeding Interest Period shall be the Non-Payment Rate.
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
Dated: By
-------------------------- -----------------------------------
G-1
<PAGE>
EXHIBIT H
NOTICE OF CURE OF PAYMENT DEFAULT
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES, SERIES 1996A[-1][-2][-3][-4]
AUCTION RATE SECURITIES
(ARS-SM-)
NOTICE IS HEREBY GIVEN that a Payment Default with respect to the Auction
Notes identified above has been waived or cured. The next Interest Payment Date
is __________________________ and the Auction Date is _________________________.
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
Dated: By
-------------------------- -----------------------------------
H-1
<PAGE>
EXHIBIT I
NOTICE OF PROPOSED CHANGE IN LENGTH
OF ONE OR MORE AUCTION PERIODS
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES, CLASS 1996A[-1][-2][-3][-4]
AUCTION RATE SECURITIES
(ARS-SM-)
Notice is hereby given that the Issuer proposes to change the length of one
or more Auction Periods pursuant to the Amended and Restated Indenture of Trust
as follows:
1. The change shall take effect on _______________, the Interest Rate
Adjustment Date for the next Auction Period (the "Effective Date").
2. The Auction Period Adjustment in Paragraph 1 shall take place only if
(a) the Trustee and the Auction Agent receive, by 11:00 a.m., eastern time, on
the Business Day before the Auction Date for the Auction Period commencing on
the Effective Date, a certificate from the Issuer, as required by the Indenture
authorizing the change in length of one or more Auction Periods and (b)
Sufficient Bids exist on the Auction Date for the Auction Period commencing on
the Effective Date.
3. If the condition referred to in (a) above is not met, the Auction Rate
for the Auction Period commencing on the Effective Date will be determined
pursuant to the Auction Procedures and the Auction Period shall be the Auction
Period determined without reference to the proposed change. If the condition
referred to in (a) is met but the condition referred to in (b) above is not met,
the Auction Rate for the Auction Period commencing on the Effective Date shall
be the Maximum Rate and the Auction Period shall be the Auction Period
determined without reference to the proposed change.
4. It is hereby represented, upon advice of the Auction Agent for the
Class 1996A[-1][-2][-3][-4] Notes described herein, that there were Sufficient
Bids for such Class 1996A[-1][-2][-3][-4] Notes at the Auction immediately
preceding the date of this Notice.
5. Terms not defined in this Notice shall have the meanings set forth in
the Indenture entered into in connection with the Class 1996A[-1][-2][-3][-4]
Notes.
UNION FINANCIAL SERVICES-1, INC.
Dated: By
-------------------------- -----------------------------------
I-1
<PAGE>
EXHIBIT J
NOTICE ESTABLISHING CHANGE IN LENGTH
OF ONE OR MORE AUCTION PERIODS
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES, CLASS 1996A[-1][-2][-3][-4]
AUCTION RATE SECURITIES
(ARS-SM-)
Notice is hereby given that the Issuer hereby establishes new lengths for
one or more Auction Periods pursuant to the Amended and Restated Indenture of
Trust:
1. The change shall take effect on _______________, the Interest Rate
Adjustment Date for the next Auction Period (the "Effective Date").
2. For the Auction Period commencing on the Effective Date, the Interest
Rate Adjustment Date shall be _______________, or the next succeeding Business
Day if such date is not a Business Day.
3. For Auction Periods occurring after the Auction Period commencing on
the Effective Date, the Interest Rate Adjustment Date shall be
[_______________(date) and every ______________(number) ______________(day of
week) thereafter] [every ______________(number) ______________(day of week)
after the date set forth in paragraph 2 above], or the next Business Day if any
such day is not a Business Day; provided, however, that the length of subsequent
Auction Periods shall be subject to further change hereafter as provided in the
Indenture of Trust.
4. The changes described in paragraphs 2 and 3 above shall take place
only upon delivery of this Notice and the satisfaction of other conditions set
forth in the Indenture of Trust and our prior notice dated _______________
regarding the proposed change.
5. Terms not defined in this Notice shall have the meanings set forth in
the Indenture of Trust relating to the Class 1996A[-1][-2][-3][-4] Notes.
UNION FINANCIAL SERVICES-1, INC.
Dated: By
-------------------------- -----------------------------------
J-1
<PAGE>
EXHIBIT K
NOTICE OF CHANGE IN AUCTION DATE
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES, CLASS 1996A[-1][-2][-3][-4]
AUCTION RATE SECURITIES
(ARS-SM-)
Notice is hereby given by SMITH BARNEY INC., as Market Agent for the
Auction Notes, that with respect to the Auction Notes, the Auction Date is
hereby changed as follows:
1. With respect to Class 1996A[-1][-2][-3][-4] Notes, the definition of
"Auction Date" shall be deemed amended by substituting "_______________(number)
Business Day" in the second line thereof and by substituting
"_______________(number) Business Days" for "two Business Days" in subsection
(d) thereof.
2. This change shall take effect on _______________ which shall be the
Auction Date for the Auction Period commencing on _______________.
3. The Auction Date for the Class 1996A[-1][-2][-3][-4] Notes shall be
subject to further change hereafter as provided in the Indenture of Trust.
4. Terms not defined in this Notice shall have the meaning set forth
in the Amended and Restated Indenture of Trust relating to the Class 1996A[-1]
[-2][-3][-4] Notes.
SMITH BARNEY INC., as Market Agent
Dated: By
-------------------------- -----------------------------------
K-1
<PAGE>
EXHIBIT L
NOTICE OF PROPOSED ADJUSTMENT TO PERCENTAGE
USED IN DETERMINING [MAXIMUM AUCTION RATE]
[ALL HOLD RATE] [NON-PAYMENT RATE]
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES, CLASS 1996A[-1][-2][-3][-4]
AUCTION RATE SECURITIES
(ARS-SM-)
Notice is hereby given that the Market Agent hereby proposes to change the
[percentage] [Applicable Percentage] used in determining the [Maximum Auction
Rate] [All Hold Rate] [Non-Payment Rate] with respect to the captioned Auction
Notes pursuant to the Amended and Restated Indenture of Trust (the "Indenture")
relating to such Auction Notes:
1. The change shall take effect on the date of commencement of the next
Auction Period (the "Effective Date").
2. For the Auction Period commencing on the Effective Date, and each
Auction Period thereafter, it is proposed that the percentage used in
determining the [Maximum Auction Rate] [All Hold Rate] [Non-Payment Rate] shall
be ____________________.
3. The adjustment to the percentage used in determining the [Maximum
Auction Rate] [All Hold Rate] [Non-Payment Rate] in paragraph 2 above shall take
place only if (A) the Trustee, the Auction Agent and the Market Agent receive,
by 11:00 a.m., eastern time, on the Business Day immediately preceding the
Effective Date, an Issuer Certificate authorizing the adjustment of such
percentage as specified in such Certificate, together with a copy of the Issuer
consent thereto and the opinion of Note Counsel as required by the Indenture;
and (B) the Trustee and the Issuer have received written confirmation from each
of the Rating Agencies then rating the Auction Notes that such proposed
adjustment will not adversely affect its ratings then applicable to any of the
Auction Notes.
4. If any of the conditions referred to in paragraph 3(A) and (B) above
are not met, the existing percentage used to determine the [Maximum Auction
Rate] [All Hold Rate] [Non-Payment Rate] shall remain in effect, and the rate of
interest on the captioned Auction Notes for the next succeeding Interest Period
shall be determined in accordance with the Auction Procedures.
Terms used herein have the meanings set forth in the Indenture.
SMITH BARNEY INC., as Market Agent
Dated: By
-------------------------- -----------------------------------
L-1
<PAGE>
EXHIBIT M
NOTICE ESTABLISHING NEW PERCENTAGE USED IN DETERMINING
[MAXIMUM AUCTION RATE] [ALL HOLD RATE] [NON-PAYMENT RATE]
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES, CLASS 1996A[-1][-2][-3][-4]
AUCTION RATE SECURITIES
(ARS-SM-)
Notice is hereby given that the Issuer hereby establishes a new
[percentage] [Applicable Percentage] to be used in determining the [Maximum
Auction Rate] [All Hold Rate] [Non-Payment Rate] with respect to the captioned
Auction Notes pursuant to the Amended and Restated Indenture of Trust (the
"Indenture") relating to such Auction Notes:
1. The change shall take effect on ______________________, the
commencement of the next Auction Period (the "Effective Date").
2. For the Auction Period commencing on the Effective Date, and each
Auction Period thereafter, the percentage used in determining the [Maximum
Auction Rate] [All Hold Rate] [Non-Payment Rate] shall be ____________________.
3. The change described in paragraph 2 above shall take place only upon
delivery of this Notice and the satisfaction of other conditions set forth in
the Indenture and the Market Agent's prior notice dated ___________________
regarding the proposed change.
Terms used herein have the meanings set forth in the Indenture.
UNION FINANCIAL SERVICES-1, INC.
Dated: By
-------------------------- -----------------------------------
M-1
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FORM OF
SERIES 199__-__ SUPPLEMENTAL INDENTURE OF TRUST
BY AND BETWEEN
UNION FINANCIAL SERVICES-1, INC.
AND
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
AS TRUSTEE
-------------------------------
DATED AS OF [____________, 199__]
-------------------------------
AUTHORIZING THE ISSUANCE OF
$__________
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES
SERIES 199__-__
[NOTE CLASSES]
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TABLE OF CONTENTS
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(This Table of Contents is for convenience of reference only and is not
intended to define, limit or describe the purpose or intent of any provisions of
this Supplemental Indenture of Trust.)
Page
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PARTIES AND PREAMBLES AND RECITALS . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
DEFINITIONS AND USE OF PHRASES . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
SERIES 199__-__ NOTE DETAILS,
FORM OF SERIES 199__-__ NOTES,
REDEMPTION OF SERIES 199__-__ NOTES
AND USE OF PROCEEDS OF SERIES 199__-__ NOTES
Section 2.01. Series 199__-__ Note Details. . . . . . . . . . . . . . . . . 3
Section 2.02. Redemption of the Series 199__-__ Notes . . . . . . . . . . . 6
Section 2.03. Delivery of Series 199__-__ Notes . . . . . . . . . . . . . . 8
Section 2.04. Trustee's Authentication Certificate. . . . . . . . . . . . . 9
Section 2.05. Deposit of Series 199__-__ Note Proceeds. . . . . . . . . . . 9
Section 2.06. Forms of Series 199__-__ Notes. . . . . . . . . . . . . . . . 10
ARTICLE III
AMENDMENT OF INDENTURE
Section 3.01. Amendment of Indenture. . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV
GENERAL PROVISIONS
Section 4.01. Date of Execution . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.02. Laws Governing. . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.03. Severability. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.04. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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ARTICLE V
APPLICABILITY OF INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . 12
TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SIGNATURES AND SEALS . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 13
APPENDIX A-- Certain Terms and Provisions of the Class [199__A-__] [Auction]
Rate Notes. . . . . . . . . . . . . . . . . . . . . . . . . .A-1
APPENDIX B-- Certain Terms and Provisions of the Class [199__-B__] [INDEX]
Rate Notes. . . . . . . . . . . . . . . . . . . . . . . . . .B-1
APPENDIX C-- Certain Terms and Provisions of the Class [199__-C__] [FIXED]
[INDEX] Rate Notes. . . . . . . . . . . . . . . . . . . . . .B-1
EXHIBIT A-- Form of Class [199__A-__] Senior [Auction] Rate Notes . . . .A-1
EXHIBIT B-- Form of Class [199__B-__] Subordinate [INDEX] Rate Notes. . .B-1
EXHIBIT C-- Form of Class [199__C-__] Junior Subordinate [FIXED] [INDEX]
Rate Notes. . . . . . . . . . . . . . . . . . . . . . . . . .C-1
EXHIBIT D-- Series 199__-__ Closing Cash Flow Projections . . . . . . . .D-1
EXHIBIT E-- Series 199__-__ Closing Cash Flow Projections . . . . . . . .E-1
EXHIBIT F-- Notice of Payment Default . . . . . . . . . . . . . . . . . .F-1
EXHIBIT G-- Notice of Cure of Payment Default . . . . . . . . . . . . . .G-1
EXHIBIT H-- Notice of Proposed Change in Length of One or More Auction
Periods . . . . . . . . . . . . . . . . . . . . . . . . . .H-1
EXHIBIT I-- Notice Establishing Change in Length of One or More Auction
Periods . . . . . . . . . . . . . . . . . . . . . . . . . .I-1
EXHIBIT J-- Notice of Change in Auction Date. . . . . . . . . . . . . . .J-1
EXHIBIT K-- Notice of Proposed Adjustment to Percentage Used in Determining
[Maximum Auction Rate] [All Hold Rate] [Non-Payment Rate] . .K-1
EXHIBIT L-- Notice Establishing New Percentage Used in Determining [Maximum
Auction Rate] [All Hold Rate] [Non-Payment Rate]. . . . . . .L-1
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SERIES 199__-__ SUPPLEMENTAL INDENTURE OF TRUST
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THIS SERIES 199__-__ SUPPLEMENTAL INDENTURE OF TRUST (this "Supplemental
Indenture"), dated as of [__________, 199__,] is by and between the UNION
FINANCIAL SERVICES-1, INC., a corporation duly organized and existing under the
laws of the State of Nevada (the "Issuer"), and NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, a national banking association duly organized and operating under
the laws of the United States of America and authorized to exercise corporate
trust powers, with its principal place of business and corporate trust office
located in Minneapolis, Minnesota (together with its successors, the "Trustee"),
as trustee hereunder (all capitalized terms used in these preambles, recitals
and granting clauses shall have the same meanings assigned thereto in Article I
hereof);
W I T N E S S E T H:
WHEREAS, the Issuer has previously entered into an Amended and Restated
Indenture of Trust dated as of June 15, 1996 (as previously supplemented and
amended, the "Indenture") between the Issuer and the Trustee;
WHEREAS, the Issuer desires to enter into this Supplemental Indenture in
order to issue Additional Notes pursuant to the terms of the Indenture,
including Section 2.12 thereof;
WHEREAS, the Issuer represents that it is duly created as a corporation
under the laws of the State and that by proper action it has duly authorized the
issuance of $__________ of its Taxable Student Loan Asset-Backed Notes,
Series 199__-__ consisting of _____ Classes, designated as Class [1996__A-__]
Notes (the "Class [1996__A-__] Notes"), Class [1996__A-__] Notes (the
"Class [1996__A-__] Notes"), Class [1996__B-__] Notes (the "Class [1996__B-__]
Notes") and Class [1996__C-__] Notes (the "Class [1996__C-__] Notes")]
(collectively, the "Series 199__-__ Notes"), and it has by proper corporate
action authorized the execution and delivery of this Supplemental Indenture;
WHEREAS, the Series 199__-__ Notes constitute Additional Notes as defined
in the Indenture;
WHEREAS, the Trustee has agreed to accept the trusts herein created upon
the terms herein set forth; and
NOW, THEREFORE, it is mutually covenanted and agreed as follows:
<PAGE>
ARTICLE I
DEFINITIONS AND USE OF PHRASES
All words and phrases defined in Article I of the Indenture shall have the
same meaning in this Supplemental Indenture, except as otherwise appears in this
Article. In addition, the following terms have the following meanings in this
Supplemental Indenture unless the context clearly requires otherwise:
["AUTHORIZED DENOMINATIONS" means _______________________________________.]
["CUSTODIAN AGREEMENT" means the Custodian Agreement dated as of
___________, 199__ between the Trustee and .]
["PLACEMENT AGENT" means ______________________________________________.]
["RATING AGENCY" means _________________________________________________.]
["RESERVE FUND REQUIREMENT" means ______________________________________.]
["SELLER" means, with respect to the Financed Eligible Loans acquired from
the proceeds of the Series 199__-__ Notes, ____________________, a ____________
corporation.]
["SERIES 199__-__ NOTES" means the Union Financial Services-1, Inc.,
Taxable Student Loan Asset-Backed Notes, Series 199__-__ issued pursuant to the
Indenture and this Supplemental Indenture in the aggregate principal amount of
$____________, consisting of [designate Classes].]
["SERVICER" means, with respect to the Financed Eligible Loans acquired
from the proceeds of the Series 199__-__ Notes, ____________________, a
_______________ corporation.]
["SERVICING AGREEMENT" means the Servicing Agreement, dated as of
__________, 199__ between the Issuer and ____________________.]
["STUDENT LOAN PURCHASE AGREEMENT" means that certain Loan Sale and
Commitment Agreement dated as of __________, 199__ between the Issuer and the
Seller.]
["UNDERWRITER" means __________________________________________________.]
Words importing the masculine gender include the feminine gender. Words
importing persons include firms, associations and corporations. Words importing
the singular number include the plural number and vice versa. Additional terms
are defined in the body of this Supplemental Indenture and the Appendices
hereto.
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In the event that any term or provision contained herein with respect to
the Series 199__-__ Notes shall conflict with or be inconsistent with any term
or provision contained in the Indenture, the terms and provisions of this
Supplemental Indenture shall govern.
ARTICLE II
SERIES 199__-__ NOTE DETAILS,
FORM OF SERIES 199__-__ NOTES,
REDEMPTION OF SERIES 199__-__ NOTES
AND USE OF PROCEEDS OF SERIES 199__-__ NOTES
Section 2.01. SERIES 199__-__ NOTE DETAILS.
(a) The aggregate principal amount of the Series 199__-__ Notes which
may be initially authenticated and delivered under this Supplemental
Indenture is limited to $___________, consisting of [$___________ of
Class [199__A-__] Notes, $__________ of Class [199__B-__] Notes and
$___________ of Class [199__C-__] Notes], [except for Series 199__-__ Notes
authenticated and delivered upon transfer of, or in exchange for, or in
lieu of Notes pursuant to Sections 2.03 and 2.04 of the Indenture]. The
Class [199__A-__] Notes shall be issued in _____ separate subclasses (each
a "subclass" of the Class [199__A-__] Notes) consisting of $__________ of
Class [199__A-__] Notes and $__________ of Class [199__A-__] Notes. The
Class [199__A-__] Notes and the Class [199__A-__] Notes shall be known and
designated as "Union Financial Services-1, Inc., Taxable Student Loan
Asset-Backed Notes, Class [199__A-__] Senior [Auction] Rate Notes" with the
appropriate -__ or -__ designation, the Class [199__B-__] Notes shall be
known and designated as "Union Financial Services-1, Inc., Taxable Student
Loan Asset-Backed Notes, Class [199__B-__] Subordinate [INDEX] Rate Notes"
and the Class [199__C-__] Notes shall be known and designated as "Union
Financial Services-1, Inc., Taxable Student Loan Asset-Backed Notes,
Class [199__C-__] Junior-Subordinate [FIXED] [INDEX] Rate Notes." The
Series 199__-__ Notes shall be issuable only as fully registered notes in
the Authorized Denominations. The Series 199__-__ Notes of each class and
subclass shall each be lettered "R" and shall be numbered separately from 1
upwards.
The Class [199__A-__] Notes (also known as "Auction Rate Notes") shall
be dated their Date of Issuance and shall bear interest payable on each
Interest Payment Date for such subclass, except that Auction Rate Notes
issued upon transfer, exchange or other replacement shall bear interest
from the most recent Interest Payment Date to which interest has been paid,
or if no interest has been paid, from the Date of Issuance. The
Class [199__A-__] Notes shall mature on July 1, ____ and the
Class [199__A-__] Notes shall mature on July 1, ____. Interest on the
Class [199__A-__] Notes and the Class [199__A-__] Notes shall be computed
on the basis of a 360-day year and actual days elapsed. The terms of and
definitions related to the Auction Rate Notes are found in Article I hereof
and Appendix A to this Supplemental Indenture.
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The Class [199__B-__] Notes (also known as "Class [199__B-__] [INDEX]
Rate Notes") shall be dated their Date of Issuance and shall bear interest,
payable on each Interest Payment Date, commencing ________, 199__, except
that Class [199__B-__] Notes which are issued upon transfer, exchange or
other replacement shall bear interest from the most recent Interest Payment
Date to which interest has been paid, or if no interest has been paid, from
the date of the Class [199__B-__] Notes. The Class [199__B-__] Notes shall
mature on July 1, ____ in the principal amount of $__________. Interest on
the Class [199__B-__] Notes shall be computed on the basis of a 360-day
year and actual days elapse. The terms of and definitions related to the
Class [199__B-__] [INDEX] Rate Notes are found in Article I hereof and
Appendix B to this Supplemental Indenture.
[The Class [199__C-__] Notes (also known as "Class [199__C-__] [FIXED]
[INDEX] Rate Notes") shall be dated their Date of Issuance and shall bear
interest, payable on each Interest Payment Date, commencing ________,
199__, except that Class [199__C-__] Notes which are issued upon transfer,
exchange or other replacement shall bear interest from the most recent
Interest Payment Date to which interest has been paid, or if no interest
has been paid, from the date of the Class [199__C-__] Notes. The
Class [199__C-__] Notes shall mature on July 1, ____ in the principal
amount of $__________. Interest on the Class [199__C-__] Notes shall be
computed on the basis of a 360-day year and actual days elapse. The terms
of and definitions related to the Class [199__C-__] [FIXED] [INDEX] Rate
Notes are found in Article I hereof and Appendix C to this Supplemental
Indenture.]
The principal of the Series 199__-__ Notes due at its Stated Maturity
or redemption in whole shall be payable at the Principal Office of the
Trustee in Minneapolis, Minnesota, or at the Principal Office of its
successor in trust upon presentation and surrender of the Series 199__-__
Notes. Payment of interest and principal paid subject to a redemption on
any Series 199__-__ Note shall be made to the Registered Owner thereof by
check or draft mailed on the Interest Payment Date by the Trustee to the
Registered Owner at his address as it last appears on the registration
books kept by the Trustee at the close of business on the Record Date for
such interest payment date, but any such interest not so timely paid or
duly provided for shall cease to be payable to the Registered Owner thereof
at the close of business on the Record Date and shall be payable to the
Registered Owner thereof at the close of business on a special record date
(a "Special Record Date") for the payment of any such defaulted interest.
Such Special Record Date shall be fixed by the Trustee whenever moneys
become available for payment of the defaulted interest, and notice of such
Special Record Date shall be given to the Registered Owners of the
Series 199__-__ Notes not less than 10 days prior thereto by first-class
mail to each such Registered Owner as shown on the Trustee's registration
books on the date selected by the Trustee, stating the date of the Special
Record Date and the date fixed for the payment of such defaulted interest.
Payment of interest to the Securities Depository or its nominee shall, and
at the written request addressed to the Trustee of any other Registered
Owner owning at least
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$1,000,000 principal amount of the Series 199__-__ Notes, payments of
interest shall, be paid by wire transfer within the United States to the
bank account number filed no later than the Record Date or Special Record
Date with the Trustee for such purpose. All payments on the
Series 199__-__ Notes shall be made in lawful money of the United States of
America.
(b) Except as otherwise provided in this Section, the Series 199__-__
Notes [designate Classes] in the form of one global note for each Stated
Maturity date of each such series or subclass shall be registered in the
name of the Securities Depository or its nominee and ownership thereof
shall be maintained in book-entry form by the Securities Depository for the
account of the Agent Members. Initially, each Series 199__-__ Note and
each Series 199__-__ Note shall be registered in the name of CEDE & Co., as
the nominee of The Depository Trust Company. Except as provided in
subsection (d) of this Section, the Series 199__-__ Notes [designate
Classes] may be transferred, in whole but not in part, only to the
Securities Depository or a nominee of the Securities Depository or to a
successor Securities Depository selected or approved by the Issuer or to a
nominee of such successor Securities Depository. Each global note shall
bear a legend substantially to the following effect: "Except as otherwise
provided in the Indenture, this global note may be transferred, in whole
but not in part, only to another nominee of the Securities Depository (as
defined in the Indenture) or to a successor Securities Depository or to a
nominee of a successor Securities Depository." [The [designate Classes]
shall be issued as definitive Notes registered in the name of the
Registered Owner or any nominee of the Registered Owner.]
(c) Except as otherwise provided herein, the Issuer and the Trustee
shall have no responsibility or obligation with respect to (i) the accuracy
of the records of the Securities Depository or any Agent Member with
respect to any beneficial ownership interest in the Series 199__-__ Notes,
(ii) the delivery to any Agent Member, beneficial owner of the
Series 199__-__ Notes or other Person, other than the Securities
Depository, of any notice with respect to the Series 199__-__ Notes or
(iii) the payment to any Agent Member, beneficial owner of the
Series 199__-__ Notes or other Person, other than the Securities
Depository, of any amount with respect to the principal of or interest on
the Series 199__-__ Notes. So long as the certificates for the
Series 199__-__ Notes issued under this Supplemental Indenture are not
issued pursuant to subsection (d) of this Section the Issuer and the
Trustee may treat the Securities Depository as, and deem the Securities
Depository to be, the absolute owner of the Series 199__-__ Notes for all
purposes whatsoever, including, without limitation, (A) the payment of
principal of and interest on such Series 199__-__ Notes, (B) giving notices
of redemption and other matters with respect to such Series 199__-__ Notes
and (C) registering transfers with respect to such Series 199__-__ Notes.
In connection with any notice or other communication to be provided to the
Registered Owners pursuant to this Supplemental Indenture by the Issuer or
the Trustee with respect to any consent or other action to be taken by the
Registered Owners, the Issuer or the Trustee, as the case may be, shall
establish a record date for such consent or other action and, if the
Securities Depository
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shall hold all of the Series 199__-__ Notes, give the Securities Depository
notice of such record date not less than fifteen (15) calendar days in
advance of such record date to the extent possible. Such notice to the
Securities Depository shall be given only when the Securities Depository is
the sole Registered Owner.
(d) If at any time the Securities Depository notifies the Issuer and
the Trustee that it is unwilling or unable to continue as Securities
Depository with respect to any or all of the Series 199__-__ Notes or if at
any time the Securities Depository shall no longer be registered or in good
standing under the Securities Exchange Act or other applicable statute or
regulation and a successor Securities Depository is not appointed by the
Issuer within 90 days after the Issuer receives notice or becomes aware of
such condition, as the case may be, subsections (b) and (c) of this Section
shall no longer be applicable and the Issuer shall execute and the Trustee
shall authenticate and deliver certificates representing the
Series 199__-__ Notes as provided below. In addition, the Issuer may
determine at any time that the Series 199__-__ Notes shall no longer be
represented by global certificates and that the provisions of subsections
(b) and (c) of this Section shall no longer apply to the Series 199__-__
Notes. In such event, the Issuer shall execute and the Trustee shall
authenticate and deliver certificates representing the Series 199__-__
Notes as provided below. Certificates for the Series 199__-__ Notes issued
in exchange for a global certificate pursuant to this subsection shall be
registered in such names and authorized denominations as the Securities
Depository, pursuant to instructions from the Agent Members or otherwise,
shall instruct in writing the Issuer and the Trustee, and upon which
written instructions the Trustee may rely without investigation. The
Trustee shall promptly deliver such certificates representing the
Series 199__-__ Notes to the Persons in whose names such Notes are so
registered.
Section 2.02. REDEMPTION OF THE SERIES 199__-__ NOTES.
[(a) MANDATORY REDEMPTION.
(i) Subject to the provisions of Section 2.02(d) hereof, the
Series 199__-__ Notes [designate Classes] are subject to mandatory
redemption by the Issuer, in whole or in part, on any Interest Payment
Date with respect to the [designate Classes] of Series 199__-__ Notes
being redeemed at a redemption price equal to the principal amount
thereof plus interest accrued, if any, to the date of redemption
thereof from moneys in the Note Redemption Fund available therefor
pursuant to Section 5.06 of the Indenture.
(ii) Subject to the provisions of Section 2.02(d) hereof, the
Series 199__-__ Notes [designate Classes] are also subject to
mandatory redemption by the Issuer at a redemption price equal to the
principal amount thereof plus interest accrued, if any, to the date of
redemption thereof from moneys in the Note Redemption Fund available
therefor pursuant to Section 5.06 hereof, (i) for the 199__-__ Notes,
on the Interest Payment Date next succeeding
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[__________, 199__] and (ii) for the Series 199__-__ Notes, on the
next Interest Payment Date thereafter, to the extent that a balance
exists in the Series 199__-__ Loan Account of the Student Loan Fund,
such anticipated excesses to be determined by estimate as of 30 days
prior to said Interest Payment Dates; provided, however, that if 30
days prior to said Interest Payment Dates, the Issuer files with the
Trustee a certificate that such balances may be invested at a rate of
return until a subsequent Interest Payment Date which, together with
other available Revenues and cash balances, will produce sufficient
cash flows to permit the timely retirement of the Series 199__-__
Notes, which cash flows shall not assume the refunding of the
Series 199__-__ Notes, and such conclusions are approved by each
Rating Agency, then such call for redemption need not be made; and
provided that the Trustee shall have received an opinion of Note
Counsel to the effect that the failure to redeem Notes as provided in
this Section 2.02(a)(ii)(A) would not cause the Notes to fail to be
characterized as indebtedness of the Issuer for federal income tax
purposes.
(iii) The Series 199__-__ Notes which are Senior Notes shall
be subject to mandatory redemption at a redemption price equal to 100%
of the principal amount thereof plus accrued interest on any Interest
Payment Date within 60 days from when moneys are deposited in the
Senior Note Redemption Account pursuant to Section 5.03(j) of the
Indenture.
(iv) The Series 199__-__ Notes which are Subordinate Notes shall
be subject to mandatory redemption at a redemption price equal to 100%
of the principal amount thereof plus accrued interest on any Interest
Payment Date within 60 days from when moneys are deposited in the
Senior Note Redemption Account pursuant to Section 5.03(j) of the
Indenture.
[(v) The Series 199__-__ Notes which are Junior-Subordinate Notes
shall be subject to mandatory redemption at a redemption price equal
to 100% of the principal amount thereof plus accrued interest on any
Interest Payment Date within 60 days from when moneys are deposited in
the Senior Note Redemption Account pursuant to Section 5.03(j) of the
Indenture.]
[(b) OPTIONAL REDEMPTIONS AND OPTIONAL PURCHASE.
(i) Subject to the provisions of Section 2.02(d) hereof, the
Class [199__-__] Notes and the Class [199__-__] Notes are subject to
redemption at the option of the Issuer from any source of funds in
whole or in part on any Interest Payment Date for such subclass at a
redemption price equal to the principal amount of the Class [199__-__]
Notes being redeemed, plus interest accrued, if any, to the date of
redemption.
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(ii) Subject to the provisions of Section 2.02(d) hereof, the
Class [199__-__] Notes are subject to redemption at the option of the
Issuer from any source of funds in whole or in part on any Interest
Payment Date on or after [__________, ____], at a redemption price
equal to the principal amount of the Class [199__-__] Notes being
redeemed, plus interest accrued, if any, to the date of redemption.
(iii) EXTRAORDINARY OPTIONAL REDEMPTION. Subject to the
provisions of Section 2.02(d) hereof, the Series 199__-__ Notes shall
also be subject to extraordinary optional redemption, at the option of
the Issuer, at a redemption price equal to the principal amount of the
Series 199__-__ Notes being redeemed, plus accrued interest to the
date of redemption, without premium in whole or in part on any
Interest Payment Date, if the Issuer reasonably determines that it is
unable to acquire Financed Eligible Loans, that the rate of return on
Financed Eligible Loans has materially decreased, or that the costs of
administering the Trust Estate have placed unreasonable burdens upon
the ability of the Issuer to perform its obligations under this
Indenture.
(iv) OPTIONAL PURCHASE. Subject to the provisions of
Section 2.02(d) hereof, the Issuer may purchase or cause to be
purchased all of the Notes on any Interest Payment Date on which the
aggregate current principal balance of the Notes shall be less than or
equal to 10% of the initial aggregate principal balance of the Notes
on the respective Date of Issuance, at a purchase price equal to the
aggregate current principal balance of such Notes, plus accrued
interest on the Notes through the day preceding the Interest Payment
Date on which the purchase occurs. The amount deposited pursuant to
this subsection (iv) shall be paid to the Registered Owners on the
related Interest Payment Date following the date of such deposit. All
Notes which are purchased pursuant to this subsection (iv) shall be
delivered by the Issuer upon such purchase to, and be canceled by, the
Trustee and be disposed of in a manner satisfactory to the Trustee and
the Issuer.]
[(c) NOTICE OF REDEMPTION AND PURCHASE. The Trustee shall cause
notice of any redemption or purchase to be given by mailing a copy of the
notice to the Registered Owner of any Series 199__-__ Notes, and the
Auction Agent in the case of the Auction Rate Notes, designated for
redemption or purchase in whole or in part, at their address as the same
shall last appear upon the registration books, in each case not less than
15 days prior to the redemption or purchase date; provided, however, that
failure to give such notice, or any defect therein, shall not affect the
validity of any proceedings for the redemption or purchase date of such
Series 199__-__ Notes for which no such failure or defect occurs.]
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[(d) PARTIAL REDEMPTION.
(i) If less than all of the Series 199__-__ Notes are to be
redeemed pursuant to Section 2.02(a) or 2.02(b) hereof, the class or
subclass of Series 199__-__ Notes to be redeemed shall be redeemed as
directed by an Issuer Order. If less than all of the Series 199__-__
Notes of any Stated Maturity of any class or subclass of the
Series 199__-__ Notes are to be redeemed, such Series 199__-__ Notes
of the same Stated Maturity to be redeemed shall be selected by lot in
such manner as the Trustee shall determine. Notwithstanding the
foregoing, the Series 199__-__ Notes may only be redeemed pursuant to
the provisions of Section 5.06 of the Indenture.
(ii) In case a Series 199__-__ Note is of a denomination larger
than $_______, a portion of such Note ($_______, or integral multiples
thereof) may be redeemed. Upon surrender of any Series 199__-__ Note
for redemption in part only, the Issuer shall execute and the Trustee
shall authenticate and deliver to the Registered Owner thereof, the
cost of which shall be paid by the Issuer, a new Series 199__-__ Note
or Series 199__-__ Notes of the same series, maturity and of
authorized denominations, in an aggregate principal amount equal to
the unredeemed portion of the Series 199__-__ Note surrendered.]
Section 2.03. DELIVERY OF SERIES 199__-__ NOTES. Upon the execution and
delivery of this Supplemental Indenture, the Issuer shall execute and deliver to
the Trustee and the Trustee shall authenticate the Series 199__-__ Notes and
deliver them to [The Depository Trust Company] and as hereinafter in this
Section provided.
Prior to the delivery by the Trustee of any of the Series 199__-__ Notes,
there shall have been filed with or delivered to the Trustee the following:
(a) A resolution duly adopted by the Issuer, certified by the
Secretary or other Authorized Officer thereof, authorizing the execution
and delivery of this Supplemental Indenture and the issuance of the
Series 199__-__ Notes.
(b) Duly executed copies of this Supplemental Indenture and a
certified copy of the Indenture.
(c) The written order of the Issuer as to the delivery of the
Series 199__-__ Notes, signed by an Authorized Officer.
(d) A Cash Flow Certificate pursuant to Section 2.12(b)(ii) of the
Indenture.
(e) Rating letters from each Rating Agency pursuant to Section
2.12(b)(iii) of the Indenture.
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(f) An opinion of Bond Counsel pursuant to Sections 2.12(b)(iv) and
(vi) of the Indenture.
Section 2.04. TRUSTEE'S AUTHENTICATION CERTIFICATE. The Trustee's
authentication certificate upon the Series 199__-__ Notes shall be substantially
in the forms provided in Exhibits A, B and C hereof. No Series 199__-__ Note
shall be secured hereby or entitled to the benefit hereof, or shall be valid or
obligatory for any purpose, unless a certificate of authentication,
substantially in such form, has been duly executed by the Trustee; and such
certificate of the Trustee upon any Series 199__-__ Note shall be conclusive
evidence and the only competent evidence that such Bond has been authenticated
and delivered hereunder. The Trustee's certificate of authentication shall be
deemed to have been duly executed by it if manually signed by an authorized
officer of the Trustee, but it shall not be necessary that the same person sign
the certificate of authentication on all of the Series 199__-__ Notes issued
hereunder.
Section 2.05. DEPOSIT OF SERIES 199__-__ NOTE PROCEEDS. Upon the issuance
and delivery of the Series 199__-__ Notes, the Trustee shall deposit the net
proceeds thereof (i.e., net of Underwriter's discount of $_______), representing
underwriting compensation as follows:
(a) an amount equal to $__________ shall be deposited in the Revenue
Fund;
(b) an amount equal to $______ shall be deposited to the Operating
Fund;
(c) an amount equal to $_______ shall be deposited to the Cost of
Issuance Fund;
(d) an amount equal to $_______ shall be deposited to the Reserve
Fund; and
(e) the balance of the proceeds of the Series 199__-__ Notes
($__________) shall be deposited to the Series 199__-__ Loan Account of the
Student Loan Fund.
Section 2.06. FORMS OF SERIES 199__-__ NOTES. The Class [199__A-__] Notes
bearing interest at an [Auction] Rate shall be in substantially the form set
forth in Exhibit A hereto, with such variations, omissions and insertions as may
be necessary. The Class [199__B-__] Notes bearing interest at an [INDEX] Rate
shall be in substantially the form set forth in Exhibit B hereto, each with such
variations, omissions and insertions as may be necessary. The Class [199__C-__]
Notes bearing interest at a[n] [FIXED] [INDEX] Rate shall be in substantially
the form set forth in Exhibit C hereto, each with such variations, omissions and
insertions as may be necessary.]
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ARTICLE III
AMENDMENT OF INDENTURE
Section 3.01. AMENDMENT OF INDENTURE. The Indenture is hereby amended and
supplemented hereby, as provided in Sections 2.12 and 8.01(j) thereof, as
follows:
(a) Section 5.01(a)(i) of the Indenture shall be supplemented to
create the following Accounts:
(i) a Series 199__-__ Loan Account;
(ii) a Series 199__-__ Note Account; and
(iii) a Series 199__-__ Recycling Account.
(b) Section 5.02 of the Indenture shall be supplemented to include
the following:
Notwithstanding anything herein to the contrary, on the
Business Day next preceding [__________,____], the Trustee
shall transfer to the Note Redemption Fund, moneys in the
Series 199__-__ Loan Account of the Student Loan Fund
specified in Section 2.02(a)(ii) of the Series 199__-__
Supplemental Indenture of Trust.
On [__________,____], all moneys and investments remaining
in the Series 199__-__ Recycling Account of the Student Loan
Fund shall be transferred to the Note Redemption Fund.
(c) Section 5.03(g) of the Indenture shall be supplemented to include
the following:
, [(iii)] to the Series 199__-__ Recycling Account of the
Student Loan Fund prior to [__________,____] and [(iv)] to
the Note Redemption Fund on and after [__________,____].
(d) Section 5.03(k) of the Indenture shall be supplemented to include
the following:
or, prior to [_________, ____], to the Series 199__-__
Recycling Account of the Student Loan Fund.
(e) Section 5.08 of the Indenture shall be supplemental to include
the following:
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The Trustee shall deposit in the Cost of Issuance Fund on
the Date of Issuance the amounts set forth in Section
2.05(c) of the Series 199__-__ Supplemental Indenture of
Trust. Moneys in the Cost of Issuance Fund shall be used by
the Trustee, upon the written direction of an Authorized
Officer of the Issuer, solely for the purpose of paying
costs of issuance of the Series 199__-__ Notes, including
without limitation any compensation of the [Underwriter]
[Placement Agent] not paid from the proceeds of the Notes.
If any moneys remain in the Cost of Issuance Fund on
[__________, ____], such amounts shall be paid by the
Trustee without further direction to the Issuer.
ARTICLE IV
GENERAL PROVISIONS
Section 4.01. DATE OF EXECUTION. Although this Supplemental Indenture for
convenience and for the purpose of reference is dated as of __________, 199__,
the actual dates of execution by the Issuer and by the Trustee are as indicated
by their respective acknowledgments hereto annexed.
Section 4.02. LAWS GOVERNING. It is the intent of the parties hereto that
this Supplemental Indenture shall in all respects be governed by the laws of the
State.
Section 4.03. SEVERABILITY. Of any covenant, agreement, waiver, or part
thereof in this Supplemental Indenture contained be forbidden by any pertinent
law or under any pertinent law be effective to render this Supplemental
Indenture invalid or unenforceable or to impair the lien hereof, then each such
covenant, agreement, waiver, or part thereof shall itself be and is hereby
declared to be wholly ineffective, and this Supplemental Indenture shall be
construed as if the same were not included herein.
Section 4.04. EXHIBITS. The terms of the Exhibits attached to this
Supplemental Indenture are incorporated herein in all particulars.
ARTICLE V
APPLICABILITY OF INDENTURE
The provisions of the Indenture are hereby ratified, approved and
confirmed, except as otherwise expressly modified by this Supplemental
Indenture. The representations, warranties and covenants contained in the
Indenture (except as expressly modified herein) are hereby reaffirmed with the
same force and effect as if fully set forth herein and made again as of the date
hereof.
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IN WITNESS WHEREOF, the Issuer has caused this Supplemental Indenture to be
executed in its corporate name and behalf by the President, and the Trustee, to
evidence its acceptance of the trusts hereby created, has caused this
Supplemental Indenture to be executed in its corporate name and behalf, has
caused its corporate seal to be hereunto affixed by its duly authorized officer,
all in multiple counterparts, each of which shall be deemed an original, and the
Issuer and the Trustee have caused this Supplemental Indenture to be dated as of
the date herein above first shown, although actually executed on the dates shown
in the acknowledgments hereafter appearing.
[SEAL] UNION FINANCIAL SERVICES-1, INC.
By
------------------------------------------
President
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
By
-----------------------------------------
Assistant Vice President
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APPENDIX A
CERTAIN TERMS AND PROVISIONS OF THE [AUCTION] NOTES
ARTICLE I
Section 1.01. DEFINITIONS. Except as provided below in this Section, all
terms which are defined in Article I of the Indenture and Article I of the
Series 199__-__ Supplemental Indenture shall have the same meanings,
respectively, in this Appendix A as such terms are given in the Indenture and
Article I of the Series 199__-__ Supplemental Indenture. In addition, the
following terms shall have the following respective meanings:
"AFTER-TAX EQUIVALENT" means the "AA" Composite Commercial Paper Rate.
"ALL HOLD RATE" means the Applicable LIBOR Rate less ___%; provided that in
no event shall the applicable All Hold Rate be greater than the applicable
Maximum Auction Rate.
"APPLICABLE LIBOR RATE" means, (a) for Auction Periods of 35 days or less,
One-Month LIBOR, (b) for Auction Periods of more than 35 days but less than 91
days, Three-Month LIBOR, (c) for Auction Periods of more than 90 days but less
than 181 days, Six-Month LIBOR, and (d) for Auction Periods of more than 180
days, One-Year LIBOR.
"AUCTION" means the implementation of the Auction Procedures on an Auction
Date.
"AUCTION AGENT" means the Initial Auction Agent under the Initial Auction
Agent Agreement unless and until a Substitute Auction Agent Agreement becomes
effective, after which "Auction Agent" shall mean the Substitute Auction Agent.
"AUCTION AGENT AGREEMENT" means the Initial Auction Agent Agreement unless
and until a Substitute Auction Agent Agreement is entered into, after which
"Auction Agent Agreement" shall mean such Substitute Auction Agent Agreement.
"AUCTION AGENT FEE" has the meaning set forth in the Auction Agent
Agreement.
"AUCTION DATE" means, initially, [ , 199__] with respect to the
Class [199__A-__] Notes, [ , 199__] with respect to the
Class [199__A-__] Notes, [ , 199__] with respect to the Class
[199__A-__] Notes and [ , 199__] with respect to the Class [199__A-__]
Notes and thereafter, the Business Day immediately preceding the first day of
each Auction Period for each respective Class, other than:
(a) each Auction Period commencing after the ownership of the
applicable Auction Rate Notes is no longer maintained in Book-entry Form by
the Securities Depository;
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(b) each Auction Period commencing after and during the continuance
of a Payment Default; or
(c) each Auction Period commencing less than two Business Days after
the cure or waiver of a Payment Default.
Notwithstanding the foregoing, the Auction Date for one or more Auction Periods
may be changed pursuant to Section 2.02(h) of this Appendix A.
"AUCTION RATE NOTES" means, collectively, the Class [199__A-__] Notes.
"AUCTION NOTE INTEREST RATE" means each variable rate of interest per annum
borne by an Auction Note for each Auction Period and determined in accordance
with the provisions of Sections 2.01 and 2.02 hereof; provided, however, that in
the event of a Payment Default, the Auction Note Interest Rate shall equal the
applicable Non-Payment Rate; provided, further, however that such Auction Note
Interest Rate shall in no event exceed the applicable Maximum Auction Rate.
"AUCTION PERIOD" means the Interest Period applicable to the Auction Rate
Notes during which time the Interest Rate is determined pursuant to Section
2.02(a) hereof, which Auction Period (after the Initial Period for such Class)
initially shall consist generally of (a) [__] days for the Class [199__A-__]
Notes, (b) [__] days for the Class [199__A-__] Notes, (c) [__] days for the
Class [199__A-__] Notes and (d) [__] days for the Class [199__A-__] Notes, as
the same may be adjusted pursuant to Section 2.02(g) hereof.
"AUCTION PERIOD ADJUSTMENT" means an adjustment to the Auction Period as
provided in Section 2.02(g) hereof.
"AUCTION PROCEDURES" means the procedures set forth in Section 2.02(a)
hereof by which the Auction Rate is determined.
"AUCTION RATE" means the rate of interest per annum that results from
implementation of the Auction Procedures and is determined as described in
Section 2.02(a)(iii)(B) hereof.
"AUTHORIZED DENOMINATIONS" means $__________ and [any integral multiple
thereof] [and any multiple of $____________ in excess of such amount].
"AVAILABLE AUCTION RATE NOTES" has the meaning set forth in Section
2.02(a)(iii)(A)(1) hereof.
"BID" has the meaning set forth in Section 2.02(a)(i)(A) hereof.
"BID AUCTION RATE" has the meaning set forth in Section 2.02(a)(iii)(A)
hereof.
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"BIDDER" has the meaning set forth in Section 2.02(a)(i)(A) hereof.
"BOND EQUIVALENT YIELD" means, in respect of any security the rate for
which is quoted in THE WALL STREET JOURNAL on a bank discount basis, the "bond
equivalent yield" (expressed as a percentage) for such security which appears on
Telerate's United States Treasury and Money Market Composite Page 0223, rounded
up to the nearest one one-hundredth of one percent.
"BOOK-ENTRY FORM" or "BOOK-ENTRY SYSTEM" means a form or system under which
(a) the beneficial right to principal and interest may be transferred only
through a book entry, (b) physical securities in registered form are issued only
to a Securities Depository or its nominee as registered owner, with the
securities "immobilized" to the custody of the Securities Depository, and (c)
the book entry is the record that identifies the owners of beneficial interests
in that principal and interest.
"BROKER-DEALER" means [ ] or any other broker or dealer
(each as defined in the Securities Exchange Act of 1934, as amended), commercial
bank or other entity permitted by law to perform the functions required of a
Broker-Dealer set forth in the Auction Procedures that (a) is a Participant (or
an affiliate of a Participant), (b) has been appointed as such by the Issuer
pursuant to Section 2.02(f) hereof and by [ ], if applicable,
and (c) has entered into a Broker-Dealer Agreement that is in effect on the date
of reference.
"BROKER-DEALER AGREEMENT" means each agreement between the Auction Agent
and a Broker-Dealer, and approved by the Issuer, pursuant to which the Broker-
Dealer agrees to participate in Auctions as set forth in the Auction Procedures,
as from time to time amended or supplemented. Each Broker-Dealer Agreement
shall be in substantially the form of the Broker-Dealer Agreement dated as of
[ , 199__] among the Issuer, , as Auction
Agent, and , as Broker-Dealer.
"BROKER-DEALER FEE" has the meaning set forth in the Auction Agent
Agreement.
"BROKER-DEALER FEE RATE" has the meaning set forth in the Auction Agent
Agreement.
"BUSINESS DAY" means a day of the year on which (a) banks located in the
city in which the Principal Office of the Trustee is located are not required or
authorized to remain closed, (b) banks located in the city in which the
Principal Office of the Auction Agent, as set forth in and for purposes of the
Auction Agent Agreement, is located are not required or authorized to remain
closed and (c) The New York Stock Exchange is not closed.
"CARRY-OVER AMOUNT" means the excess, if any, of (a) the amount of interest
on an Auction Note that would have accrued with respect to the related Interest
Period at the applicable Auction Rate over (b) the amount of interest on such
Auction Note actually accrued with respect to such Auction Note with respect to
such Interest Period based on the applicable Maximum Auction Rate (without
regard to the last two clauses of the definition thereof) together with the
unreduced portion of any such excess from prior Interest Periods; provided that
any reference
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to "principal" or "interest" in this Appendix A and the Auction Rate Notes shall
not include within the meanings of such words any Carry-over Amount or any
interest accrued on any Carry-over Amount.
"CLOSING DATE" means the Date of Issuance of the Series 199__-__]Notes
([ , 199__]).
"COMMERCIAL PAPER DEALER" means [ ], its
successors and assigns, and any other commercial paper dealer appointed pursuant
to Section 2.02(c) of this Appendix A.
"ELIGIBLE CARRY-OVER MAKE-UP AMOUNT" means, with respect to each Interest
Period relating to the Auction Rate Notes as to which, as of the first day of
such Interest Period, there is any unpaid Carry-over Amount, an amount equal to
the lesser of (a) interest computed on the principal balance of the Auction Rate
Notes in respect to such Interest Period at a per annum rate equal to the
excess, if any, of applicable Maximum Auction Rate (without regard to the last
two clauses of the definition thereof) over the Auction Rate, together with the
unreduced portion of any such excess from prior Interest Periods and (b) the
aggregate Carry-over Amount remaining unpaid as of the first day of such
Interest Period together with interest accrued and unpaid thereon through the
end of such Interest Period.
"EXISTING OWNER" means (a) with respect to and for the purpose of dealing
with the Auction Agent in connection with an Auction, a Person who is a Broker-
Dealer listed in the Existing Owner Registry at the close of business on the
Business Day immediately preceding the Auction Date for such Auction and (b)
with respect to and for the purpose of dealing with the Broker-Dealer in
connection with an Auction, a Person who is a beneficial owner of Auction Rate
Notes.
"EXISTING OWNER REGISTRY" means the registry of Persons who are owners of
the Auction Rate Notes, maintained by the Auction Agent as provided in the
Auction Agent Agreement.
"HOLD ORDER" has the meaning set forth in Section 2.02(a)(i)(A) hereof.
"INITIAL AUCTION AGENT" means [ ], a New York
banking corporation, its successors and assigns.
"INITIAL AUCTION AGENT AGREEMENT" means, collectively, the Auction Agent
Agreement dated as of , 199__, by and among the Issuer, the Trustee and
the Initial Auction Agent, including any amendment thereof or supplement
thereto.
"INITIAL PERIOD" means, as to Auction Rate Notes, the period commencing on
the Closing Date and continuing through the day immediately preceding the
Initial Rate Adjustment Date for such Auction Rate Notes.
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"INITIAL RATE" means [____%] for the Class [199__A-__] Notes, [____%] for
the Class [199__A-__] Notes, [____%] for the Class [199__A-__] Notes and [____%]
for the Class [199__A-__] Notes.
"INITIAL RATE ADJUSTMENT DATE" means (a) with respect to the
Class [199__A-__] Notes, [ , 199__] (b) with respect to the
Class [199__A-__] Notes, [ , 199__], (c) with respect to the Class
[199__A-__] Notes, [ , 199__] and (d) with respect to the Class
[199__A-__] Notes, [ , 199__].
"INTEREST PAYMENT DATE" means (a) so long as the Auction Rate Notes bear
interest at an Auction Note Interest Rate for an Interest Period of not greater
than 180 days, the Business Day immediately following the expiration of the
Initial Period for such Class, and each related Auction Period thereafter and
(b) if and for so long as the Auction Rate Notes bear interest at an Auction
Note Interest Rate for an Interest Period of greater than 180 days, each
January 1 and July 1.
"INTEREST PERIOD" means, with respect to the Auction Rate Notes, the
Initial Period and each period commencing on an Interest Rate Adjustment Date
for such Class and ending on the day before (a) the next Interest Rate
Adjustment Date for such Class or (b) the Stated Maturity of such Class, as
applicable.
"INTEREST RATE ADJUSTMENT DATE" means the date on which an Auction Note
Interest Rate is effective, and means, with respect to the Auction Rate Notes,
the date of commencement of each Auction Period.
"INTEREST RATE DETERMINATION DATE" means, with respect to the Auction Rate
Notes, the Auction Date, or if no Auction Date is applicable to such Class, the
Business Day immediately preceding the date of commencement of an Auction
Period.
"MARKET AGENT" means , New York, New York, in
such capacity hereunder, or any successor to it in such capacity hereunder.
"MAXIMUM AUCTION RATE" means the least of (a) either (i) the Applicable
LIBOR Rate plus [___%] (if the ratings assigned by the Rating Agency to the
Auction Rate Notes are ["Aa3" and "AA-,"] respectively, or better) or (ii) the
Applicable LIBOR Rate plus [___%] (if any one of the ratings assigned by the
Rating Agency to the Auction Rate Notes is less than ["Aa3" or "AA-,"]
respectively), (b) the Net Loan Rate, (c) [___%] and (d) the highest rate the
Issuer may legally pay, from time to time, as interest on the Auction Rate
Notes. For purposes of the Auction Agent and the Auction Procedures, the
ratings referred to in this definition shall be the last ratings of which the
Auction Agent has been given written notice pursuant to the Auction Agent
Agreement.
"NET LOAN RATE" means, with respect to the Auction Rate Notes, the rate of
interest per annum (rounded to the next highest one one-hundredth of one
percent) equal to the applicable
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United States Treasury Security Rate plus [___%]. For Auction Periods of 180
days or less, the applicable United States Treasury Security Rate is for 91-day
United States Treasury securities, and for Auction Periods of more than 180
days, the applicable United States Treasury Security Rate is for one-year United
States Treasury securities.
"NON-PAYMENT RATE" means One-Month LIBOR plus [___%].
"ONE-MONTH LIBOR," "THREE-MONTH LIBOR," "SIX-MONTH LIBOR" or "ONE-YEAR
LIBOR," means the rate of interest per annum equal to the rate per annum at
which United States dollar deposits having a maturity of one month, three
months, six months or one year, respectively, are offered to prime banks in the
London interbank market which appear on the Reuters Screen LIBOR Page as of
approximately 11:00 a.m., London time, on the Interest Rate Determination Date.
If at least two such quotations appear, One-Month LIBOR, Three-Month LIBOR, Six-
Month LIBOR or One-Year LIBOR, respectively, will be the arithmetic mean
(rounded upwards, if necessary, to the nearest one-hundredth of one percent) of
such offered rates. If fewer than two such quotes appear, One-Month LIBOR,
Three-Month LIBOR, Six-Month LIBOR or One-Year LIBOR, respectively, with respect
to such Interest Period will be determined at approximately 11:00 a.m., London
time, on such Interest Rate Determination Date on the basis of the rate at which
deposits in United States dollars having a maturity of one month, three months,
six months or one year, respectively, are offered to prime banks in the London
interbank market by four major banks in the London interbank market selected by
(a) the Auction Agent or (b) the Trustee, as applicable, and in a principal
amount of not less than U.S. $1,000,000 and that is representative for a single
transaction in such market at such time. The Auction Agent or the Trustee, as
applicable, will request the principal London office of each of such banks to
provide a quotation of its rate. If at least two quotations are provided, One-
Month LIBOR, Three-Month LIBOR, Six-Month LIBOR or One-Year LIBOR, respectively,
will be the arithmetic mean (rounded upwards, if necessary, to the nearest one-
hundredth of one percent) of such offered rates. If fewer than two quotations
are provided, One-Month LIBOR, Three-Month LIBOR, Six-Month LIBOR or One-Year
LIBOR, respectively, with respect to such Interest Period will be the arithmetic
mean (rounded upwards, if necessary, to the nearest one-hundredth of one
percent) of the rates quoted at approximately 11:00 a.m., New York City time on
such Interest Rate Determination Date by three major banks in New York, New York
selected by (i) the Auction Agent or (ii) the Trustee, as applicable, for loans
in United States dollars to leading European banks having a maturity of one
month, three months, six months or one year, respectively, and in a principal
amount equal to an amount of not less than U.S. $1,000,000 and that is
representative for a single transaction in such market at such time; provided,
however, that if the banks selected as aforesaid are not quoting as mentioned in
this sentence, One-Month LIBOR, Three-Month LIBOR, Six-Month LIBOR or One-Year
LIBOR, respectively, in effect for the applicable Interest Period will be One-
Month LIBOR, Three-Month LIBOR, Six-Month LIBOR or One-Year LIBOR, respectively,
in effect for the immediately preceding Interest Period.
"ORDER" has the meaning set forth in Section 2.02(a)(i)(A) hereof.
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"PAYMENT DEFAULT" means, with respect to a Class of the Auction Rate Notes,
(a) a default in the due and punctual payment of any installment of interest on
such Class, or (b) a default in the due and punctual payment of any interest on
and principal of such Class at their maturity.
"POTENTIAL OWNER" means any Person (including an Existing Owner that is (a)
a Broker-Dealer when dealing with the Auction Agent and (b) a potential
beneficial owner when dealing with a Broker-Dealer) who may be interested in
acquiring Auction Rate Notes (or, in the case of an Existing Owner thereof, an
additional principal amount of Auction Rate Notes).
"PSA" means the Public Securities Association, its successors and assigns.
"QUARTERLY AVERAGE AUCTION RATE" means the simple average of the Auction
Rates for the Auction Dates preceding the current Auction Date by 91 days or
less, including the current Auction Date.
"QUARTERLY AVERAGE T-BILL RATE" means the simple average of the Bond
Equivalent Yields of 91-day Treasury bills auctioned in the 91 days preceding
(but not including) the current Auction Date.
"REGULAR RECORD DATE" means the Business Day next preceding the applicable
Auction Date.
"REUTERS SCREEN LIBOR PAGE" means the display designated as page "LIBOR" on
the Reuters Monitor Money Rates Service (or such other page as may replace the
LIBOR page for the purposes of displaying London interbank offered rates of
major banks).
"S&P" means Standard & Poor's Ratings Services, a Division of The McGraw-
Hill Companies, Inc., its successors and assigns.
"SELL ORDER" has the meaning set forth in Section 2.02(a)(i)(A) hereof.
"SUBMISSION DEADLINE" means 12:30 p.m., eastern time, on any Auction Date
or such other time on any Auction Date by which Broker-Dealers are required to
submit Orders to the Auction Agent as specified by the Auction Agent from time
to time.
"SUBMITTED BID" has the meaning set forth in Section 2.02(a)(iii)(A)
hereof.
"SUBMITTED HOLD ORDER" has the meaning set forth in Section 2.02(a)(iii)(A)
hereof.
"SUBMITTED ORDER" has the meaning set forth in Section 2.02(a)(iii)(A)
hereof.
"SUBMITTED SELL ORDER" has the meaning set forth in Section 2.02(a)(iii)(A)
hereof.
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"SUBSTITUTE AUCTION AGENT" means the Person with whom the Issuer and the
Trustee enter into a Substitute Auction Agent Agreement.
"SUBSTITUTE AUCTION AGENT AGREEMENT" means an auction agent agreement
containing terms substantially similar to the terms of the Initial Auction Agent
Agreement, whereby a Person having the qualifications required by Section
2.02(e) of this Appendix A agrees with the Trustee and the Issuer to perform the
duties of the Auction Agent under this Appendix A.
"SUFFICIENT BIDS" has the meaning set forth in Section 2.02(a)(iii)(A)
hereof.
"UNITED STATES TREASURY SECURITY RATE" means, for purposes of calculating
the Net Loan Rate applicable to the Auction Rate Notes, that rate of interest
per annum equal to the Bond Equivalent Yield on the applicable United States
Treasury securities sold at the last auction thereof that immediately precedes
the Interest Rate Adjustment Date for the Auction Rate Notes.
"VARIABLE RATE" means the variable rate of interest per annum, including
the Initial Rate, borne by each Class of Auction Rate Notes during the Initial
Period for such Class, and each Interest Period thereafter as such rate of
interest is determined in accordance with the provisions of Article II hereof.
ARTICLE II
TERMS AND ISSUANCE
Section 2.01. AUCTION RATE NOTES. The Initial Rate Adjustment Date for
the Class [199__A-__] Notes shall be [ , 199__], the Initial Rate
Adjustment Date for the Class [199__A-__] Notes shall be [ , 199__], the
Initial Rate Adjustment Date for the Class [199__A-__] Notes shall be
[ , 199__] and the Initial Rate Adjustment Date for the
Class [199__A-__] Notes shall be [ , 199__].
During the Initial Period, each Class of the Auction Rate Notes shall bear
interest at the Initial Rate for such Class. Thereafter, and except with
respect to an Auction Period Adjustment, the Auction Rate Notes shall bear
interest at an Auction Note Interest Rate based on (a) a [__]-day Auction Period
for the Class [199__A-__] Notes, (b) a [__]-day Auction Period for the
Class [199__A-__] Notes, (c) a [__]-day Auction Period for the Class [199__A-__]
Notes and (d) a [__]-day Auction Period for the Class [199__A-__] Notes, as
determined pursuant to this Section 2.01 and Section 2.02 hereof.
For each Class of the Auction Rate Notes during the Initial Period for such
Class and each Auction Period thereafter, interest at the applicable Auction
Rate Notes Interest Rate shall accrue daily and shall be computed for the actual
number of days elapsed on the basis of a year consisting of 360 days.
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The Auction Note Interest Rate to be borne by each Class of the Auction
Rate Notes after such Initial Period for each Auction Period until an Auction
Period Adjustment, if any, shall be determined as described below. Each such
Auction Period after the Initial Period shall commence on and include the day
following the expiration of the immediately preceding Auction Period and
terminate on and include (i) the [ ] Business Day of the following week
in the case of the Class [199__A-__] Notes and (ii) the [ ] Business Day
of the [ ] following week in the case of the Class [199__A-__] Notes,
the Class [199__A-__] Notes and the Class [199__A-__] Notes; provided, however,
that in the case of the Auction Period that immediately follows the Initial
Period for a Class of the Auction Rate Notes, such Auction Period shall commence
on the Initial Rate Adjustment Date for such Class. The Auction Note Interest
Rate on each Class of the Auction Rate Notes for each Auction Period shall be
the Auction Rate in effect for such Auction Period as determined in accordance
with Section 2.02(a) hereof; provided that if, on any Interest Rate
Determination Date, an Auction is not held for any reason, then the Auction Note
Interest Rate on such Auction Rate Notes for the next succeeding Auction Period
shall be the applicable Maximum Auction Rate.
Notwithstanding the foregoing:
(i) if the ownership of an Auction Note is no longer maintained in
Book-entry Form, the Auction Note Interest Rate on the Auction Rate Notes
of such Class for any Interest Period commencing after the delivery of
certificates representing Auction Rate Notes of such Class pursuant to this
Supplemental Indenture shall equal the applicable Maximum Auction Rate on
the Business Day immediately preceding the first day of such subsequent
Interest Period; or
(ii) if a Payment Default shall have occurred, the Auction Note
Interest Rate on a Class of the Auction Rate Notes for the Interest Period
for such Class commencing on or immediately after such Payment Default, and
for each Interest Period thereafter, to and including the Interest Period,
if any, during which, or commencing less than two Business Days after, such
Payment Default is cured, shall equal the applicable Non-Payment Rate on
the first day of each such Interest Period.
In accordance with Section 2.02(a)(iii)(B) hereof, the Auction Agent shall
promptly give written notice to the Trustee and the Issuer of each Auction Note
Interest Rate (unless the Auction Note Interest Rate is the applicable Non-
Payment Rate) and the Maximum Auction Rate when such rate is not the Auction
Note Interest Rate, applicable to each Class of the Auction Rate Notes. The
Trustee shall notify the Registered Owners of Auction Rate Notes of the
applicable Auction Note Interest Rate applicable to each such Class of Auction
Rate Notes for each Auction Period not later than the third Business Day of such
Auction Period.
Notwithstanding any other provision of the Auction Rate Notes or this
Supplemental Indenture and except for the occurrence of a Payment Default,
interest payable on each Class of the Auction Rate Notes for an Auction Period
shall never exceed for such Auction Period the
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amount of interest payable at the applicable Maximum Auction Rate in effect for
such Auction Period.
If the Auction Rate for a Class of Auction Rate Notes is greater than the
applicable Maximum Auction Rate, then the Variable Rate applicable to such
Auction Rate Notes for that Interest Period will be the applicable Maximum
Auction Rate. If the Variable Rate applicable to such Auction Rate Notes for
any Interest Period is the applicable Maximum Auction Rate (without regard to
the last two clauses of the definition thereof), the Trustee shall determine the
Carry-over Amount, if any, with respect to such Auction Rate Notes for such
Interest Period. Such determination of the Carry-over Amount shall be made
separately for each Class of the Auction Rate Notes. Such Carry-over Amount
shall bear interest calculated at a rate equal to One-Month LIBOR (as determined
by the Auction Agent, provided the Trustee has received notice of One-Month
LIBOR from the Auction Agent, and if the Trustee shall not have received such
notice from the Auction Agent, then as determined by the Trustee) from the
Interest Payment Date for the Interest Period with respect to which such Carry-
over Amount was calculated, until paid. Any payment in respect of Carry-over
Amount shall be applied, first, to any accrued interest payable thereon and,
second, in reduction of such Carry-over Amount. For purposes of this
Appendix A, any reference to "principal" or "interest" herein shall not include
within the meaning of such words Carry-over Amount or any interest accrued on
any such Carry-over Amount. Such Carry-over Amount shall be separately
calculated for each Auction Note of such Class by the Trustee during such
Interest Period in sufficient time for the Trustee to give notice to each
Registered Owner of such Carry-over Amount as required in the next succeeding
sentence. Not less than four days before the Interest Payment Date for an
Interest Period with respect to which such Carry-over Amount has been calculated
by the Trustee, the Trustee shall give written notice to each Registered Owner
of the Carry-over Amount applicable to each Registered Owner's Auction Note of
such Class, which written notice may accompany the payment of interest by check
made to each such Registered Owner on such Interest Payment Date or otherwise
shall be mailed on such Interest Payment Date by first-class mail, postage
prepaid, to each such Registered Owner at such Registered Owner's address as it
appears on the registration records maintained by the Registrar. Such notice
shall state, in addition to such Carry-over Amount, that, unless and until an
Auction Note of such Class has been redeemed (other than by optional
redemption), after which all accrued Carry-over Amounts (and all accrued
interest thereon) that remains unpaid shall be canceled and no Carry-over Amount
(and interest accrued thereon) shall be paid with respect to an Auction Note of
such Class, (a) the Carry-over Amount (and interest accrued thereon calculated
at a rate equal to One-Month LIBOR) shall be paid by the Trustee on a Auction
Note of such Class on the earliest of (i) the date of defeasance of any of the
Auction Rate Notes of such Class or (ii) the first occurring Interest Payment
Date (or on the date of any such optional redemption) if and to the extent that
(A) the Eligible Carry-over Make-Up Amount with respect to such subsequent
Interest Period is greater than zero, and (B) moneys are available pursuant to
the terms of this Appendix A in an amount sufficient to pay all or a portion of
such Carry-over Amount (and interest accrued thereon), and (b) interest shall
accrue on the Carry-over Amount at a rate equal to One-Month LIBOR until such
Carry-over Amount is paid in full or is cancelled.
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The Carry-over Amount (and interest accrued thereon) for a Class of Auction
Rate Notes shall be paid by the Trustee on Outstanding Auction Rate Notes of
such Class on the earliest of (a) the date of defeasance of any of the Auction
Rate Notes of such Class or (b) the first occurring Interest Payment Date if and
to the extent that (i) the Eligible Carry-over Make-Up Amount with respect to
such Interest Period is greater than zero, and (ii) on such Interest Payment
Date there are sufficient moneys in the Senior Interest Account of the Revenue
Fund to pay all interest due on the Auction Rate Notes on such Interest Payment
Date. Any Carry-over Amount (and any interest accrued thereon) on any Auction
Note which is due and payable on an Interest Payment Date, which Auction Note is
to be redeemed (other than by optional redemption) on said Interest Payment
Date, shall be paid to the Registered Owner thereof on said Interest Payment
Date to the extent that moneys are available therefor in accordance with the
provisions of this Appendix A; provided, however, that any Carry-over Amount
(and any interest accrued thereon) which is not yet due and payable on said
Interest Payment Date shall be cancelled with respect to said Auction Note that
is to be redeemed (other than by optional redemption) on said Interest Payment
Date and shall not be paid on any succeeding Interest Payment Date. To the
extent that any portion of the Carry-over Amount (and any interest accrued
thereon) remains unpaid after payment of a portion thereof, such unpaid portion
shall be paid in whole or in part as required hereunder until fully paid by the
Trustee on the earliest of (a) the date of defeasance of any of the Auction Rate
Notes of such Class or (b) the next occurring Interest Payment Date or Dates, as
necessary, if and to the extent that the conditions in the second preceding
sentence are satisfied. On any Interest Payment Date on which the Trustee pays
only a portion of the Carry-over Amount (and any interest accrued thereon) on
Auction Rate Notes of such Class, the Trustee shall give written notice in the
manner set forth in the immediately preceding paragraph to the Registered Owner
of such Auction Note receiving such partial payment of the Carry-over Amount
remaining unpaid on such Auction Note.
The Interest Payment Date or other date on which such Carry-over Amount (or
any interest accrued thereon) for a Class of Auction Rate Notes shall be paid
shall be determined by the Trustee in accordance with the provisions of the
immediately preceding paragraph, and the Trustee shall make payment of the
Carry-over Amount (and any interest accrued thereon) in the same manner as, and
from the same Account from which, it pays interest on the Auction Rate Notes on
an Interest Payment Date. Any payment of Carry-over Amounts (and interest
accrued thereon) shall reduce the amount of Eligible Carry-Over Make-Up Amount.
In the event that the Auction Agent no longer determines, or fails to
determine, when required, the Auction Note Interest Rate with respect to a Class
of Auction Rate Notes, or, if for any reason such manner of determination shall
be held to be invalid or unenforceable, the Auction Note Interest Rate for the
next succeeding Interest Period, which Interest Period shall be an Auction
Period, for such Class of Auction Rate Notes shall be the applicable Maximum
Auction Rate as determined by the Auction Agent for such next succeeding Auction
Period, and if the Auction Agent shall fail or refuse to determine the Maximum
Auction Rate, the Maximum Auction Rate shall be determined by the securities
dealer appointed by the Issuer capable of making such a determination in
accordance with the provisions hereof and written notice of such determination
shall be given by such securities dealer to the Trustee.
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Section 2.02. AUCTION NOTE INTEREST RATE.
(a) DETERMINING THE AUCTION NOTE INTEREST RATE. By purchasing
Auction Rate Notes, whether in an Auction or otherwise, each purchaser of
the Auction Rate Notes, or its Broker-Dealer, must agree and shall be
deemed by such purchase to have agreed (x) to participate in Auctions on
the terms described herein, (y) to have its beneficial ownership of the
Auction Rate Notes maintained at all times in Book-entry Form for the
account of its Participant, which in turn will maintain records of such
beneficial ownership and (z) to authorize such Participant to disclose to
the Auction Agent such information with respect to such beneficial
ownership as the Auction Agent may request.
So long as the ownership of a Class of Auction Rate Notes is
maintained in Book-entry Form by the Securities Depository, an Existing
Owner may sell, transfer or otherwise dispose of Auction Rate Notes of such
Class only pursuant to a Bid or Sell Order placed in an Auction or
otherwise sell, transfer or dispose of Auction Rate Notes through a Broker-
Dealer, provided that, in the case of all transfers other than pursuant to
Auctions, such Existing Owner, its Broker-Dealer or its Participant advises
the Auction Agent of such transfer. Auctions shall be conducted on each
Auction Date, if there is an Auction Agent on such Auction Date, in the
following manner (such procedures to be applicable separately to each Class
of the Auction Rate Notes):
(i) (A) Prior to the Submission Deadline on each Auction Date;
(1) each Existing Owner of Auction Rate Notes may
submit to a Broker-Dealer by telephone or otherwise any
information as to:
a. the principal amount of Outstanding Auction
Rate Notes, if any, owned by such Existing Owner which
such Existing Owner desires to continue to own without
regard to the Auction Note Interest Rate for the next
succeeding Auction Period;
b. the principal amount of Outstanding Auction
Rate Notes, if any, which such Existing Owner offers to
sell if the Auction Note Interest Rate for the next
succeeding Auction Period shall be less than the rate
per annum specified by such Existing Owner; and/or
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c. the principal amount of Outstanding Auction
Rate Notes, if any, owned by such Existing Owner which
such Existing Owner offers to sell without regard to
the Auction Note Interest Rate for the next succeeding
Auction Period;
and
(2) one or more Broker-Dealers may contact Potential
Owners to determine the principal amount of Auction Rate
Notes which each Potential Owner offers to purchase, if the
Auction Note Interest Rate for the next succeeding Auction
Period shall not be less than the rate per annum specified
by such Potential Owner.
The statement of an Existing Owner or a Potential Owner referred to in
(1) or (2) of this paragraph (A) is herein referred to as an "Order," and
each Existing Owner and each Potential Owner placing an Order is herein
referred to as a "Bidder"; an Order described in clause (1)a is herein
referred to as a "Hold Order"; an Order described in clauses (1)b and (2)
is herein referred to as a "Bid"; and an Order described in clause (1)c is
herein referred to as a "Sell Order."
(B) (1) Subject to the provisions of Section 2.02(a)(ii)
hereof, a Bid by an Existing Owner shall constitute an
irrevocable offer to sell:
a. the principal amount of Outstanding Auction
Rate Notes specified in such Bid if the Auction Note
Interest Rate determined as provided in this Section
2.02(a) shall be less than the rate specified therein;
or
b. such principal amount, or a lesser principal
amount of Outstanding Auction Rate Notes to be
determined as set forth in Section 2.02(a)(iv)(A)(4)
hereof, if the Auction Note Interest Rate determined as
provided in this Section 2.02(a) shall be equal to the
rate specified therein; or
c. such principal amount, or a lesser principal
amount of Outstanding Auction Rate Notes to be
determined as set forth in Section 2.02(a)(iv)(B)(3)
hereof, if the rate specified therein shall be higher
than the applicable Maximum Auction Rate and Sufficient
Bids have not been made.
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(2) Subject to the provisions of Section 2.02(a)(ii)
hereof, a Sell Order by an Existing Owner shall constitute
an irrevocable offer to sell:
a. the principal amount of Outstanding Auction
Rate Notes specified in such Sell Order; or
b. such principal amount, or a lesser principal
amount of Outstanding Auction Rate Notes set forth in
Section 2.02(a)(iv)(B)(3) hereof, if Sufficient Bids
have not been made.
(3) Subject to the provisions of Section 2.02(a)(ii)
hereof, a Bid by a Potential Owner shall constitute an
irrevocable offer to purchase:
a. the principal amount of Outstanding Auction
Rate Notes specified in such Bid if the Auction Note
Interest Rate determined as provided in this
Section 2.02(a) shall be higher than the rate specified
in such Bid; or
b. such principal amount, or a lesser principal
amount of Outstanding Auction Rate Notes set forth in
Section 2.02(a)(iv)(A)(5) hereof, if the Auction Note
Interest Rate determined as provided in this
Section 2.02(a) shall be equal to the rate specified in
such Bid.
(ii) (A) Each Broker-Dealer shall submit in writing to the
Auction Agent prior to the Submission Deadline on each Auction
Date all Orders obtained by such Broker-Dealer and shall specify
with respect to each such Order:
(1) the name of the Bidder placing such Order;
(2) the aggregate principal amount of Auction Rate
Notes that are the subject of such Order;
(3) to the extent that such Bidder is an Existing
Owner:
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a. the principal amount of Auction Rate Notes,
if any, subject to any Hold Order placed by such
Existing Owner;
b. the principal amount of Auction Rate Notes,
if any, subject to any Bid placed by such Existing
Owner and the rate specified in such Bid; and
c. the principal amount of Auction Rate Notes,
if any, subject to any Sell Order placed by such
Existing Owner;
and
(4) to the extent such Bidder is a Potential Owner,
the rate specified in such Potential Owner's Bid.
(B) If any rate specified in any Bid contains more than
three figures to the right of the decimal point, the Auction
Agent shall round such rate up to the next higher one thousandth
of 1%.
(C) If an Order or Orders covering all Outstanding Auction
Rate Notes owned by an Existing Owner is not submitted to the
Auction Agent prior to the Submission Deadline, the Auction Agent
shall deem a Hold Order to have been submitted on behalf of such
Existing Owner covering the principal amount of Outstanding
Auction Rate Notes owned by such Existing Owner and not subject
to an Order submitted to the Auction Agent.
(D) Neither the Issuer, the Trustee nor the Auction Agent
shall be responsible for any failure of a Broker-Dealer to submit
an Order to the Auction Agent on behalf of any Existing Owner or
Potential Owner.
(E) If any Existing Owner submits through a Broker-Dealer
to the Auction Agent one or more Orders covering in the aggregate
more than the principal amount of Outstanding Auction Rate Notes
owned by such Existing Owner, such Orders shall be considered
valid as follows and in the following order of priority:
(1) All Hold Orders shall be considered valid, but
only up to the aggregate principal amount of Outstanding
Auction Rate Notes owned by such Existing Owner, and if the
aggregate principal amount of Auction Rate Notes subject to
such Hold Orders exceeds the aggregate principal amount of
Auction Rate Notes owned by such Existing Owner, the
aggregate principal amount of Auction Rate Notes subject to
each such Hold Order shall be reduced pro rata so that the
aggregate principal amount of Auction Rate Notes subject to
such Hold Order equals the
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aggregate principal amount of Outstanding Auction Rate Notes
owned by such Existing Owner.
(2) a. Any Bid shall be considered valid up to an
amount equal to the excess of the principal amount of
Outstanding Auction Rate Notes owned by such Existing
Owner over the aggregate principal amount of Auction
Rate Notes subject to any Hold Order referred to in
clause (A) of this paragraph (v);
b. subject to subclause (1) of this clause (B),
if more than one Bid with the same rate is submitted on
behalf of such Existing Owner and the aggregate
principal amount of Outstanding Auction Rate Notes
subject to such Bids is greater than such excess, such
Bids shall be considered valid up to an amount equal to
such excess;
c. subject to subclauses (1) and (2) of this
clause (B), if more than one Bid with different rates
are submitted on behalf of such Existing Owner, such
Bids shall be considered valid first in the ascending
order of their respective rates until the highest rate
is reached at which such excess exists and then at such
rate up to the amount of such excess; and
d. in any such event, the amount of Outstanding
Auction Rate Notes, if any, subject to Bids not valid
under this clause (B) shall be treated as the subject
of a Bid by a Potential Owner at the rate therein
specified; and
(3) All Sell Orders shall be considered valid up to an
amount equal to the excess of the principal amount of
Outstanding Auction Rate Notes owned by such Existing Owner
over the aggregate principal amount of Auction Rate Notes
subject to Hold Orders referred to in clause (1) of this
paragraph (v) and valid Bids referred to in clause (2) of
this paragraph (E).
(F) If more than one Bid for Auction Rate Notes is
submitted on behalf of any Potential Owner, each Bid submitted
shall be a separate Bid with the rate and principal amount
therein specified.
(G) An Existing Owner that offers to purchase additional
Auction Rate Notes is, for purposes of such offer, treated as a
Potential Owner.
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(H) Any Bid or Sell Order submitted by an Existing Owner
covering an aggregate principal amount of Auction Rate Notes not
equal to an Authorized Denomination shall be rejected and shall
be deemed a Hold Order. Any Bid submitted by a Potential Owner
covering an aggregate principal amount of Auction Rate Notes not
equal to an Authorized Denomination shall be rejected.
(I) Any Bid specifying a rate higher than the applicable
Maximum Auction Rate will (1) be treated as a Sell Order if
submitted by an Existing Owner and (2) not be accepted if
submitted by a Potential Owner.
(J) Any Order submitted in an Auction by a Broker-Dealer to
the Auction Agent prior to the Submission Deadline on any Auction
Date shall be irrevocable.
(iii) (A) Not earlier than the Submission Deadline on each
Auction Date, the Auction Agent shall assemble all valid Orders
submitted or deemed submitted to it by the Broker-Dealers (each
such Order as submitted or deemed submitted by a Broker-Dealer
being herein referred to individually as a "Submitted Hold
Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order," and collectively as
"Submitted Hold Orders," "Submitted Bids" or "Submitted Sell
Orders," as the case may be, or as "Submitted Orders") and shall
determine:
(1) the excess of the total principal amount of
Outstanding Auction Rate Notes over the sum of the aggregate
principal amount of Outstanding Auction Rate Notes subject
to Submitted Hold Orders (such excess being herein referred
to as the "Available Auction Rate Notes"), and
(2) from the Submitted Orders whether:
a. the aggregate principal amount of Outstanding
Auction Rate Notes subject to Submitted Bids by
Potential Owners specifying one or more rates equal to
or lower than the applicable Maximum Auction Rate;
exceeds or is equal to the sum of:
b. the aggregate principal amount of Outstanding
Auction Rate Notes subject to Submitted Bids
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by Existing Owners specifying one or more rates higher
than the applicable Maximum Auction Rate; and
c. the aggregate principal amount of Outstanding
Auction Rate Notes subject to Submitted Sell Orders;
(in the event such excess or such equality exists, other
than because all of the Outstanding Auction Rate Notes are
subject to Submitted Hold Orders, such Submitted Bids
described in subclause a. above shall be referred to
collectively as "Sufficient Bids"); and
(3) if Sufficient Bids exist, the Bid Auction Rate,
which shall be the lowest rate specified in such Submitted
Bids such that if:
a. (x) each Submitted Bid from Existing Owners
specifying such lowest rate and (y) all other Submitted
Bids from Existing Owners specifying lower rates were
rejected, thus entitling such Existing Owners to
continue to own the principal amount of Auction Rate
Notes subject to such Submitted Bids; and
b. (x) each such Submitted Bid from Potential
Owners specifying such lowest rate and (y) all other
Submitted Bids from Potential Owners specifying lower
rates were accepted;
the result would be that such Existing Owners described in
subclause a. above would continue to own an aggregate principal
amount of Outstanding Auction Rate Notes which, when added to the
aggregate principal amount of Outstanding Auction Rate Notes to
be purchased by such Potential Owners described in subclause b.
above, would equal not less than the Available Auction Rate
Notes.
(B) Promptly after the Auction Agent has made the
determinations pursuant to Section 2.02(a)(iii)(A) hereof, the
Auction Agent shall advise the Trustee, the Broker-Dealers and
the Issuer of the Maximum Auction Rate and the All Hold Rate and
the components thereof on the Auction Date and, based on such
determinations, the Auction Rate for the next succeeding Interest
Period as follows:
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(1) if Sufficient Bids exist, that the Auction Rate
for the next succeeding Interest Period shall be equal to
the Bid Auction Rate so determined;
(2) if Sufficient Bids do not exist (other than
because all of the Outstanding Auction Rate Notes are
subject to Submitted Hold Orders), that the Auction Rate for
the next succeeding Interest Period shall be equal to the
applicable Maximum Auction Rate; or
(3) if all Outstanding Auction Rate Notes are subject
to Submitted Hold Orders, that the Auction Rate for the next
succeeding Interest Period shall be equal to the applicable
All Hold Rate.
(C) Promptly after the Auction Agent has determined the
Auction Rate, the Auction Agent shall determine and advise the
Trustee of the Auction Note Interest Rate, which rate shall be
the Auction Rate; provided, however, that in no event shall the
Auction Note Interest Rate exceed the applicable Maximum Auction
Rate.
(iv) Existing Owners shall continue to own the principal amount
of Auction Rate Notes that are subject to Submitted Hold Orders. If
Sufficient Bids have been received by the Auction Agent, the Bid
Auction Rate will be the Auction Note Interest Rate, and Submitted
Bids and Submitted Sell Orders will be accepted or rejected and the
Auction Agent will take such other action as described below in
subparagraph (A).
If the Auction Rate is greater than the applicable Maximum
Auction Rate, the Auction Note Interest Rate shall be equal to the
applicable Maximum Auction Rate. If the Auction Agent has not
received Sufficient Bids (other than because all of the Outstanding
Auction Rate Notes are subject to Submitted Hold Orders), the Auction
Note Interest Rate will be the applicable Maximum Auction Rate. In
any of the cases described above, Submitted Orders will be accepted or
rejected and the Auction Agent will take such other action as
described below in subparagraph (B).
(A) If Sufficient Bids have been made and if the applicable
Maximum Auction Rate does not apply (in which case the Auction
Note Interest Rate shall be the Bid Auction Rate), all Submitted
Sell Orders shall be accepted and, subject to the provisions of
clauses (4) and (5) of this Section 2.02(a)(iv), Submitted Bids
shall be accepted or rejected as follows in the following order
of priority, and all other Submitted Bids shall be rejected:
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(1) Existing Owners' Submitted Bids specifying any
rate that is higher than the Auction Note Interest Rate
shall be accepted, thus requiring each such Existing Owner
to sell the aggregate principal amount of Auction Rate Notes
subject to such Submitted Bids;
(2) Existing Owners' Submitted Bids specifying any
rate that is lower than the Auction Note Interest Rate shall
be rejected, thus entitling each such Existing Owner to
continue to own the aggregate principal amount of Auction
Rate Notes subject to such Submitted Bids;
(3) Potential Owners' Submitted Bids specifying any
rate that is lower than the Auction Note Interest Rate shall
be accepted;
(4) Each Existing Owners' Submitted Bid specifying a
rate that is equal to the Auction Note Interest Rate shall
be rejected, thus entitling such Existing Owner to continue
to own the aggregate principal amount of Auction Rate Notes
subject to such Submitted Bid, unless the aggregate
principal amount of Outstanding Auction Rate Notes subject
to all such Submitted Bids shall be greater than the
principal amount of Auction Rate Notes (the "remaining
principal amount") equal to the excess of the Available
Auction Rate Notes over the aggregate principal amount of
Auction Rate Notes subject to Submitted Bids described in
clauses (2) and (3) of this Section 2.02(a)(iv)(D)(1), in
which event such Submitted Bid of such Existing Owner shall
be rejected in part, and such Existing Owner shall be
entitled to continue to own the principal amount of Auction
Rate Notes subject to such Submitted Bid, but only in an
amount equal to the aggregate principal amount of Auction
Rate Notes obtained by multiplying the remaining principal
amount by a fraction, the numerator of which shall be the
principal amount of Outstanding Auction Rate Notes owned by
such Existing Owner subject to such Submitted Bid and the
denominator of which shall be the sum of the principal
amount of Outstanding Auction Rate Notes subject to such
Submitted Bids made by all such Existing Owners that
specified a rate equal to the Auction Note Interest Rate,
subject to the provisions of Section 2.02(a)(iv)(D) hereof;
and
(5) Each Potential Owner's Submitted Bid specifying a
rate that is equal to the Auction Note Interest Rate shall
be accepted, but only in an amount equal to the principal
amount of
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Auction Rate Notes obtained by multiplying the excess of the
aggregate principal amount of Available Auction Rate Notes
over the aggregate principal amount of Auction Rate Notes
subject to Submitted Bids described in clauses (2), (3) and
(4) of this Section 2.02(a)(iv)(A) by a fraction the
numerator of which shall be the aggregate principal amount
of Outstanding Auction Rate Notes subject to such Submitted
Bid and the denominator of which shall be the sum of the
principal amount of Outstanding Auction Rate Notes subject
to Submitted Bids made by all such Potential Owners that
specified a rate equal to the Auction Note Interest Rate,
subject to the provisions of Section 2.02(a)(iv)(D) hereof.
(B) If Sufficient Bids have not been made (other than
because all of the Outstanding Auction Rate Notes are subject to
submitted Hold Orders), or if the applicable Maximum Auction Rate
applies, subject to the provisions of Section 2.02(a)(iv)(D)
hereof, Submitted Orders shall be accepted or rejected as follows
in the following order of priority and all other Submitted Bids
shall be rejected:
(1) Existing Owners' Submitted Bids specifying any
rate that is equal to or lower than the Auction Note
Interest Rate shall be rejected, thus entitling such
Existing Owners to continue to own the aggregate principal
amount of Auction Rate Notes subject to such Submitted Bids;
(2) Potential Owners' Submitted Bids specifying (x)
any rate that is equal to or lower than the Auction Note
Interest Rate shall be accepted and (y) any rate that is
higher than the Auction Note Interest Rate shall be
rejected; and
(3) each Existing Owner's Submitted Bid specifying any
rate that is higher than the Auction Note Interest Rate and
the Submitted Sell Order of each Existing Owner shall be
accepted, thus entitling each Existing Owner that submitted
any such Submitted Bid or Submitted Sell Order to sell the
Auction Rate Notes subject to such Submitted Bid or
Submitted Sell Order, but in both cases only in an amount
equal to the aggregate principal amount of Auction Rate
Notes obtained by multiplying the aggregate principal amount
of Auction Rate Notes subject to Submitted Bids described in
clause (2)(x) of this Section 2.02(a)(iv)(B) by a fraction
the numerator of which shall be the aggregate principal
amount of Outstanding Auction Rate Notes owned by such
Existing Owner subject to such submitted Bid or Submitted
Sell Order and the denominator of which shall be the
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aggregate principal amount of Outstanding Auction Rate Notes
subject to all such Submitted Bids and Submitted Sell
Orders.
(C) If all Auction Rate Notes are subject to Submitted Hold
Orders, all Submitted Bids shall be rejected.
(D) If, as a result of the procedures described in
paragraph (A) or (B) of this Section 2.02(a)(iv), any Existing
Owner would be entitled or required to sell, or any Potential
Owner would be entitled or required to purchase, a principal
amount of Auction Rate Notes that is not equal to an Authorized
Denomination, the Auction Agent shall, in such manner as in its
sole discretion it shall determine, round up or down the
principal amount of Auction Rate Notes to be purchased or sold by
any Existing Owner or Potential Owner so that the principal
amount of Auction Rate Notes purchased or sold by each Existing
Owner or Potential Owner shall be equal to an Authorized
Denomination.
(E) If, as a result of the procedures described in
paragraph (B) of this Section 2.02(a)(iv), any Potential Owner
would be entitled or required to purchase less than an Authorized
Denomination of Auction Rate Notes, the Auction Agent shall, in
such manner as in its sole discretion it shall determine,
allocate Auction Rate Notes for purchase among Potential Owners
so that only Auction Rate Notes in Authorized Denominations are
purchased by any Potential Owner, even if such allocation results
in one or more of such Potential Owners not purchasing any
Auction Rate Notes.
(v) Based on the result of each Auction, the Auction Agent shall
determine the aggregate principal amount of Auction Rate Notes to be
purchased and the aggregate principal amount of Auction Rate Notes to
be sold by Potential Owners and Existing Owners on whose behalf each
Broker-Dealer submitted Bids or Sell Orders and, with respect to each
Broker-Dealer, to the extent that such aggregate principal amount of
Auction Rate Notes to be sold differs from such aggregate principal
amount of Auction Rate Notes to be purchased, determine to which other
Broker-Dealer or Broker-Dealers acting for one or more purchasers such
Broker-Dealer shall deliver, or from which other Broker-Dealer or
Broker-Dealers acting for one or more sellers such Broker-Dealer shall
receive, as the case may be, Auction Rate Notes.
(vi) Any calculation by the Auction Agent or the Trustee, as
applicable, of the Auction Note Interest Rate, the Maximum Auction
Rate, the All Hold Rate and the Non-Payment Rate shall, in the absence
of manifest error, be binding on all other parties.
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(vii) Notwithstanding anything in this Appendix A to the
contrary, (A) no Auction for the Auction Rate Notes for an Auction
Period of less than 180 days will be held on any Auction Date
hereunder on which there are insufficient moneys in the Senior
Interest Account of the Revenue Fund and the Senior Redemption Account
of the Note Redemption Fund to pay, or otherwise held by the Trustee
under the Indenture and available to pay, the principal of and
interest due on the Auction Rate Notes on the Interest Payment Date
immediately following such Auction Date, and (B) no Auction will be
held on any Auction Date hereunder during the continuance of a Payment
Default. The Trustee shall promptly notify the Auction Agent of any
such occurrence.
(b) APPLICATION OF INTEREST PAYMENTS FOR THE AUCTION RATE NOTES.
(i) The Trustee shall determine not later than 2:00 p.m.,
eastern time, on the Business Day next succeeding an Interest Payment
Date, whether a Payment Default has occurred. If a Payment Default
has occurred, the Trustee shall, not later than 2:15 p.m., eastern
time, on such Business Day, send a notice thereof in substantially the
form of Exhibit F attached hereto to the Auction Agent by telecopy or
similar means and, if such Payment Default is cured, the Trustee shall
immediately send a notice in substantially the form of Exhibit G
attached hereto to the Auction Agent by telecopy or similar means.
(ii) Not later than 2:00 p.m., eastern time, on each anniversary
of the Closing Date, the Trustee shall pay to the Auction Agent, in
immediately available funds out of amounts in the Revenue Fund, an
amount equal to the Auction Agent Fee as set forth in the Auction
Agent Agreement. Not later than 2:00 p.m., eastern time, on each
Auction Date, the Trustee shall pay to the Auction Agent, in
immediately available funds out of amounts in the Revenue Fund, an
amount equal to the Broker-Dealer Fee as calculated in the Auction
Agent Agreement. The Trustee shall, from time to time at the request
of the Auction Agent and at the direction of an Authorized Officer,
reimburse the Auction Agent for its reasonable expenses as provided in
the Auction Agent Agreement, such expenses to be paid out of amounts
in the Revenue Fund.
(c) CALCULATION OF MAXIMUM AUCTION RATE, ALL HOLD RATE AND NON-
PAYMENT RATE. The Auction Agent shall calculate the applicable Maximum
Auction Rate and All Hold Rate, as the case may be, on each Auction Date
and shall notify the Trustee and the Broker-Dealers of the applicable
Maximum Auction Rate and All Hold Rate, as the case may be, as provided in
the Auction Agent Agreement; provided, that if the ownership of the Auction
Rate Notes is no longer maintained in Book-entry Form, or if a Payment
Default has occurred, then the Trustee shall determine the applicable
Maximum Auction Rate, All Hold Rate and Non-Payment Rate for each such
Interest Period. The Market Agent shall calculate the Index (if the Index
is other than the PSA Municipal Swap Index) on each Interest Rate
Determination Date and shall notify the
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Trustee and the Auction Agent of the Index prior to 9:30 a.m., eastern
time, on each Interest Rate Determination Date. If the ownership of the
Auction Rate Notes is no longer maintained in Book-entry Form by the
Securities Depository, the Trustee shall calculate the applicable Maximum
Auction Rate on the Business Day immediately preceding the first day of
each Interest Period after the delivery of certificates representing the
Auction Rate Notes pursuant to the Indenture. If a Payment Default shall
have occurred, the Trustee shall calculate the Non-Payment Rate on the
Interest Rate Determination Date for (i) each Interest Period commencing
after the occurrence and during the continuance of such Payment Default and
(ii) any Interest Period commencing less than two Business Days after the
cure of any Payment Default. The determination by the Trustee or the
Auction Agent, as the case may be, of the applicable Maximum Auction Rate,
All Hold Rate and Non-Payment Rate shall (in the absence of manifest error)
be final and binding upon all parties. If calculated or determined by the
Auction Agent, the Auction Agent shall promptly advise the Trustee of the
applicable Maximum Auction Rate and All Hold Rate. The determination by
the Market Agent of the Index shall (in the absence of manifest error) be
final and binding upon all parties.
If the Federal Reserve Bank of New York does not make available its
30-day commercial paper rate for purposes of determining the "AA" Composite
Commercial Paper Rate, the Auction Agent shall notify the Trustee of such
fact and the Trustee shall thereupon request that an Authorized Officer
promptly appoint at least two Commercial Paper Dealers (in addition to
[ ]) to provide commercial paper quotes for
purposes of determining the "AA" Composite Commercial Paper Rate. Pending
appointment of both such additional Commercial Paper Dealers, Smith Barney
Inc. and any other Commercial Paper Dealer appointed and serving as such
shall provide the required quotations, and such quotations shall be used
for purposes of this Appendix A. [ ] is hereby
appointed as a Commercial Paper Dealer to provide commercial paper quotes
for purposes of determining the "AA" Composite Commercial Paper Rate as
provided above.
(d) NOTIFICATION OF RATES, AMOUNTS AND PAYMENT DATES.
(i) By 12:00 noon, eastern time, on the Business Day following
each Regular Record Date, the Trustee shall determine the aggregate
amounts of interest distributable on the next succeeding Interest
Payment Date to the beneficial owners of Auction Rate Notes.
(ii) At least four days prior to any Interest Payment Date, the
Trustee shall:
(A) confirm with the Auction Agent, so long as no Payment
Default has occurred and is continuing and the ownership of the
Auction Rate Notes is maintained in Book-entry Form by the
Securities Depository, (1) the date of such next Interest Payment
Date and (2) the
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amount payable to the Auction Agent on the Auction Date pursuant
to Section 2.02(b)(ii) hereof;
(B) pursuant to Section 2.01 hereof, advise the Registered
Owners of a Class of Auction Rate Notes of any Carry-over Amount
accruing on such Auction Rate Notes; and
(C) advise the Securities Depository, so long as the
ownership of the Auction Rate Notes is maintained in Book-entry
Form by the Securities Depository, upon request, of the aggregate
amount of interest distributable on such next Interest Payment
Date to the beneficial owners of each Class of the Auction Rate
Notes.
If any day scheduled to be an Interest Payment Date shall be changed
after the Trustee shall have given the notice or confirmation referred to
in clause (i) of the preceding sentence, the Trustee shall, not later than
11:15 a.m., eastern time, on the Business Day next preceding the earlier of
the new Interest Payment Date or the old Interest Payment Date, by such
means as the Trustee deems practicable, give notice of such change to the
Auction Agent, so long as no Payment Default has occurred and is continuing
and the ownership of the Auction Rate Notes is maintained in Book-entry
Form by the Securities Depository.
(e) AUCTION AGENT.
(i) [ ] is hereby appointed as Initial
Auction Agent to serve as agent for the Issuer in connection with
Auctions. The Trustee and the Issuer will, and the Trustee is hereby
directed to, enter into the Initial Auction Agent Agreement with
Bankers Trust Company, as the Initial Auction Agent. Any Substitute
Auction Agent shall be (A) a bank, national banking association or
trust company duly organized under the laws of the United States of
America or any state or territory thereof having its principal place
of business in the Borough of Manhattan, New York, or such other
location as approved by the Trustee in writing and having a combined
capital stock or surplus of at least $50,000,000, or (B) a member of
the National Association of Securities Dealers, Inc., having a
capitalization of at least $50,000,000, and, in either case,
authorized by law to perform all the duties imposed upon it hereunder
and under the Auction Agent Agreement. The Auction Agent may at any
time resign and be discharged of the duties and obligations created by
this Appendix A by giving at least 90 days' notice to the Trustee, the
Market Agent and the Issuer. The Auction Agent may be removed at any
time by the Trustee upon the written direction of an Authorized
Officer or the Registered Owners of 51% of the aggregate principal
amount of the Auction Rate Notes then Outstanding, and if by such
Registered Owners, by an instrument signed by such Registered Owners
or their attorneys and filed with the Auction Agent, the Issuer and
the Trustee
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upon at least 90 days' written notice. Neither resignation nor
removal of the Auction Agent pursuant to the preceding two sentences
shall be effective until and unless a Substitute Auction Agent has
been appointed and has accepted such appointment. If required by the
Issuer, a Substitute Auction Agent Agreement shall be entered into
with a Substitute Auction Agent. Notwithstanding the foregoing, the
Auction Agent may terminate the Auction Agent Agreement if, within 25
days after notifying the Trustee, the Market Agent and the Issuer in
writing that it has not received payment of any Auction Agent Fee due
it in accordance with the terms of the Auction Agent Agreement, the
Auction Agent does not receive such payment.
(ii) If the Auction Agent shall resign or be removed or be
dissolved, or if the property or affairs of the Auction Agent shall be
taken under the control of any state or federal court or
administrative body because of bankruptcy or insolvency, or for any
other reason, the Trustee at the direction of an Authorized Officer,
shall use its best efforts to appoint a Substitute Auction Agent.
(iii) The Auction Agent is acting as agent for the Issuer in
connection with Auctions. In the absence of bad faith, negligent
failure to act or negligence on its part, the Auction Agent shall not
be liable for any action taken, suffered or omitted or any error of
judgment made by it in the performance of its duties under the Auction
Agent Agreement and shall not be liable for any error of judgment made
in good faith unless the Auction Agent shall have been negligent in
ascertaining (or failing to ascertain) the pertinent facts.
(f) BROKER-DEALERS.
(i) The Auction Agent will enter into a Broker-Dealer Agreement
with [ ], as the initial Broker-Dealer. An
Authorized Officer may, from time to time, approve one or more
additional persons to serve as Broker-Dealers under Broker-Dealer
Agreements and shall be responsible for providing such Broker-Dealer
Agreements to the Trustee and the Auction Agent, provided, however
that while [ ] is serving as a
Broker-Dealer, [ ] shall have the right to
consent to the approval of any additional Broker-Dealers, which
consent will not be unreasonably withheld.
(ii) Any Broker-Dealer may be removed at any time, at the request
of an Authorized Officer, but there shall, at all times, be at least
one Broker-Dealer appointed and acting as such.
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(g) CHANGES IN AUCTION PERIOD OR PERIODS AND CERTAIN PERCENTAGES.
(i) While any of the Auction Rate Notes are Outstanding, the
Issuer may, from time to time, change the length of one or more
Auction Periods (an "Auction Period Adjustment"), in order to conform
with then current market practice with respect to similar securities
or to accommodate economic and financial factors that may affect or be
relevant to the length of the Auction Period and the interest rate
borne by the Auction Rate Notes. The Issuer shall not initiate an
Auction Period Adjustment unless it shall have received the written
consent of the Market Agent, which consent shall not be unreasonably
withheld, not later than nine days prior to the Auction Date for such
Auction Period. The Issuer shall initiate the Auction Period
Adjustment by giving written notice by Issuer Order to the Trustee,
the Auction Agent, the Market Agent, each Rating Agency and the
Securities Depository in substantially the form of, or containing
substantially the information contained in, Exhibit H attached hereto
at least 10 days prior to the Auction Date for such Auction Period.
(ii) Any such adjusted Auction Period shall not be less than 7
days nor more than 366 days.
(iii) An Auction Period Adjustment shall take effect only if
(A) the Trustee and the Auction Agent receive, by 11:00 a.m., eastern
time, on the Business Day before the Auction Date for the first such
Auction Period, an Issuer Certificate in substantially the form
attached as, or containing substantially the same information
contained in, Exhibit I attached hereto, authorizing the Auction
Period Adjustment specified in such certificate along with a copy of
the written consent of the Market Agent and, (B) Sufficient Bids exist
as of the Auction on the Auction Date for such first Auction Period.
If the condition referred to in (A) above is not met, the applicable
Auction Note Interest Rate for the next Auction Period shall be
determined pursuant to the above provisions of this Section 2.02 and
the Auction Period shall be the Auction Period determined without
reference to the proposed change. If the condition referred to in (A)
is met but the condition referred in (B) above is not met, the
applicable Auction Note Interest Rate for the next Auction Period
shall be the applicable Maximum Auction Rate and the Auction Period
shall be the Auction Period determined without reference to the
proposed change.
In connection with any Auction Period Adjustment, the Auction
Agent shall provide such further notice to such parties as is
specified in Section 2.03 of the Auction Agent Agreement.
(h) CHANGES IN THE AUCTION DATE. The Market Agent, with the written
consent of an Authorized Officer and, if applicable, upon receipt of the
opinion of Note Counsel as required below, may specify an earlier Auction
Date (but in no event more than five
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Business Days earlier) than the Auction Date that would otherwise be
determined in accordance with the definition of "Auction Date" in Section
1.01 of this Appendix A with respect to one or more specified Auction
Periods in order to conform with then current market practice with respect
to similar securities or to accommodate economic and financial factors that
may affect or be relevant to the day of the week constituting an Auction
Date and the interest rate borne on the Auction Rate Notes. The Market
Agent shall deliver a written request for consent to such change in the
length of the Auction Date to the Issuer at least 14 days prior to the
effective date of such change. If the Issuer shall have delivered such
written consent to the Market Agent, the Market Agent shall provide notice
of its determination to specify an earlier Auction Date for one or more
Auction Periods by means of a written notice delivered at least 10 days
prior to the proposed changed Auction Date to the Trustee, the Auction
Agent, the Issuer, each Rating Agency and the Securities Depository. Such
notice shall be substantially in the form of, or contain substantially the
information contained in, Exhibit J attached hereto.
In connection with any change described in this Section 2.02(h), the
Auction Agent shall provide such further notice to such parties as is
specified in Section 2.03 of the Auction Agent Agreement.
Section 2.03. ADDITIONAL PROVISIONS REGARDING THE INTEREST RATES ON THE
AUCTION RATE NOTES. The determination of a Variable Rate by the Auction Agent
or any other Person pursuant to the provisions of the applicable Section of this
Article II shall be conclusive and binding on the Registered Owners of the Class
of Auction Rate Notes to which such Variable Rate applies, and the Issuer and
the Trustee may rely thereon for all purposes.
In no event shall the cumulative amount of interest paid or payable on a
Class of Auction Rate Notes (including interest calculated as provided herein,
plus any other amounts that constitute interest on the Auction Rate Notes of
such Class under applicable law, which are contracted for, charged, reserved,
taken or received pursuant to the Auction Rate Notes of such Class or related
documents) calculated from the date of issuance of the Auction Rate Notes of
such Class through any subsequent day during the term of the Auction Rate Notes
of such Class or otherwise prior to payment in full of the Auction Rate Notes of
such Class exceed the amount permitted by applicable law. If the applicable law
is ever judicially interpreted so as to render usurious any amount called for
under the Auction Rate Notes of such Class or related documents or otherwise
contracted for, charged, reserved, taken or received in connection with the
Auction Rate Notes of such Class, or if the redemption or acceleration of the
maturity of the Auction Rate Notes of such Class results in payment to or
receipt by the Registered Owner or any former Registered Owner of the Auction
Rate Notes of such Class of any interest in excess of that permitted by
applicable law, then, notwithstanding any provision of the Auction Rate Notes of
such Class or related documents to the contrary, all excess amounts theretofore
paid or received with respect to the Auction Rate Notes of such Class shall be
credited on the principal balance of the Auction Rate Notes of such Class (or,
if the Auction Rate Notes of such Class have been paid or would thereby be paid
in full, refunded by the recipient thereof), and the provisions of the Auction
Rate Notes of such Class and related documents shall automatically and
immediately
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be deemed reformed and the amounts thereafter collectible hereunder and
thereunder reduced, without the necessity of the execution of any new document,
so as to comply with the applicable law, but so as to permit the recovery of the
fullest amount otherwise called for under the Auction Rate Notes of such Class
and under the related documents.
Section 2.04. QUALIFICATIONS OF MARKET AGENT. The Market Agent shall be a
member of the National Association of Securities Dealers, Inc., have a
capitalization of at least $50,000,000 and be authorized by law to perform all
the duties imposed upon it by this Appendix A. The Market Agent may resign and
be discharged of the duties and obligations created by this Appendix A by giving
at least 30 days notice to the Issuer and the Trustee, provided that such
resignation shall not be effective until the appointment of a successor market
agent by the Issuer and the acceptance of such appointment by such successor
market agent. The Market Agent may be replaced at the direction of the Issuer,
by an instrument signed by an Authorized Officer, filed with the Market Agent
and the Trustee at least 30 days before the effective date of such replacement,
provided that such replacement shall not be effective until the appointment
of a successor market agent by the Issuer and the acceptance of such
appointment by such successor market agent.
In the event that the Market Agent shall be removed or be dissolved, or if
the property or affairs of the Market Agent shall be taken under the control of
any state or federal court or administrative body because of bankruptcy or
insolvency, or for any other reason, and there is no Market Agent and the Issuer
shall not have appointed its successor as Market Agent, the Trustee,
notwithstanding the provisions of the first paragraph of this Section, shall be
deemed to be the Market Agent for all purposes of this Appendix A until the
appointment by the Issuer of the successor Market Agent. Nothing in this
Section shall be construed as conferring on the Trustee additional duties other
than as set forth herein.
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APPENDIX B
CERTAIN TERMS AND PROVISIONS OF
THE CLASS [199__B-__] SUBORDINATE [INDEX] RATE NOTES
ARTICLE I
Section 1.01. DEFINITIONS. In addition to the terms defined elsewhere in
the Indenture and this Supplemental Indenture, the following terms shall have
the following meanings with respect to the Class [199__B-__] Notes, unless the
context otherwise requires:
"APPLICABLE RATE" shall have the meaning set forth in Section 2.01(b)
hereof.
"AUTHORIZED DENOMINATIONS" shall mean $_________ and any multiple thereof.
"BOND-EQUIVALENT YIELD" shall mean, in respect of any security with a
maturity of six months or less the rate for which is quoted in THE WALL STREET
JOURNAL on a bank discount basis, a yield (expressed as a percentage) calculated
in accordance with the following formula and rounded up to the nearest one
one-hundredth of one percent:
Bond Equivalent Yield = Q x N x 100
-----------------
360 - (T x Q)
where "Q" refers to the per annum rate for the security quoted on a bank
discount basis and expressed as a decimal, "N" refers to 365 or 366 (days), as
the case may be, and "T" refers to the number of days to maturity.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday, holiday or
day on which banks in New York, New York, or the New York Stock Exchange, the
Trustee or the Calculation Agent, are authorized or permitted by law or
executive order to close.
"CALCULATION AGENT" shall mean any person appointed as such pursuant to
Section 2.07 hereof.
"DEPOSITORY" shall mean The Depository Trust Company or any successor
securities depository selected or approved by the Issuer.
"HOLDER" as used in this Appendix B shall mean the beneficial owner of any
Class [199__B-__] Note.
"INITIAL INTEREST PAYMENT DATE" shall mean [____________, 199__] for the
Class [199__B-__] Notes.
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"INITIAL INTEREST PERIOD" shall mean, for the Class [199__B-__] Notes, the
period from and including the date of delivery of the Class [199__B-__] Notes
and ending on [ , 199__].
"INTEREST AMOUNT" shall mean the amount of interest distributable in
respect of each $ in principal amount (taken, without rounding, to
.0001 of one cent) of Class [199__B-__] Notes for any Interest Period or part
thereof, as calculated in accordance with Section 2.07 hereof.
"INTEREST PAYMENT DATE" means [ , 199__] and the first day of each
month thereafter, and the maturity date for any Class [199__B-__] Note, or if
any such date is not a Business Day, the next succeeding Business Day (but only
for interest accrued through the last day of the calendar month next preceding
such Interest Payment Date).
"INTEREST PERIOD" means the Initial Interest Period for the
Class [199__B-__] Notes and the period beginning on the first day of each
month and ending on the last day of each month.
"LIBOR DETERMINATION DATE" shall mean the Business Day immediately
preceding the first day of each Interest Period.
"LIBOR-BASED RATE" shall mean One-Month LIBOR plus [__%].
"MAXIMUM INTEREST RATE" shall mean the lesser of (a) 16% per annum or (b)
the maximum rate of interest permitted under State law for student loan notes of
the Issuer.
"ONE-MONTH LIBOR" means the rate of interest per annum equal to the rate
per annum at which United States dollar deposits having a maturity of one month
are offered to prime banks in the London interbank market which appear on the
Telerate Service LIBOR Page as of approximately 11:00 a.m., London time, on the
LIBOR Determination Date. If at least two such quotations appear, One-Month
LIBOR will be the arithmetic mean (rounded upwards, if necessary, to the nearest
one-hundredth of one percent) of such offered rates. If fewer than two such
quotes appear, One-Month LIBOR with respect to such Interest Period will be
determined at approximately 11:00 a.m., London time, on such LIBOR Determination
Date on the basis of the rate at which deposits in United States dollars having
a maturity of three months are offered to prime banks in the London interbank
market by four major banks in the London interbank market selected by (i) the
Calculation Agent (if the Calculation Agent is other than the Trustee) or (ii)
the Trustee, and in a principal amount of not less than U.S. $1,000,000 and that
is representative for a single transaction in such market at such time. The
Calculation Agent or the Trustee, as applicable, will request the principal
London office of each of such banks to provide a quotation of its rate. If at
least two quotations are provided, One-Month LIBOR will be the arithmetic mean
(rounded upwards, if necessary, to the nearest one-hundredth of one percent) of
such offered rates. If fewer than two quotations are provided, One-Month LIBOR
with respect to such Interest Period will be the arithmetic mean (rounded
upwards, if necessary, to the nearest one-hundredth of one percent) of the rates
quoted at approximately 11:00 a.m.,
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New York City time on such LIBOR Determination Date by three major banks in New
York, New York selected by (x) the Calculation Agent or (y) the Trustee, as
applicable, for loans in United States dollars to leading European banks having
a maturity of three months and in a principal amount equal to an amount of not
less than U.S. $1,000,000 and that is representative for a single transaction in
such market at such time; provided, however, that if the banks selected as
aforesaid are not quoting as mentioned in this sentence, One-Month LIBOR in
effect for the applicable Interest Period, will be One-Month LIBOR in effect for
the immediately preceding Interest Period.
"PARTICIPANT" shall mean a member of or participant in, the Depository.
"PAYMENT DEFAULT" shall mean failure to make payment of interest on,
premium, if any, and principal of the Class [199__B-__] Notes when due, by the
Issuer.
"PERSON" means and includes, unless otherwise specified, an individual,
corporation, company, trust, estate partnership or association.
"RECORD DATE" shall mean the Business Day immediately preceding the
Interest Payment Date.
"REDEMPTION DATE," when used with respect to any Class [199__B-__] Notes to
be redeemed, shall mean the date fixed for such redemption.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
ARTICLE II
TERMS AND ISSUANCE
Section 2.01. INTEREST ON THE CLASS [199__B-__] NOTES.
(a) Interest on the Class [199__B-__] Notes shall accrue for each
Interest Period and shall be payable in arrears, on each Interest Payment
Date.
(b) The rate of interest on the Class [199__B-__] Notes for the first
Interest Period shall be [_____%]. The rate of interest on the Class
[199__B-__] Notes for each subsequent Interest Period shall be determined
by the Calculation Agent on the LIBOR Determination Date and shall be the
LIBOR-Based Rate.
If a Payment Default occurs, the Applicable Rate (as defined below) with
respect to the Class [199__B-__] Notes shall be the same rate per annum as if no
such Payment Default had occurred.
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The rate per annum at which interest is payable on the Class [199__B-__]
Notes for any Interest Period is herein referred to as the "Applicable Rate."
Notwithstanding anything herein to the contrary, the Applicable Rate cannot
exceed the Maximum Interest Rate.
Section 2.02. PAYMENTS. So long as the Class [199__B-__] Notes are
registered in the name of the Depository or the nominee thereof, payment of
interest (other than at maturity) and premium, if any, on, and of principal at
redemption of, the Class [199__B-__] Notes shall be made to the Depository by
wire transfer provided proper wire instructions are received. Each Holder of
Class [199__B-__] Notes, by such Holder's purchase of Class [199__B-__] Notes,
appoints the Trustee as its agent in connection with the payment by such Holder
of its share, if any, of the amounts payable to the Calculation Agent pursuant
to Section 2.07(a) hereof.
Section 2.03. NOTICE OF PAYMENT DEFAULTS AND CURES. By 12:30 p.m. on the
Business Day immediately succeeding each Interest Payment Date, the Trustee will
determine if a Payment Default has occurred. If a Payment Default has occurred,
the Trustee shall, if the Calculation Agent is other than the Trustee, notify
the Calculation Agent by 1:00 p.m. of such Payment Default. If a Payment
Default has been cured, the Trustee shall, if the Calculation Agent is other
than the Trustee, so notify the Calculation Agent by 5:00 p.m. on the day such
Payment Default is cured.
Section 2.04. CALCULATION OF RATES; TERMINATION OF BOOK ENTRY SYSTEM. The
Calculation Agent shall calculate the LIBOR-Based Rate on the Business Day
immediately preceding the first day of each Interest Period. The determination
by the Calculation Agent of the Applicable Rate will (in the absence of manifest
error) be final and binding upon the Owners of the Class [199__B-__] Notes and
all other parties.
If the ownership of the Class [199__B-__] Notes is no longer maintained in
book-entry form such Class [199__B-__] Notes may be exchanged for other Class
[199__B-__] Notes, in Authorized Denominations, and of a like aggregate
principal amount, upon surrender of the Class [199__B-__] Notes to be exchanged
at the principal office of the Trustee. Class [199__B-__] Notes, upon surrender
thereof at the principal office of the Trustee, duly endorsed for transfer or
accompanied by an assignment duly executed by the Holder of its attorney duly
authorized in writing, will be transferred to a transferee or transferees, in
the form of one or more new fully registered Class [199__B-__] Notes, in
Authorized Denomination, and of a like aggregate principal amount having the
same interest rate and bearing numbers not previously assigned.
In all cases in which the privilege of exchanging or transferring Class
[199__B-__] Notes is exercised, the Issuer will cause to be executed and
delivered Class [199__B-__] Notes in accordance with the provisions of the
Resolution. For every such exchange or transfer of Class [199__B-__] Notes, the
Trustee will require payment by the Holder of any tax or other governmental
charge required to be paid with respect to such exchange or transfer. All
expenses, other than any tax or other government charge, incurred by the Trustee
or the Issuer with respect to each such transfer or exchange will be paid by the
Issuer.
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The Trustee will not be required to transfer any Class [199__B-__] Note
during the period of five Business Days next preceding the mailing of notice of
redemption as described herein. After giving of such notice of redemption, the
Trustee will not be required to transfer or exchange any Class [199__B-__] Note,
which Class [199__B-__] Note or portion thereof has been called for redemption.
Section 2.05. COMPUTATION OF INTEREST. The amount of interest
distributable to Holders of Class [199__B-__] Notes in respect of each
[$ ] in principal amount thereof for any Interest Period or part thereof
shall be calculated by applying the Applicable Rate for such Interest Period or
part thereof to the principal amount of [$ ] multiplying such product by
the actual number of days in the Interest Period or part thereof concerned
divided by 360, and truncating the resultant figure to the nearest one cent.
Interest on the Class [199__B-__] Notes shall be computed by the Trustee on the
basis of a 360-day year for the number of days actually elapsed. In the event
an Interest Payment Date occurs with respect to any Interest Period on a date
other than the first day of the next Interest Period, the Trustee, after
confirming the calculation required above, shall calculate the portion of the
Interest Amount payable on such Interest Payment Date and the portion payable on
the next succeeding Interest Payment Date.
Section 2.06. NOTIFICATION OF RATES, AMOUNTS AND PAYMENT DATES.
(a) The Trustee shall determine the aggregate amount of interest
distributable on the next succeeding Interest Payment Date to the Holders
of the Class [199__B-__] Notes. So long as the ownership of the Class
[199__B-__] Notes is maintained in book-entry form by the Depository, the
Trustee shall advise the Depository of each Record Date for the Class
[199__B-__] Notes at least two Business Days prior thereto.
(b) Promptly after the Date of Issue and each Interest Payment Date,
and in any event at least 10 days prior to each Interest Payment Date
following the Initial Interest Payment Date, the Trustee shall:
(i) so long as no Payment Default has occurred and is continuing
and the ownership of the Class [199__B-__] Notes is maintained in
book-entry form by the Depository, confirm the Calculation Agent's
determination of (1) the date of such next Interest Payment Date and
(2) the amount payable to the Calculation Agent and notify the
Calculation Agent of any discrepancy therein; and
(ii) advise the Depository, so long as the ownership of the Class
[199__B-__] Notes is maintained in book-entry form by the Depository,
of the Applicable Rate and the Interest Amount in respect of the next
succeeding Interest Period.
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<PAGE>
Section 2.07. CALCULATION AGENT.
(a) [ ] shall serve as the initial
Calculation Agent for the Class [199__B-__] Notes. The Calculation Agent
shall be (i) a bank or trust company duly organized under the laws of the
United States of America or any state or territory thereof, and having a
combined capital stock, surplus and undivided profits of at least
$15,000,000 or (ii) a member of the National Association of Securities
Dealers, Inc., having a capitalization of at least $15,000,000 and, in
either case, authorized by law to perform all the duties imposed upon it
hereunder. The Calculation Agent may resign and be discharged of the
duties and obligations created hereunder by giving at least 90 days'
written notice to the Issuer and the Trustee (30 days' written notice if
the Calculation Agent has not been paid its fee for more than 30 days). The
Calculation Agent may be removed at any time by the Trustee if the
Calculation Agent is an entity other than the Trustee, acting at the
direction of the Issuer or the holders of 51% of the aggregate principal
amount of the Class [199__B-__] Notes, by an instrument signed by the
Trustee and filed with the Calculation Agent and the Issuer upon at least
90 days' notice. If the Calculation Agent and the Trustee are the same
entity, the Calculation Agent may be removed as described above, with the
Issuer acting in lieu of the Trustee.
(b) In the event that the Calculation Agent shall resign or be
removed or dissolved, or if the property or affairs of the Calculation
Agent shall be taken under the control of any state or federal court or
administrative body because of bankruptcy or insolvency, or for any other
reason, the Issuer shall use its best efforts to appoint a successor as
Calculation Agent, and the Trustee shall thereupon enter into an agreement
with such successor to perform the duties of the Calculation Agent as
described herein.
(c) The Calculation Agent (if other than the Trustee) shall be acting
as agent for the Trustee, as trustee, registrar and paying agent for the
Class [199__B-__] Notes, in connection with its duties hereunder. In the
absence of bad faith or negligence on its part, the Calculation Agent shall
not be liable for any action taken, suffered or omitted or for any error of
judgment made by it in the performance of its duties hereunder and shall
not be liable for any error of judgment made in good faith unless the
Calculation Agent shall have been negligent in ascertaining (or failing to
ascertain) the pertinent facts necessary to make such judgment.
Section 2.08. CREDIT RATINGS. The Issuer shall take all reasonable action
necessary to enable at least one nationally recognized statistical rating
organization (as that term is used in the rules and regulations of the SEC under
the Securities Exchange Act) to provide credit ratings for the Class [199__B-__]
Notes.
Section 2.09. NOTICE. The Issuer shall use its best efforts to provide
the Trustee and, so long as no Payment Default has occurred and is continuing
and the ownership of the Class [199__B-__] Notes is maintained in book-entry
form by the Depository, the Calculation Agent with notice of any change in the
maximum rate permitted by law on the Class [199__B-__] Notes.
B-6
<PAGE>
Section 2.10. NOTICE OF PAYMENT DEFAULT.
(a) If the Issuer determines that a Payment Default has occurred the
Issuer shall promptly notify the Trustee thereof.
(b) So long as the ownership of the Class [199__B-__] Notes is
maintained in book-entry form by the Depository, upon the occurrence of a
Payment Default the Trustee shall immediately send a notice thereof to the
Calculation Agent by telecopy or similar means.
(c) So long as the ownership of the Class [199__B-__] Notes is
maintained in book-entry form by the Depository, the Trustee shall
immediately send notice to the Calculation Agent by telecopy or similar
means if a Payment Default is cured.
B-7
<PAGE>
APPENDIX C
CERTAIN TERMS AND PROVISIONS OF
THE CLASS [199__C-__] SUBORDINATE [INDEX] RATE NOTES
ARTICLE I
Section 1.01. DEFINITIONS. In addition to the terms defined elsewhere in
the Indenture and this Supplemental Indenture, the following terms shall have
the following meanings with respect to the Class [199__C-__] Notes, unless the
context otherwise requires:
"APPLICABLE RATE" shall have the meaning set forth in Section 2.01(b)
hereof.
"AUTHORIZED DENOMINATIONS" shall mean $ and any multiple thereof.
"BOND-EQUIVALENT YIELD" shall mean, in respect of any security with a
maturity of six months or less the rate for which is quoted in THE WALL STREET
JOURNAL on a bank discount basis, a yield (expressed as a percentage) calculated
in accordance with the following formula and rounded up to the nearest one
one-hundredth of one percent:
Bond Equivalent Yield = Q x N x 100
-----------------
360 - (T x Q)
where "Q" refers to the per annum rate for the security quoted on a bank
discount basis and expressed as a decimal, "N" refers to 365 or 366 (days), as
the case may be, and "T" refers to the number of days to maturity.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday, holiday or
day on which banks in New York, New York, or the New York Stock Exchange, the
Trustee or the Calculation Agent, are authorized or permitted by law or
executive order to close.
"CALCULATION AGENT" shall mean any person appointed as such pursuant to
Section 2.07 hereof.
"DEPOSITORY" shall mean The Depository Trust Company or any successor
securities depository selected or approved by the Issuer.
"HOLDER" as used in this Appendix C shall mean the beneficial owner of any
Class [199__C-__] Note.
"INITIAL INTEREST PAYMENT DATE" shall mean [ , 199__] for the Class
[199__C-__] Notes.
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<PAGE>
"INITIAL INTEREST PERIOD" shall mean, for the Class [199__C-__] Notes, the
period from and including the date of delivery of the Class [199__C-__] Notes
and ending on [ , 199__].
"INTEREST AMOUNT" shall mean the amount of interest distributable in
respect of each $ in principal amount (taken, without rounding, to
.0001 of one cent) of Class [199__C-__] Notes for any Interest Period or part
thereof, as calculated in accordance with Section 2.07 hereof.
"INTEREST PAYMENT DATE" means [ , 199__] and the first day of each
month thereafter, and the maturity date for any Class [199__C-__] Note, or if
any such date is not a Business Day, the next succeeding Business Day (but only
for interest accrued through the last day of the calendar month next preceding
such Interest Payment Date).
"INTEREST PERIOD" means the Initial Interest Period for the Class
[199__C-__] Notes and the period beginning on the first day of each month and
ending on the last day of each month.
"LIBOR DETERMINATION DATE" shall mean the Business Day immediately
preceding the first day of each Interest Period.
"LIBOR-BASED RATE" shall mean One-Month LIBOR plus [__%].
"MAXIMUM INTEREST RATE" shall mean the lesser of (a) 16% per annum or (b)
the maximum rate of interest permitted under State law for student loan notes of
the Issuer.
"ONE-MONTH LIBOR" means the rate of interest per annum equal to the rate
per annum at which United States dollar deposits having a maturity of one month
are offered to prime banks in the London interbank market which appear on the
Telerate Service LIBOR Page as of approximately 11:00 a.m., London time, on the
LIBOR Determination Date. If at least two such quotations appear, One-Month
LIBOR will be the arithmetic mean (rounded upwards, if necessary, to the nearest
one-hundredth of one percent) of such offered rates. If fewer than two such
quotes appear, One-Month LIBOR with respect to such Interest Period will be
determined at approximately 11:00 a.m., London time, on such LIBOR Determination
Date on the basis of the rate at which deposits in United States dollars having
a maturity of three months are offered to prime banks in the London interbank
market by four major banks in the London interbank market selected by (i) the
Calculation Agent (if the Calculation Agent is other than the Trustee) or (ii)
the Trustee, and in a principal amount of not less than U.S. $1,000,000 and that
is representative for a single transaction in such market at such time. The
Calculation Agent or the Trustee, as applicable, will request the principal
London office of each of such banks to provide a quotation of its rate. If at
least two quotations are provided, One-Month LIBOR will be the arithmetic mean
(rounded upwards, if necessary, to the nearest one-hundredth of one percent) of
such offered rates. If fewer than two quotations are provided, One-Month LIBOR
with respect to such Interest Period will be the arithmetic mean (rounded
upwards, if necessary, to the nearest one-hundredth of one percent) of the rates
quoted at approximately 11:00 a.m.,
C-2
<PAGE>
New York City time on such LIBOR Determination Date by three major banks in New
York, New York selected by (x) the Calculation Agent or (y) the Trustee, as
applicable, for loans in United States dollars to leading European banks having
a maturity of three months and in a principal amount equal to an amount of not
less than U.S. $1,000,000 and that is representative for a single transaction in
such market at such time; provided, however, that if the banks selected as
aforesaid are not quoting as mentioned in this sentence, One-Month LIBOR in
effect for the applicable Interest Period, will be One-Month LIBOR in effect for
the immediately preceding Interest Period.
"PARTICIPANT" shall mean a member of or participant in, the Depository.
"PAYMENT DEFAULT" shall mean failure to make payment of interest on,
premium, if any, and principal of the Class [199__C-__] Notes when due, by the
Issuer.
"PERSON" means and includes, unless otherwise specified, an individual,
corporation, company, trust, estate partnership or association.
"RECORD DATE" shall mean the Business Day immediately preceding the
Interest Payment Date.
"REDEMPTION DATE," when used with respect to any Class [199__C-__] Notes to
be redeemed, shall mean the date fixed for such redemption.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
ARTICLE II
TERMS AND ISSUANCE
Section 2.01. INTEREST ON THE CLASS [199__C-__] NOTES.
(a) Interest on the Class [199__C-__] Notes shall accrue for each
Interest Period and shall be payable in arrears, on each Interest Payment
Date.
(b) The rate of interest on the Class [199__C-__] Notes for the first
Interest Period shall be [_____%]. The rate of interest on the Class
[199__C-__] Notes for each subsequent Interest Period shall be determined
by the Calculation Agent on the LIBOR Determination Date and shall be the
LIBOR-Based Rate.
If a Payment Default occurs, the Applicable Rate (as defined below) with
respect to the Class [199__C-__] Notes shall be the same rate per annum as if no
such Payment Default had occurred.
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<PAGE>
The rate per annum at which interest is payable on the Class [199__C-__]
Notes for any Interest Period is herein referred to as the "Applicable Rate."
Notwithstanding anything herein to the contrary, the Applicable Rate cannot
exceed the Maximum Interest Rate.
Section 2.02. PAYMENTS. So long as the Class [199__C-__] Notes are
registered in the name of the Depository or the nominee thereof, payment of
interest (other than at maturity) and premium, if any, on, and of principal at
redemption of, the Class [199__C-__] Notes shall be made to the Depository by
wire transfer provided proper wire instructions are received. Each Holder of
Class [199__C-__] Notes, by such Holder's purchase of Class [199__C-__] Notes,
appoints the Trustee as its agent in connection with the payment by such Holder
of its share, if any, of the amounts payable to the Calculation Agent pursuant
to Section 2.07(a) hereof.
Section 2.03. NOTICE OF PAYMENT DEFAULTS AND CURES. By 12:30 p.m. on the
Business Day immediately succeeding each Interest Payment Date, the Trustee will
determine if a Payment Default has occurred. If a Payment Default has occurred,
the Trustee shall, if the Calculation Agent is other than the Trustee, notify
the Calculation Agent by 1:00 p.m. of such Payment Default. If a Payment
Default has been cured, the Trustee shall, if the Calculation Agent is other
than the Trustee, so notify the Calculation Agent by 5:00 p.m. on the day such
Payment Default is cured.
Section 2.04. CALCULATION OF RATES; TERMINATION OF BOOK ENTRY SYSTEM. The
Calculation Agent shall calculate the LIBOR-Based Rate on the Business Day
immediately preceding the first day of each Interest Period. The determination
by the Calculation Agent of the Applicable Rate will (in the absence of manifest
error) be final and binding upon the Owners of the Class [199__C-__] Notes and
all other parties.
If the ownership of the Class [199__C-__] Notes is no longer maintained in
book-entry form such Class [199__C-__] Notes may be exchanged for other Class
[199__C-__] Notes, in Authorized Denominations, and of a like aggregate
principal amount, upon surrender of the Class [199__C-__] Notes to be exchanged
at the principal office of the Trustee. Class [199__C-__] Notes, upon surrender
thereof at the principal office of the Trustee, duly endorsed for transfer or
accompanied by an assignment duly executed by the Holder of its attorney duly
authorized in writing, will be transferred to a transferee or transferees, in
the form of one or more new fully registered Class [199__C-__] Notes, in
Authorized Denomination, and of a like aggregate principal amount having the
same interest rate and bearing numbers not previously assigned.
In all cases in which the privilege of exchanging or transferring Class
[199__C-__] Notes is exercised, the Issuer will cause to be executed and
delivered Class [199__C-__] Notes in accordance with the provisions of the
Resolution. For every such exchange or transfer of Class [199__C-__] Notes, the
Trustee will require payment by the Holder of any tax or other governmental
charge required to be paid with respect to such exchange or transfer. All
expenses, other than any tax or other government charge, incurred by the Trustee
or the Issuer with respect to each such transfer or exchange will be paid by the
Issuer.
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<PAGE>
The Trustee will not be required to transfer any Class [199__C-__] Note
during the period of five Business Days next preceding the mailing of notice of
redemption as described herein. After giving of such notice of redemption, the
Trustee will not be required to transfer or exchange any Class [199__C-__] Note,
which Class [199__C-__] Note or portion thereof has been called for redemption.
Section 2.05. COMPUTATION OF INTEREST. The amount of interest
distributable to Holders of Class [199__C-__] Notes in respect of each
[$ ] in principal amount thereof for any Interest Period or part thereof
shall be calculated by applying the Applicable Rate for such Interest Period or
part thereof to the principal amount of [$ ] multiplying such product by
the actual number of days in the Interest Period or part thereof concerned
divided by 360, and truncating the resultant figure to the nearest one cent.
Interest on the Class [199__C-__] Notes shall be computed by the Trustee on the
basis of a 360-day year for the number of days actually elapsed. In the event
an Interest Payment Date occurs with respect to any Interest Period on a date
other than the first day of the next Interest Period, the Trustee, after
confirming the calculation required above, shall calculate the portion of the
Interest Amount payable on such Interest Payment Date and the portion payable on
the next succeeding Interest Payment Date.
Section 2.06. NOTIFICATION OF RATES, AMOUNTS AND PAYMENT DATES.
(a) The Trustee shall determine the aggregate amount of interest
distributable on the next succeeding Interest Payment Date to the Holders
of the Class [199__C-__] Notes. So long as the ownership of the Class
[199__C-__] Notes is maintained in book-entry form by the Depository, the
Trustee shall advise the Depository of each Record Date for the Class
[199__C-__] Notes at least two Business Days prior thereto.
(b) Promptly after the Date of Issue and each Interest Payment Date,
and in any event at least 10 days prior to each Interest Payment Date
following the Initial Interest Payment Date, the Trustee shall:
(i) so long as no Payment Default has occurred and is continuing
and the ownership of the Class [199__C-__] Notes is maintained in
book-entry form by the Depository, confirm the Calculation Agent's
determination of (1) the date of such next Interest Payment Date and
(2) the amount payable to the Calculation Agent and notify the
Calculation Agent of any discrepancy therein; and
(ii) advise the Depository, so long as the ownership of the Class
[199__C-__] Notes is maintained in book-entry form by the Depository,
of the Applicable Rate and the Interest Amount in respect of the next
succeeding Interest Period.
C-5
<PAGE>
Section 2.07. CALCULATION AGENT.
(a) [ ] shall serve as the initial
Calculation Agent for the Class [199__C-__] Notes. The Calculation Agent
shall be (i) a bank or trust company duly organized under the laws of the
United States of America or any state or territory thereof, and having a
combined capital stock, surplus and undivided profits of at least
$15,000,000 or (ii) a member of the National Association of Securities
Dealers, Inc., having a capitalization of at least $15,000,000 and, in
either case, authorized by law to perform all the duties imposed upon it
hereunder. The Calculation Agent may resign and be discharged of the
duties and obligations created hereunder by giving at least 90 days'
written notice to the Issuer and the Trustee (30 days' written notice if
the Calculation Agent has not been paid its fee for more than 30 days). The
Calculation Agent may be removed at any time by the Trustee if the
Calculation Agent is an entity other than the Trustee, acting at the
direction of the Issuer or the holders of 51% of the aggregate principal
amount of the Class [199__C-__] Notes, by an instrument signed by the
Trustee and filed with the Calculation Agent and the Issuer upon at least
90 days' notice. If the Calculation Agent and the Trustee are the same
entity, the Calculation Agent may be removed as described above, with the
Issuer acting in lieu of the Trustee.
(b) In the event that the Calculation Agent shall resign or be
removed or dissolved, or if the property or affairs of the Calculation
Agent shall be taken under the control of any state or federal court or
administrative body because of bankruptcy or insolvency, or for any other
reason, the Issuer shall use its best efforts to appoint a successor as
Calculation Agent, and the Trustee shall thereupon enter into an agreement
with such successor to perform the duties of the Calculation Agent as
described herein.
(c) The Calculation Agent (if other than the Trustee) shall be acting
as agent for the Trustee, as trustee, registrar and paying agent for the
Class [199__C-__] Notes, in connection with its duties hereunder. In the
absence of bad faith or negligence on its part, the Calculation Agent shall
not be liable for any action taken, suffered or omitted or for any error of
judgment made by it in the performance of its duties hereunder and shall
not be liable for any error of judgment made in good faith unless the
Calculation Agent shall have been negligent in ascertaining (or failing to
ascertain) the pertinent facts necessary to make such judgment.
Section 2.08. CREDIT RATINGS. The Issuer shall take all reasonable action
necessary to enable at least one nationally recognized statistical rating
organization (as that term is used in the rules and regulations of the SEC under
the Securities Exchange Act) to provide credit ratings for the Class [199__C-__]
Notes.
Section 2.09. NOTICE. The Issuer shall use its best efforts to provide
the Trustee and, so long as no Payment Default has occurred and is continuing
and the ownership of the Class [199__C-__] Notes is maintained in book-entry
form by the Depository, the Calculation Agent with notice of any change in the
maximum rate permitted by law on the Class [199__C-__] Notes.
C-6
<PAGE>
Section 2.10. NOTICE OF PAYMENT DEFAULT.
(a) If the Issuer determines that a Payment Default has occurred the
Issuer shall promptly notify the Trustee thereof.
(b) So long as the ownership of the Class [199__C-__] Notes is
maintained in book-entry form by the Depository, upon the occurrence of a
Payment Default the Trustee shall immediately send a notice thereof to the
Calculation Agent by telecopy or similar means.
(c) So long as the ownership of the Class [199__C-__] Notes is
maintained in book-entry form by the Depository, the Trustee shall
immediately send notice to the Calculation Agent by telecopy or similar
means if a Payment Default is cured.
C-7
<PAGE>
EXHIBIT A
FORM OF CLASS [199__A-__] SENIOR
[AUCTION] RATE NOTES
EXCEPT AS OTHERWISE PROVIDED IN THE INDENTURE, THIS GLOBAL NOTE MAY BE
TRANSFERRED, IN WHOLE BUT NOT IN PART, ONLY TO ANOTHER NOMINEE OF THE SECURITIES
DEPOSITORY (AS DEFINED HEREIN) OR TO A SUCCESSOR SECURITIES DEPOSITORY OR TO A
NOMINEE OF A SUCCESSOR SECURITIES DEPOSITORY.
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTE
SENIOR CLASS [199__-__]
[AUCTION] RATE NOTE
REGISTERED NO. R- REGISTERED $__________
MATURITY DATE: INTEREST RATE: ORIGINAL ISSUE DATE CUSIP NO.
July 1, 20__ Variable [__________,____] ____________
PRINCIPAL SUM: DOLLARS
REGISTERED OWNER: [CEDE & CO.]
UNION FINANCIAL SERVICES-1, INC., a corporation organized under the
corporation laws of the State of Nevada (the "Issuer," which term includes any
successor corporation under the Amended and Restated Indenture of Trust, dated
as of June 15, 1996 (as amended, the "Indenture"), between the Issuer and
Norwest Bank Minnesota, National Association, as trustee (the "Trustee," which
term includes any successor trustee under the Indenture)) for value received,
hereby promises to pay to the Registered Owner (stated above) or registered
assigns, the Principal Sum of (stated above), but solely from the revenues and
receipts hereinafter specified and not otherwise, on the Maturity Date specified
above (subject to the right of prior redemption hereinafter described), upon
presentation and surrender of this note at the Principal Office of the Trustee,
as paying agent, trustee, authenticating agent and registrar for the Notes, or a
duly appointed successor paying agent, and to pay interest in arrears on said
Principal Sum, but solely from the revenues and receipts hereinafter specified
and not otherwise, to the Registered Owner hereof from the most recent Interest
Payment Date to which interest has been paid hereon, until the payment of said
principal sum in full.
A-1
<PAGE>
Any capitalized words and terms used as defined words and terms in this
note and not otherwise defined herein shall have the meanings given them in the
Indenture.
This note shall initially bear interest at the rate of interest per annum
established by the Broker-Dealer for the initial Auction Period pursuant to the
Broker-Dealer Agreement, written notice of which shall be given to the Trustee.
For each Auction Period thereafter, the unpaid principal amount hereof from time
to time outstanding shall bear interest at the Auction Rate determined in
accordance with the provisions of Appendix A of the Indenture, payable on each
Interest Payment Date and on the date of payment or redemption of principal
hereof to the extent of interest accrued on the principal then being paid or
redeemed, such interest to accrue from the later of the date hereof or the date
through which interest has been paid or duly provided for. Interest at the
Auction Rate established from time to time pursuant to Appendix A of the
Indenture shall be computed for the actual number of days elapsed on the basis
of a year consisting of 360 days.
This note shall bear interest at an Auction Rate based on an Auction Period
that shall, until adjusted pursuant to Appendix A of the Indenture, generally
consist of [__] days, all as determined in Appendix A of the Indenture.
THE AUCTION PERIOD, THE AUCTION RATE, THE METHOD OF DETERMINING THE AUCTION
RATE ON THIS NOTE AND THE AUCTION PROCEDURES RELATED THERETO, AN AUCTION PERIOD
ADJUSTMENT, A CHANGE IN THE AUCTION DATE AND THE INTEREST PAYMENT DATES WILL BE
DETERMINED IN ACCORDANCE WITH THE TERMS, CONDITIONS AND PROVISIONS OF,
INCLUDING, WITHOUT LIMITATION, REQUIRED NOTICES THEREOF TO THE EXISTING OWNERS
OF THE AUCTION RATE NOTES, THE INDENTURE AND THE AUCTION AGENT AGREEMENT, TO
WHICH TERMS, CONDITIONS AND PROVISIONS SPECIFIC REFERENCE IS HEREBY MADE, AND
ALL OF WHICH TERMS, CONDITIONS AND PROVISIONS ARE HEREBY SPECIFICALLY
INCORPORATED HEREIN BY REFERENCE.
Such interest is payable by check or draft drawn upon the Trustee and
mailed or wire transfer on the Interest Payment Date to the person who is the
Registered Owner hereof on the Record Date at the address of such Registered
Owner as it appears on the registration books (the "Note Register") maintained
by the Trustee.
The principal of and interest on this note are payable in lawful money of
the United States of America. If the specified date for any payment of
principal or interest accrued to such specified date shall be a day other than a
Business Day then such payment may be made on the next succeeding Business Day,
with the same force and effect as if made on the specified date for such payment
without additional interest.
This note is one of a series of notes of the Issuer designated Taxable
Student Loan Asset-Backed Notes, Senior [Class 199__A-__] Auction Rate Notes,
dated the Original Issue Date, in the aggregate original principal amount of
$__________ (the "Class [199__A-__] Notes") which, together with the Issuer's
Taxable Student Loan Asset-Backed Notes, Senior Class [199__A-__] Auction Rate
Notes issued in the collective aggregate principal amount of
A-2
<PAGE>
$__________ (the "Class [199__A-__]") (collectively, the "Class [199__A-__]
Notes"), the Issuer's Taxable Student Loan Asset-Backed Notes, Subordinate
Class [199__B-__] [INDEX] Rate Notes issued in the aggregate principal amount of
$__________ (the "Class [199__B-__] Notes") and the Issuer's Taxable Student
Loan Asset-Backed Notes, Junior-Subordinate Class [199__C-__] [FIXED] [INDEX]
Rate Notes issued in the aggregate principal amount of $___________ (the "Class
[199__C-__] Notes") have been authorized by the Issuer under a certain
resolution, and issued by the Issuer pursuant to the Indenture. The proceeds of
such notes will be used by the Issuer, together with other moneys of the Issuer,
for the purpose of financing the acquisition of student loans, fund a reserve
fund and to pay certain costs and expenses in connection with the issuance of
such notes. The Issuer has previously issued $48,300,000 of its Taxable Student
Loan Asset-Backed Notes, Senior Class 1996A-1 Auction Rate Securities (ARS-SM-)
(the "Class 1996A-1 Notes"), $48,300,000 of its Taxable Student Loan
Asset-Backed Notes, Senior Class 1996A-2 Auction Rate Securities (ARS-SM-) (the
"Class 1996A-2 Notes"), $11,100,000 of its Taxable Student Loan Asset-Backed
Notes, Subordinate Class 1996B LIBOR Rate (the "Class 1996B Notes") $73,700,000
of its Taxable Student Loan Asset-Backed Notes, Senior Class 1996A-3 Auction
Rate Securities (ARS-SM-) (the "Class 1996A-3 Notes"), $54,300,000 of its
Taxable Student Loan Asset-Backed Notes, Senior Class 1996A-4 Auction Rate
Securities (ARS-SM-) (the "Class 1996A-4 Notes") and $14,200,000 of its Taxable
Student Loan Asset-Backed Notes, Subordinate Class 1996B-2 LIBOR Rate (the
"Class 1996B-2 Notes"). The Class 1996A-1 Notes, the Class 1996A-2 Notes, the
Class 1996A-3 Notes, the Class 1996A-4 Notes and the Class [199__A-__] Notes are
collectively referred to herein as the "Class A Notes." The Class 1996B Notes,
the Class 1996B-2 Notes and the Class [199__B-__] Notes are collectively
referred to herein as the "Class B Notes." The Class [199__C-__] Notes are
referred to herein as the "Class C Notes." The Indenture provides for the
issuance of additional notes (the "Additional Notes") which may be secured on a
parity with or subordinate to the Class A Notes, the Class B Notes and the Class
C Notes as may be determined by the Issuer. The Class A Notes, the Class B
Notes, the Class C Notes and any Additional Notes are collectively referred to
herein as the "Notes."
[MANDATORY REDEMPTION. This note is subject to mandatory redemption by the
Issuer, in whole or in part, on any Interest Payment Date from certain moneys in
the Senior Note Redemption Account of the Note Redemption Fund created pursuant
to the Indenture at a redemption price equal to the principal amount thereof
plus accrued interest to the redemption date.]
[This note is also subject to mandatory redemption by the Issuer at a
redemption price equal to the principal amount thereof plus accrued interest, if
any, to the date of redemption thereof from moneys in the Senior Note Redemption
Account of the Note Redemption Fund on the Interest Payment Date next succeeding
[__________, ____], to the extent that moneys remain in the Series 199__-__ Loan
Account of the Student Loan Fund on such date, unless, no such mandatory
redemption is needed to maintain the ratings on certain of the Notes as provided
in the Indenture.]
A-3
<PAGE>
[This note is also subject to mandatory redemption at a redemption price
equal to the principal amount thereof plus accrued interest on any Interest
Payment Date when excess revenue moneys are deposited in the Senior Note
Redemption Account from the Revenue Fund.]
[OPTIONAL REDEMPTION. This note is subject to redemption at the option of
the Issuer, in whole or in part, from any source of funds on any Interest
Payment Date at a redemption price equal to the principal amount of this note
being redeemed, plus accrued interest, if any, to the redemption date.]
[EXTRAORDINARY OPTIONAL REDEMPTION. This note is also subject to
extraordinary optional redemption, at the option of the Issuer, at a redemption
price equal to the principal amount of this note being redeemed, plus accrued
interest to the date of redemption, without premium in whole or in part on any
Interest Payment Date, if the Issuer reasonably determines that it is unable to
acquire Financed Eligible Loans, that the rate of return on Financed Eligible
Loans has materially decreased, or that the costs of administering the Trust
have place unreasonable burdens upon the ability of the Issuer to perform its
obligations under the Indenture.]
OPTIONAL PURCHASE. The Issuer may purchase or cause to be purchased all of
the Notes on any Interest Payment Date on which the aggregate current principal
balance of the Notes shall be less than or equal to 10% of the initial aggregate
principal balance of the Notes on the Date of Issuance, at a purchase price
equal to the aggregate current principal balance of such Notes, plus accrued
interest on the Notes through the day preceding the Interest Payment Date on
which the purchase occurs.
NOTICE OF REDEMPTION OR PURCHASE. Notice of the call for redemption shall
be given by the Trustee by mailing a copy of the notice at least 15 days prior
to the redemption or purchase date to the Registered Owners of the Notes to be
redeemed in whole or in part at the address of such Registered Owner last
showing on the registration books. Failure to give such notice or any defect
therein shall not affect the validity of any proceedings for the redemption or
purchase of such Auction Rate Notes for which no such failure or defect occurs.
All Notes called for redemption or purchase will cease to bear interest after
the specified redemption or purchase date, provided funds for their payment are
on deposit at the place of payment at the time. If less than all Notes are to
be redeemed or purchased, Notes shall be selected for redemption or purchase as
provided in the Indenture.
SWAP AGREEMENTS. The Indenture provides that the Issuer may enter into an
interest rate swap or basis agreement between the Issuer and a swap provider (a
"Swap Counterparty"), as originally executed and as amended or supplemented, or
other interest rate hedge agreement between the Issuer and a Swap Counterparty,
as originally executed and as amended or supplemented, in each case approved in
writing by the Rating Agency, for the purpose of converting in whole or in part
the Issuer's variable interest rate liability on all or a portion of the Notes
bearing interest at a variable rate issued on a parity therewith to a fixed rate
liability or for the purpose of converting in whole or in part the Issuer's
fixed interest rate liability on all or a portion of any Additional Notes
bearing interest at a fixed rate issued on a parity
A-4
<PAGE>
therewith to a variable rate liability. Payments due to a Swap Counterparty
from the Issuer pursuant to the applicable Swap Agreement (including, but not
limited to, payments in respect of an Early Termination Date, as defined in the
applicable Swap Agreement) are referred to herein as "Issuer Swap Payments."
The principal of and interest on the Class A Notes and any Additional Notes
issued on a parity with the Class A Notes and any Issuer Swap Payments secured
on a parity with the Class A Notes are payable on a superior basis to such
payments on the Class B Notes and any Additional Notes issued on a parity or
subordinate to the Class B Notes; provided, however, that current principal and
interest may be paid on the Class B Notes and any Additional Notes issued on a
parity with the Class B Notes or subordinate to the Class B Notes if all
principal and interest payments due and owing at such time on the Class A Notes
and any Additional Notes issued on a parity with the Class A Notes and any
Issuer Swap Payments secured on a parity with the Class A Notes have been
previously made or provided for as provided in the Indenture.
Reference is hereby made to the Indenture, copies of which are on file in
the Principal Office of the Trustee, and to all of the provisions of which any
Registered Owner of this note by his acceptance hereof hereby assents, for
definitions of terms; the description of and the nature and extent of the
security for the Notes; the Issuer's student loan origination and acquisition
program; the revenues and other money pledged to the payment of the principal of
and interest on the Notes; the nature and extent and manner of enforcement of
the pledge; the conditions upon which the Indenture may be amended or
supplemented with or without the consent of the Registered Owners of the Notes
and any Swap Counterparty; the rights and remedies of the Registered Owner
hereof with respect hereto and thereto, including the limitations upon the right
of a Registered Owner hereof to institute any suit, action, or proceeding in
equity or at law with respect hereto and thereto; the rights, duties, and
obligations of the Issuer and the Trustee thereunder; the terms and provisions
upon which the liens, pledges, charges, trusts, and covenants made therein may
be discharged at or prior to the stated maturity or earlier redemption of this
note, and this note thereafter shall no longer be secured by the Indenture or be
deemed to be Outstanding, as defined in the Indenture, thereunder; and for the
other terms and provisions thereof.
THE NOTES ARE LIMITED OBLIGATIONS OF THE ISSUER, PAYABLE SOLELY FROM, AND
FURTHER SECURED BY, THE TRUST ESTATE, AS DEFINED IN THE INDENTURE.
No recourse, either directly or indirectly, shall be had for the payment of
the principal of and interest on this note or any claim based hereon or in
respect hereof or of the Indenture, against the Trustee, or any incorporator,
director, officer, employee, or agent of the Issuer, nor against the State of
Nevada, or any official thereof, but the obligation to pay all amounts required
by the Indenture securing this note and the obligation to do and perform the
covenants and acts required of the Issuer therein and herein shall be and remain
the responsibility and obligation of said Issuer, limited as herein set forth.
A-5
<PAGE>
Subject to the restrictions specified in the Indenture, this note is
transferable on the Note Register kept for that purpose by the Trustee, as
registrar, upon surrender of this note for transfer at the principal office of
the Trustee, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Trustee duly executed by, the Registered
Owner hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes of the same series, Stated Maturity, of authorized denominations,
bearing interest at the same rate, and for the same aggregate principal amount
will be issued to the designated transferee or transferees. At the option of
the Registered Owner, any Note may be exchanged for other Notes in authorized
denominations upon surrender of the Note to be exchanged at the principal office
of the Trustee. Upon any such presentation for exchange, one or more new Notes
of the same series, Stated Maturity, in authorized denominations, bearing
interest at the same rate, and for the same aggregate principal amount as the
Note or Notes so surrendered will be issued to the Registered Owner of the Note
or Notes so surrendered; and the Note or Notes so surrendered shall thereupon be
cancelled by the Trustee.
Notwithstanding the foregoing, so long as the ownership of the Notes is
maintained in book-entry form by The Depository Trust Company (the "Securities
Depository") or a nominee thereof, this note may be transferred in whole but not
in part only to the Securities Depository or a nominee thereof or to a successor
Securities Depository or its nominee.
The Issuer, the Trustee, and any agent of either of them shall treat the
Person in whose name this note is registered as the Registered Owner hereof
(i) on the record date for purposes of receiving timely payment of interest
hereon, and (ii) on the date of surrender of this note for purposes of receiving
payment of principal hereof at its stated maturity and (iii) for all other
purposes, whether or not this note is overdue, and neither the Issuer, the
Trustee, nor any such agent shall be affected by notice to the contrary.
To the extent permitted by the Indenture, modifications or alterations of
the Indenture and any supplemental indenture may be made with the consent of
less than all of the Registered Owners of the Notes then outstanding or without
the consent of any of such Registered Owners (by reason of a change in the Act
or Regulation or to cure ambiguities or conflicts), but such modification or
alteration is not permitted to affect the maturity date, Stated Maturity,
amount, Interest Payment Date, or rate of interest on any outstanding Notes or
affect the rights of the Registered Owners of less than all of the Notes
outstanding.
The Registered Owner hereof shall not have the right to demand payment of
this note or any interest hereon out of funds raised or to be raised by
taxation.
Any capitalized term used herein and not otherwise defined herein shall
have the same meaning ascribed to such term in the herein defined Indenture
unless the context shall clearly indicate otherwise.
It is hereby certified and recited that all acts and things required by the
laws of the State of Nevada to happen, exist, and be performed precedent to and
in the issuance of this note, and
A-6
<PAGE>
the passage of said resolution and the execution of said Indenture, have
happened, exist and have been performed as so required.
A-7
<PAGE>
IN TESTIMONY WHEREOF, the Board of Directors of UNION FINANCIAL SERVICES-1,
INC. has caused the seal of the Issuer to be impressed or a facsimile thereof to
be printed hereon, and this note to be executed by the President and Secretary
of the Issuer all as of the Original Issue Date.
[SEAL] UNION FINANCIAL SERVICES-1, INC.
By
--------------------------------------
President
By
--------------------------------------
Secretary
A-8
<PAGE>
CERTIFICATE OF AUTHENTICATION
This note is one of the Class [199__A-__] Notes designated therein and
described in the within-mentioned Indenture.
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as
Trustee
By
--------------------------------------
Authorized Signatory
AUTHENTICATION DATE:
- --------------------------------------
A-9
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto __________ (Social Security or other identifying number __________) the
within note and all rights thereunder and hereby irrevocably appoints __________
attorney to transfer the within note on the books kept for registration thereof,
with full power of substitution in the premises.
DATED: SIGNED:
-------------------- ------------------------------------------
NOTICE: The signature on this Assignment must
correspond with the name of the Registered Owner
as it appears on the face of the within note in
every particular.
Signature Guaranteed by:
- --------------------------------------
A Member of The New York Stock
Exchange or a State or National
Bank
A-10
<PAGE>
EXHIBIT B
FORM OF CLASS [199__B-__] SUBORDINATE [INDEX] RATE NOTES
EXCEPT AS OTHERWISE PROVIDED IN THE INDENTURE, THIS GLOBAL NOTE MAY BE
TRANSFERRED, IN WHOLE BUT NOT IN PART, ONLY TO ANOTHER NOMINEE OF THE SECURITIES
DEPOSITORY (AS DEFINED HEREIN) OR TO A SUCCESSOR SECURITIES DEPOSITORY OR TO A
NOMINEE OF A SUCCESSOR SECURITIES DEPOSITORY.
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTE
SUBORDINATE CLASS [199__B-__]
[INDEX] RATE NOTE
REGISTERED NO. R-1 REGISTERED $__________
MATURITY DATE: INTEREST RATE: ORIGINAL ISSUE DATE CUSIP NO.
July 1, ____ Variable [__________, ____] __________
PRINCIPAL SUM: DOLLARS
REGISTERED OWNER: [CEDE & CO.]
UNION FINANCIAL SERVICES-1, INC., a corporation organized under the
corporation laws of the State of Nevada (the "Issuer," which term includes any
successor corporation under the Amended and Restated Indenture of Trust, dated
as of June 15, 1996 (as amended, the "Indenture"), between the Issuer and
Norwest Bank Minnesota, National Association, as trustee (the "Trustee," which
term includes any successor trustee under the Indenture)), for value received,
hereby promises to pay to the Registered Owner (stated above) or registered
assigns, the Principal Sum of (stated above), but solely from the revenues and
receipts hereinafter specified and not otherwise, on the Maturity Date specified
above (subject to the right of prior redemption hereinafter described), upon
presentation and surrender of this note at the Principal Office of the Trustee,
as paying agent, trustee, authenticating agent and registrar for the Notes, or a
duly appointed successor paying agent, and to pay interest in arrears on said
Principal Sum, but solely from the revenues and receipts hereinafter specified
and not otherwise, to the Registered Owner hereof from the most recent Interest
Payment Date to which interest has been paid hereon, until the payment of said
principal sum in full, at the [INDEX]-Based Rate on the [__________] Business
Day of each month (each an "Interest Payment Date"), commencing [__________,
____]. Such interest is payable by check or draft drawn upon the Trustee and
mailed on the Interest Payment Date to the person who is the Registered Owner
hereof on the
B-1
<PAGE>
Record Date at the address of such Registered Owner as it appears on the
registration books (the "Note Register") maintained by the Trustee.
Any capitalized words and terms used as defined words and terms in this
note and not otherwise defined herein shall have the meanings given them in the
Indenture.
This note shall bear interest at [INDEX]-Based Rate, all as determined in
Appendix B of the Indenture.
The principal of and interest on this note are payable in lawful money of
the United States of America. If the specified date for any payment of
principal or interest accrued to such specified date shall be a day other than a
Business Day then such payment may be made on the next succeeding Business Day,
with the same force and effect as if made on the specified date for such payment
without additional interest.
Interest payable on this note shall be computed on the assumption that each
year contains 360 days and actual days elapsed.
This note is one of a series of notes of the Issuer designated Taxable
Student Loan Asset-Backed Notes, Subordinate Class [199__B-__] [INDEX] Rate
Notes, dated the Original Issue Date, in the aggregate original principal amount
of $__________ (the "Class [199__B-__] Notes") which, together with the Issuer's
Taxable Student Loan Asset-Backed Notes, Senior Class [199__A-__] Auction Rate
Notes issued in the aggregate principal amount of $___________ (the
"Class [199__A-__] Notes") and the Issuer's Taxable Student Loan Asset-Backed
Notes, Junior-Subordinate Class [199__C-__] [FIXED] [INDEX] Rate Notes issued in
the aggregate principal amount of $___________ (the "Class [199__C-__] Notes")
have been authorized by the Issuer under a certain resolution, and issued by the
Issuer pursuant to the Indenture. The Issuer has previously issued $48,300,000
of its Taxable Student Loan Asset-Backed Notes, Senior Class 1996A-1 Auction
Rate Securities (ARS-SM-) (the "Class 1996A-1 Notes"), $48,300,000 of its
Taxable Student Loan Asset-Backed Notes, Senior Class 1996A-2 Auction Rate
Securities (ARS-SM-) (the "Class 1996A-2 Notes"), $11,100,000 of its Taxable
Student Loan Asset-Backed Notes, Subordinate Class 1996B LIBOR Rate (the
"Class 1996B Notes"), $73,700,000 of its Taxable Student Loan Asset-Backed
Notes, Senior Class 1996A-3 Auction Rate Securities (ARS-SM-) (the
"Class 1996A-3 Notes"),$54,300,000 of its Taxable Student Loan Asset-Backed
Notes, Senior Class 1996A-4 Auction Rate Securities (ARS-SM-) (the
"Class 1996A-4 Notes") and $14,200,000 of its Taxable Student Loan Asset-Backed
Notes, Subordinate Class 1996B-2 LIBOR Rate (the "Class 1996B-2 Notes"). The
Class 1996A-1 Notes, the Class 1996A-2 Notes, the Class 1996A-3 Notes, the
Class 1996A-4 Notes and the Class [199__A-__] Notes are collectively referred to
herein as the "Class A Notes." The Class 1996B Notes, the Class 1996B-2 Notes
and the Class [199__B-__] Notes are collectively referred to herein as the
"Class B Notes." The Class [199__C-__] Notes are referred to herein as the
"Class C Notes." The proceeds of such notes will be used by the Issuer,
together with other moneys of the Issuer, for the purpose of providing funds to
finance the acquisition of student loans, fund a reserve fund and to pay certain
costs and expenses in connection with the
B-2
<PAGE>
issuance of such notes. The Indenture provides for the issuance of additional
notes (the "Additional Notes") which may be secured on a parity with or
subordinate to the Class A Notes, the Class B Notes or the Class C Notes as
determined by the Issuer. The Class A Notes, the Class B Notes, the Class C
Notes and any Additional Notes are collectively referred to herein as the
"Notes."
[MANDATORY REDEMPTION. This note is subject to redemption by the Issuer,
in whole or in part, on any Interest Payment Date on or after [__________,
____], from certain moneys in the Subordinate Note Redemption Account of the
Note Redemption Fund created pursuant to the Indenture at a redemption price
equal to the principal amount thereof plus accrued interest to the redemption
date.]
[This note is also subject to mandatory redemption by the Issuer at a
redemption price equal to the principal amount thereof plus accrued interest, if
any, to the date of redemption thereof from moneys in the Subordinate Note
Redemption Account of the Note Redemption Fund on an Interest Payment Date
succeeding [__________, ____], to the extent that moneys remain in the
Series 199__-__ Loan Account of the Student Loan Fund on such date; unless no
such mandatory redemption is needed to maintain the ratings on certain of the
Notes as provided in the Indenture.]
[EXTRAORDINARY OPTIONAL REDEMPTION. This note is subject to extraordinary
optional redemption, at the option of the Issuer, at a redemption price equal to
the principal amount of this note being redeemed, plus accrued interest to the
date of redemption, without premium in whole or in part on any Interest Payment
Date, if the Issuer reasonably determines that it is unable to acquire Financed
Eligible Loans, that the rate of return on Financed Eligible Loans has
materially decreased, or that the costs of administering the Trust have placed
unreasonable burdens upon the ability of the Issuer to perform its obligations
under the Indenture.]
[OPTIONAL REDEMPTION. This note is subject to redemption at the option of
the Issuer from any source of funds, in whole or in part, on any Interest
Payment Date on or after [__________, ____] at a redemption price equal to the
principal amount of this note being redeemed, plus accrued interest on the date
of redemption.]
OPTIONAL PURCHASE. The Issuer may purchase or cause to be purchased all of
the Notes on any Interest Payment Date on which the aggregate current principal
balance of the Notes shall be less than or equal to 10% of the initial aggregate
principal balance of the Notes on the Date of Issuance, at a purchase price
equal to the aggregate current principal balance of such Notes, plus accrued
interest on the Notes through the day preceding the Interest Payment Date on
which the purchase occurs.
NOTICE OF REDEMPTION OR PURCHASE. Notice of the call for redemption or
purchase shall be given by the Trustee by mailing a copy of the notice at least
15 days prior to the redemption or purchase date to the Registered Owners of
Notes to be redeemed or purchased in whole or in part at the address of such
Registered Owner last showing on the registration books. Failure
B-3
<PAGE>
to give such notice or any defect therein shall not affect the validity of any
proceedings for the redemption or purchase of such Notes for which no such
failure or defect occurs. All Notes called for redemption or purchase will
cease to bear interest after the specified redemption or purchase date, provided
funds for their payment are on deposit at the place of payment at the time. If
less than all Notes are to be redeemed or purchased, Notes shall be selected for
redemption or purchase as provided in the Indenture.
SWAP AGREEMENTS. The Indenture provides that the Issuer may enter into an
interest rate swap or basis agreement between the Issuer and a swap provider (a
"Swap Counterparty"), as originally executed and as amended or supplemented, or
other interest rate hedge agreement between the Issuer and a Swap Counterparty,
as originally executed and as amended or supplemented, in each case approved in
writing by each of the Rating Agency, for the purpose of converting in whole or
in part the Issuer's variable interest rate liability on all or a portion of the
Notes bearing interest at a variable rate issued on a parity therewith to a
fixed rate liability or for the purpose of converting in whole or in part the
Issuer's fixed interest rate liability on all or a portion of any Additional
Notes bearing interest at a fixed rate issued on a parity therewith or
subordinate to a variable rate liability. Payments due to a Swap Counterparty
from the Issuer pursuant to the applicable Swap Agreement (including, but not
limited to, payments in respect of an Early Termination Date, as defined in the
applicable Swap Agreement) are referred to herein as "Issuer Swap Payments."
The principal of and interest on the Class A Notes and any Additional Notes
issued on a parity with the Class A Notes and any Issuer Swap Payments secured
on a parity with the Class A Notes are payable on a superior basis to such
payments on the Class B Notes, the Class C Notes and any Additional Notes issued
on a parity with or subordinate to the Class B Notes or the Class C Notes;
provided, however, that current principal and interest may be paid on the
Class B Notes and the Class C Notes and any Additional Notes issued on a parity
with or subordinate to the Class B Notes and the Class C Notes only if all
principal and interest payments due and owing at such time on the Class A Notes
and any Additional Notes issued on a parity with the Class A Notes and any
Issuer Swap Payments secured on a parity with the Class A Notes have been
previously made or provided for as provided in the Indenture. The principal of
and interest on the Class B Notes and any Additional Notes issued on a parity
with the Class B Notes and any Issuer Swap Payments secured on a parity with the
Class B Notes are payable on a superior basis to such payments on the Class C
Notes and any Additional Notes issued on a parity with or subordinate to the
Class C Notes.
Reference is hereby made to the Indenture, copies of which are on file in
the Principal Office of the Trustee, and to all of the provisions of which any
Registered Owner of this note by his acceptance hereof hereby assents, for
definitions of terms; the description of and the nature and extent of the
security for the Notes; the Issuer's student loan origination and acquisition
program; the revenues and other money pledged to the payment of the principal of
and interest on the Notes; the nature and extent and manner of enforcement of
the pledge; the conditions upon which the Indenture may be amended or
supplemented with or without the consent of the Registered Owners of the Notes
and any Swap Counterparty; the rights and
B-4
<PAGE>
remedies of the Registered Owner hereof with respect hereto and thereto,
including the limitations upon the right of a Registered Owner hereof to
institute any suit, action, or proceeding in equity or at law with respect
hereto and thereto; the rights, duties, and obligations of the Issuer and the
Trustee thereunder; the terms and provisions upon which the liens, pledges,
charges, trusts, and covenants made therein may be discharged at or prior to the
stated maturity or earlier redemption of this note, and this note thereafter
shall no longer be secured by the Indenture or be deemed to be Outstanding, as
defined in the Indenture, thereunder; and for the other terms and provisions
thereof.
THE NOTES ARE LIMITED OBLIGATIONS OF THE ISSUER, PAYABLE SOLELY FROM, AND
FURTHER SECURED BY, THE TRUST ESTATE, AS DEFINED IN THE INDENTURE.
No recourse, either directly or indirectly, shall be had for the payment of
the principal of and interest on this note or any claim based hereon or in
respect hereof or of the Indenture, against the Trustee, or any incorporator,
director, officer, employee, or agent of the Issuer, but the obligation to pay
all amounts required by the Indenture securing this note and the obligation to
do and perform the covenants and acts required of the Issuer therein and herein
shall be and remain the responsibility and obligation of said Issuer, limited as
herein set forth.
Subject to the restrictions specified in the Indenture, this note is
transferable on the Note Register kept for that purpose by the Trustee, as
registrar, upon surrender of this note for transfer at the principal office of
the Trustee, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Trustee duly executed by, the Registered
Owner hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes of the same series, Stated Maturity, of authorized denominations,
bearing interest at the same rate, and for the same aggregate principal amount
will be issued to the designated transferee or transferees. At the option of
the Registered Owner, any Note may be exchanged for other Notes in authorized
denominations upon surrender of the Note to be exchanged at the principal office
of the Trustee. Upon any such presentation for exchange, one or more new Notes
of the same series, Stated Maturity, in authorized denominations, bearing
interest at the same rate, and for the same aggregate principal amount as the
Note or Notes so surrendered will be issued to the Registered Owner of the Note
or Notes so surrendered; and the Note or Notes so surrendered shall thereupon be
cancelled by the Trustee.
Notwithstanding the foregoing, so long as the ownership of the Notes is
maintained in book-entry form by The Depository Trust Company (the "Securities
Depository") or a nominee thereof, this note may be transferred in whole but not
in part only to the Securities Depository or a nominee thereof or to a successor
Securities Depository or its nominee.
The Issuer, the Trustee, and any agent of either of them shall treat the
Person in whose name this note is registered as the Registered Owner hereof
(i) on the record date for purposes of receiving timely payment of interest
hereon, and (ii) on the date of surrender of this note for purposes of receiving
payment of principal hereof at its stated maturity and (iii) for all other
B-5
<PAGE>
purposes, whether or not this note is overdue, and neither the Issuer, the
Trustee, nor any such agent shall be affected by notice to the contrary.
To the extent permitted by the Indenture, modifications or alterations of
the Indenture and any supplemental indenture may be made with the consent of
less than all of the Registered Owners of the Notes then outstanding or without
the consent of any of such Registered Owners (by reason of a change in the Act
or Regulation or to cure ambiguities or conflicts), but such modification or
alteration is not permitted to affect the maturity date, Stated Maturity,
amount, Interest Payment Date, or rate of interest on any outstanding Notes or
affect the rights of the Registered Owners of less than all of the Notes
outstanding.
The Registered Owner hereof shall not have the right to demand payment of
this note or any interest hereon out of funds raised or to be raised by
taxation.
Any capitalized term used herein and not otherwise defined herein shall
have the same meaning ascribed to such term in the herein defined Indenture
unless the context shall clearly indicate otherwise.
It is hereby certified and recited that all acts and things required by the
laws of the State of Nevada to happen, exist, and be performed precedent to and
in the issuance of this note, and the passage of said resolution and the
execution of said Indenture, have happened, exist and have been performed as so
required.
B-6
<PAGE>
IN TESTIMONY WHEREOF, the Board of Directors of UNION FINANCIAL SERVICES-1,
INC. has caused the seal of the Issuer to be impressed or a facsimile thereof to
be printed hereon, and this note to be executed by the President and Secretary
of the Issuer all as of the Original Issue Date.
[SEAL] UNION FINANCIAL SERVICES-1, INC.
By
-----------------------------------
President
By
-----------------------------------
Secretary
B-7
<PAGE>
CERTIFICATE OF AUTHENTICATION
This note is one of the Class [199__B-__] Notes designated therein and
described in the within-mentioned Indenture.
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
By
--------------------------------------
Authorized Signatory
AUTHENTICATION DATE:
- --------------------------------------
B-8
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto __________ (Social Security or other identifying number __________) the
within note and all rights thereunder and hereby irrevocably appoints __________
attorney to transfer the within note on the books kept for registration thereof,
with full power of substitution in the premises.
DATED: SIGNED:
--------------------------------------
NOTICE: The signature on this Assignment must
correspond with the name of the Registered Owner
as it appears on the face of the within note in
every particular.
Signature Guaranteed by:
- --------------------------------------
A Member of The New York Stock
Exchange or a State or National
Bank
B-9
<PAGE>
EXHIBIT C
FORM OF CLASS [199__C-__] JUNIOR-SUBORDINATE
[FIXED] [INDEX] RATE NOTES
EXCEPT AS OTHERWISE PROVIDED IN THE INDENTURE, THIS GLOBAL NOTE MAY BE
TRANSFERRED, IN WHOLE BUT NOT IN PART, ONLY TO ANOTHER NOMINEE OF THE SECURITIES
DEPOSITORY (AS DEFINED HEREIN) OR TO A SUCCESSOR SECURITIES DEPOSITORY OR TO A
NOMINEE OF A SUCCESSOR SECURITIES DEPOSITORY.
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTE
JUNIOR SUBORDINATE CLASS [199__C-__]
[FIXED] [INDEX] RATE NOTE
REGISTERED NO. R-1 REGISTERED $__________
MATURITY DATE: INTEREST RATE: ORIGINAL ISSUE DATE CUSIP NO.
July 1, ____ Variable [__________, ____] __________
PRINCIPAL SUM: DOLLARS
REGISTERED OWNER: [CEDE & CO.]
UNION FINANCIAL SERVICES-1, INC., a corporation organized under the
corporation laws of the State of Nevada (the "Issuer," which term includes any
successor corporation under the Amended and Restated Indenture of Trust, dated
as of June 15, 1996 (as amended, the "Indenture"), between the Issuer and
Norwest Bank Minnesota, National Association, as trustee (the "Trustee," which
term includes any successor trustee under the Indenture)), for value received,
hereby promises to pay to the Registered Owner (stated above) or registered
assigns, the Principal Sum of (stated above), but solely from the revenues and
receipts hereinafter specified and not otherwise, on the Maturity Date specified
above (subject to the right of prior redemption hereinafter described), upon
presentation and surrender of this note at the Principal Office of the Trustee,
as paying agent, trustee, authenticating agent and registrar for the Notes, or a
duly appointed successor paying agent, and to pay interest in arrears on said
Principal Sum, but solely from the revenues and receipts hereinafter specified
and not otherwise, to the Registered Owner hereof from the most recent Interest
Payment Date to which interest has been paid hereon, until the payment of said
principal sum in full, at the [FIXED] [INDEX] Rate on the [__________] Business
Day of each month (each an "Interest Payment Date"), commencing [__________,
____]. Such interest is payable by check or draft drawn upon the Trustee and
mailed on the Interest Payment Date to the person who is the Registered Owner
hereof on the
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Record Date at the address of such Registered Owner as it appears on the
registration books (the "Note Register") maintained by the Trustee.
Any capitalized words and terms used as defined words and terms in this
note and not otherwise defined herein shall have the meanings given them in the
Indenture.
This note shall bear interest at [FIXED] [INDEX]-Based Rate, all as
determined in Appendix B of the Indenture.
The principal of and interest on this note are payable in lawful money of
the United States of America. If the specified date for any payment of
principal or interest accrued to such specified date shall be a day other than a
Business Day then such payment may be made on the next succeeding Business Day,
with the same force and effect as if made on the specified date for such payment
without additional interest.
Interest payable on this note shall be computed on the assumption that each
year contains [___ days] and [actual days elapsed].
This note is one of a series of notes of the Issuer designated Taxable
Student Loan Asset-Backed Notes, Junior Subordinate Class [199__C-__] [FIXED]
[INDEX] Rate Notes, dated the Original Issue Date, in the aggregate original
principal amount of $__________ (the "Class [199__C-__] Notes") which, together
with the Issuer's Taxable Student Loan Asset-Backed Notes, Senior Class [199__A-
__] Auction Rate Notes issued in the aggregate principal amount of $___________
(the "Class [199__A-__] Notes") and the Issuer's Taxable Student Loan
Asset-Backed Notes, Subordinate Class [199__B-__] [INDEX] Rate Notes issued in
the aggregate principal amount of $____________ (the "Class [199__B-__] Notes")
have been authorized by the Issuer under a certain resolution, and issued by the
Issuer pursuant to the Indenture. The Issuer has previously issued $48,300,000
of its Taxable Student Loan Asset-Backed Notes, Senior Class 1996A-1 Auction
Rate Securities (ARS-SM-) (the "Class 1996A-1 Notes"), $48,300,000 of its
Taxable Student Loan Asset-Backed Notes, Senior Class 1996A-2 Auction Rate
Securities (ARS-SM-) (the "Class 1996A-2 Notes"), $11,100,000 of its Taxable
Student Loan Asset-Backed Notes, Subordinate Class 1996B LIBOR Rate (the
"Class 1996B Notes"), $73,700,000 of its Taxable Student Loan Asset-Backed
Notes, Senior Class 1996A-3 Auction Rate Securities (ARS-SM-) (the
"Class 1996A-3 Notes"),$54,300,000 of its Taxable Student Loan Asset-Backed
Notes, Senior Class 1996A-4 Auction Rate Securities (ARS-SM-) (the
"Class 1996A-4 Notes") and $14,200,000 of its Taxable Student Loan Asset-Backed
Notes, Subordinate Class 1996B-2 LIBOR Rate (the "Class 1996B-2 Notes"). The
Class 1996A-1 Notes, the Class 1996A-2 Notes, the Class 1996A-3 Notes, the
Class 1996A-4 Notes and the Class [199__A-__] Notes are collectively referred to
herein as the "Class A Notes." The Class 1996B Notes, the Class 1996B-2 Notes
and the Class [199__B-__] Notes are collectively referred to herein as the
"Class B Notes." The Class [199__C-__] Notes are referred to hereing as the
"Class C Notes." The proceeds of such notes will be used by the Issuer,
together with other moneys of the Issuer, for the purpose of providing funds to
finance the acquisition of student loans, fund a reserve fund and to pay certain
costs and expenses in connection with the
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issuance of such notes. The Indenture provides for the issuance of additional
notes (the "Additional Notes") which may be secured on a parity with or
subordinate to the Class A Notes, the Class B Notes or the Class C Notes as
determined by the Issuer. The Class A Notes, the Class B Notes and the Class C
Notes and any Additional Notes are collectively referred to herein as the
"Notes."
[MANDATORY REDEMPTION. This note is subject to redemption by the Issuer,
in whole or in part, on any Interest Payment Date on or after [__________,
____], from certain moneys in the Junior-Subordinate Note Redemption Account of
the Note Redemption Fund created pursuant to the Indenture at a redemption price
equal to the principal amount thereof plus accrued interest to the redemption
date.]
[This note is also subject to mandatory redemption by the Issuer at a
redemption price equal to the principal amount thereof plus accrued interest, if
any, to the date of redemption thereof from moneys in the Junior-Subordinate
Note Redemption Account of the Note Redemption Fund on an Interest Payment Date
succeeding [__________, ____], to the extent that moneys remain in the
Series 199__-__ Loan Account of the Student Loan Fund on such date; unless no
such mandatory redemption is needed to maintain the ratings on certain of the
Notes as provided in the Indenture.]
[EXTRAORDINARY OPTIONAL REDEMPTION. This note is subject to extraordinary
optional redemption, at the option of the Issuer, at a redemption price equal to
the principal amount of this note being redeemed, plus accrued interest to the
date of redemption, without premium in whole or in part on any Interest Payment
Date, if the Issuer reasonably determines that it is unable to acquire Financed
Eligible Loans, that the rate of return on Financed Eligible Loans has
materially decreased, or that the costs of administering the Trust have placed
unreasonable burdens upon the ability of the Issuer to perform its obligations
under the Indenture.]
[OPTIONAL REDEMPTION. This note is subject to redemption at the option of
the Issuer from any source of funds, in whole or in part, on any Interest
Payment Date on or after [__________, ____] at a redemption price equal to the
principal amount of this note being redeemed, plus accrued interest on the date
of redemption.]
OPTIONAL PURCHASE. The Issuer may purchase or cause to be purchased all of
the Notes on any Interest Payment Date on which the aggregate current principal
balance of the Notes shall be less than or equal to 10% of the initial aggregate
principal balance of the Notes on the Date of Issuance, at a purchase price
equal to the aggregate current principal balance of such Notes, plus accrued
interest on the Notes through the day preceding the Interest Payment Date on
which the purchase occurs.
NOTICE OF REDEMPTION OR PURCHASE. Notice of the call for redemption or
purchase shall be given by the Trustee by mailing a copy of the notice at least
15 days prior to the redemption or purchase date to the Registered Owners of
Notes to be redeemed or purchased in whole or in part at the address of such
Registered Owner last showing on the registration books. Failure
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to give such notice or any defect therein shall not affect the validity of any
proceedings for the redemption or purchase of such Notes for which no such
failure or defect occurs. All Notes called for redemption or purchase will
cease to bear interest after the specified redemption or purchase date, provided
funds for their payment are on deposit at the place of payment at the time. If
less than all Notes are to be redeemed or purchased, Notes shall be selected for
redemption or purchase as provided in the Indenture.
SWAP AGREEMENTS. The Indenture provides that the Issuer may enter into an
interest rate swap or basis agreement between the Issuer and a swap provider (a
"Swap Counterparty"), as originally executed and as amended or supplemented, or
other interest rate hedge agreement between the Issuer and a Swap Counterparty,
as originally executed and as amended or supplemented, in each case approved in
writing by each of the Rating Agency, for the purpose of converting in whole or
in part the Issuer's variable interest rate liability on all or a portion of the
Notes bearing interest at a variable rate issued on a parity therewith to a
fixed rate liability or for the purpose of converting in whole or in part the
Issuer's fixed interest rate liability on all or a portion of any Additional
Notes bearing interest at a fixed rate issued on a parity therewith or
subordinate to a variable rate liability. Payments due to a Swap Counterparty
from the Issuer pursuant to the applicable Swap Agreement (including, but not
limited to, payments in respect of an Early Termination Date, as defined in the
applicable Swap Agreement) are referred to herein as "Issuer Swap Payments."
The principal of and interest on the Class A Notes and any Additional Notes
issued on a parity with the Class A Notes and any Issuer Swap Payments secured
on a parity with the Class A Notes are payable on a superior basis to such
payments on the Class B Notes and the Class C Notes and any Additional Notes
issued on a parity with or subordinate to the Class B Notes and the Class C
Notes and any Additional Notes issued on a parity with or subordinate to the
Class C Notes; provided, however, that current principal and interest may be
paid on the Class B Notes and any Additional Notes issued on a parity with or
subordinate to the Class B Notes and the Class C Notes and any Additional Notes
issued on a parity with or subordinate to the Class C Notes only if all
principal and interest payments due and owing at such time on the Class A Notes
and any Additional Notes issued on a parity with the Class A Notes and any
Issuer Swap Payments secured on a parity with the Class A Notes have been
previously made or provided for as provided in the Indenture. The principal of
and interest on the Class C Notes and any Additional Notes issued on a parity
with the Class C Notes and any Issuer Swap Payments secured on a parity with the
Class C Notes are payable on a superior basis to such payments on any Additional
Notes issued subordinate to the Class C Notes.
Reference is hereby made to the Indenture, copies of which are on file in
the Principal Office of the Trustee, and to all of the provisions of which any
Registered Owner of this note by his acceptance hereof hereby assents, for
definitions of terms; the description of and the nature and extent of the
security for the Notes; the Issuer's student loan origination and acquisition
program; the revenues and other money pledged to the payment of the principal of
and interest on the Notes; the nature and extent and manner of enforcement of
the pledge; the conditions upon which the Indenture may be amended or
supplemented with or without the
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consent of the Registered Owners of the Notes and any Swap Counterparty; the
rights and remedies of the Registered Owner hereof with respect hereto and
thereto, including the limitations upon the right of a Registered Owner hereof
to institute any suit, action, or proceeding in equity or at law with respect
hereto and thereto; the rights, duties, and obligations of the Issuer and the
Trustee thereunder; the terms and provisions upon which the liens, pledges,
charges, trusts, and covenants made therein may be discharged at or prior to the
stated maturity or earlier redemption of this note, and this note thereafter
shall no longer be secured by the Indenture or be deemed to be Outstanding, as
defined in the Indenture, thereunder; and for the other terms and provisions
thereof.
THE NOTES ARE LIMITED OBLIGATIONS OF THE ISSUER, PAYABLE SOLELY FROM, AND
FURTHER SECURED BY, THE TRUST ESTATE, AS DEFINED IN THE INDENTURE.
No recourse, either directly or indirectly, shall be had for the payment of
the principal of and interest on this note or any claim based hereon or in
respect hereof or of the Indenture, against the Trustee, or any incorporator,
director, officer, employee, or agent of the Issuer, but the obligation to pay
all amounts required by the Indenture securing this note and the obligation to
do and perform the covenants and acts required of the Issuer therein and herein
shall be and remain the responsibility and obligation of said Issuer, limited as
herein set forth.
Subject to the restrictions specified in the Indenture, this note is
transferable on the Note Register kept for that purpose by the Trustee, as
registrar, upon surrender of this note for transfer at the principal office of
the Trustee, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Trustee duly executed by, the Registered
Owner hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes of the same series, Stated Maturity, of authorized denominations,
bearing interest at the same rate, and for the same aggregate principal amount
will be issued to the designated transferee or transferees. At the option of
the Registered Owner, any Note may be exchanged for other Notes in authorized
denominations upon surrender of the Note to be exchanged at the principal office
of the Trustee. Upon any such presentation for exchange, one or more new Notes
of the same series, Stated Maturity, in authorized denominations, bearing
interest at the same rate, and for the same aggregate principal amount as the
Note or Notes so surrendered will be issued to the Registered Owner of the Note
or Notes so surrendered; and the Note or Notes so surrendered shall thereupon be
cancelled by the Trustee.
Notwithstanding the foregoing, so long as the ownership of the Notes is
maintained in book-entry form by The Depository Trust Company (the "Securities
Depository") or a nominee thereof, this note may be transferred in whole but not
in part only to the Securities Depository or a nominee thereof or to a successor
Securities Depository or its nominee.
The Issuer, the Trustee, and any agent of either of them shall treat the
Person in whose name this note is registered as the Registered Owner hereof
(i) on the record date for purposes of receiving timely payment of interest
hereon, and (ii) on the date of surrender of this note for
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purposes of receiving payment of principal hereof at its stated maturity and
(iii) for all other purposes, whether or not this note is overdue, and neither
the Issuer, the Trustee, nor any such agent shall be affected by notice to the
contrary.
To the extent permitted by the Indenture, modifications or alterations of
the Indenture and any supplemental indenture may be made with the consent of
less than all of the Registered Owners of the Notes then outstanding or without
the consent of any of such Registered Owners (by reason of a change in the Act
or Regulation or to cure ambiguities or conflicts), but such modification or
alteration is not permitted to affect the maturity date, Stated Maturity,
amount, Interest Payment Date, or rate of interest on any outstanding Notes or
affect the rights of the Registered Owners of less than all of the Notes
outstanding.
The Registered Owner hereof shall not have the right to demand payment of
this note or any interest hereon out of funds raised or to be raised by
taxation.
Any capitalized term used herein and not otherwise defined herein shall
have the same meaning ascribed to such term in the herein defined Indenture
unless the context shall clearly indicate otherwise.
It is hereby certified and recited that all acts and things required by the
laws of the State of Nevada to happen, exist, and be performed precedent to and
in the issuance of this note, and the passage of said resolution and the
execution of said Indenture, have happened, exist and have been performed as so
required.
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IN TESTIMONY WHEREOF, the Board of Directors of UNION FINANCIAL SERVICES-1,
INC. has caused the seal of the Issuer to be impressed or a facsimile thereof to
be printed hereon, and this note to be executed by the President and Secretary
of the Issuer all as of the Original Issue Date.
[SEAL] UNION FINANCIAL SERVICES-1, INC.
By
--------------------------------------
President
By
--------------------------------------
Secretary
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<PAGE>
CERTIFICATE OF AUTHENTICATION
This note is one of the Class [199__C-__] Notes designated therein and
described in the within-mentioned Indenture.
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as
Trustee
By
--------------------------------------
Authorized Signatory
AUTHENTICATION DATE:
- --------------------------------------
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<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto __________ (Social Security or other identifying number __________) the
within note and all rights thereunder and hereby irrevocably appoints __________
attorney to transfer the within note on the books kept for registration thereof,
with full power of substitution in the premises.
DATED: SIGNED:
--------------------------------------
NOTICE: The signature on this Assignment must
correspond with the name of the Registered Owner
as it appears on the face of the within note in
every particular.
Signature Guaranteed by:
- --------------------------------------
A Member of The New York Stock
Exchange or a State or National
Bank
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EXHIBIT D
SERIES 199__-__ CLOSING CASH FLOW PROJECTIONS
D-1
<PAGE>
EXHIBIT E
SERIES 199__-__ CLOSING CASH FLOW PROJECTIONS
E-1
<PAGE>
EXHIBIT F
NOTICE OF PAYMENT DEFAULT
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES
CLASS [199__A-__]
AUCTION RATE NOTES
NOTICE IS HEREBY GIVEN that a Payment Default has occurred and is
continuing with respect to the Auction Rate Notes identified above. The next
Auction for the Auction Rate Notes will not be held. The Auction Rate for the
Auction Rate Notes for the next succeeding Interest Period shall be the Non-
Payment Rate.
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as
Trustee
Dated: _______________________ By
---------------------------------
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<PAGE>
EXHIBIT G
NOTICE OF CURE OF PAYMENT DEFAULT
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES
CLASS [199__A-__]
AUCTION RATE NOTES
NOTICE IS HEREBY GIVEN that a Payment Default with respect to the Auction
Rate Notes identified above has been waived or cured. The next Interest Payment
Date is __________________________ and the Auction Date is ___________________.
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as
Trustee
Dated: _______________________ By
--------------------------------
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<PAGE>
EXHIBIT H
NOTICE OF PROPOSED CHANGE IN LENGTH
OF ONE OR MORE AUCTION PERIODS
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES
CLASS [199__A-__]
AUCTION RATE NOTES
Notice is hereby given that the Issuer proposes to change the length of one
or more Auction Periods pursuant to the Amended and Restated Indenture of Trust,
as amended (the "Indenture") as follows:
1. The change shall take effect on _______________, the Interest Rate
Adjustment Date for the next Auction Period (the "Effective Date").
2. The Auction Period Adjustment in Paragraph 1 shall take place only if
(a) the Trustee and the Auction Agent receive, by 11:00 a.m., eastern time, on
the Business Day before the Auction Date for the Auction Period commencing on
the Effective Date, a certificate from the Issuer, as required by the Indenture
authorizing the change in length of one or more Auction Periods and (b)
Sufficient Bids exist on the Auction Date for the Auction Period commencing on
the Effective Date.
3. If the condition referred to in (a) above is not met, the Auction Rate
for the Auction Period commencing on the Effective Date will be determined
pursuant to the Auction Procedures and the Auction Period shall be the Auction
Period determined without reference to the proposed change. If the condition
referred to in (a) is met but the condition referred to in (b) above is not met,
the Auction Rate for the Auction Period commencing on the Effective Date shall
be the Maximum Rate and the Auction Period shall be the Auction Period
determined without reference to the proposed change.
4. It is hereby represented, upon advice of the Auction Agent for the
Class [199__A-__] Notes described herein, that there were Sufficient Bids for
such Class [199__A-__] Notes at the Auction immediately preceding the date of
this Notice.
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<PAGE>
5. Terms not defined in this Notice shall have the meanings set forth in
the Indenture entered into in connection with the Class [199__A-__] Notes.
UNION FINANCIAL SERVICES-1, INC.
Dated: By
------------------ -----------------------------------
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<PAGE>
EXHIBIT I
NOTICE ESTABLISHING CHANGE IN LENGTH
OF ONE OR MORE AUCTION PERIODS
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES
CLASS [199__A-__]
AUCTION RATE NOTES
Notice is hereby given that the Issuer hereby establishes new lengths for
one or more Auction Periods pursuant to the Amended and Restated Indenture of
Trust, as amended:
1. The change shall take effect on _______________, the Interest Rate
Adjustment Date for the next Auction Period (the "Effective Date").
2. For the Auction Period commencing on the Effective Date, the Interest
Rate Adjustment Date shall be _______________, or the next succeeding Business
Day if such date is not a Business Day.
3. For Auction Periods occurring after the Auction Period commencing on
the Effective Date, the Interest Rate Adjustment Date shall be
[_______________(date) and every ______________(number) ______________(day of
week) thereafter] [every ______________(number) ______________(day of week)
after the date set forth in paragraph 2 above], or the next Business Day if any
such day is not a Business Day; provided, however, that the length of subsequent
Auction Periods shall be subject to further change hereafter as provided in the
Indenture of Trust.
4. The changes described in paragraphs 2 and 3 above shall take place
only upon delivery of this Notice and the satisfaction of other conditions set
forth in the Indenture of Trust and our prior notice dated _______________
regarding the proposed change.
5. Terms not defined in this Notice shall have the meanings set forth in
the Indenture of Trust relating to the Class [199__A-__] Notes.
UNION FINANCIAL SERVICES-1, INC.
Dated: By
------------------- ---------------------------------------
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<PAGE>
EXHIBIT J
NOTICE OF CHANGE IN AUCTION DATE
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES
CLASS [199__A-__]
AUCTION RATE NOTES
Notice is hereby given by [ ], as Market Agent for the
Auction Rate Notes, that with respect to the Auction Rate Notes, the Auction
Date is hereby changed as follows:
1. With respect to Class [199__A-__] Notes, the definition of "Auction
Date" shall be deemed amended by substituting "_______________(number) Business
Day" in the second line thereof and by substituting "_______________(number)
Business Days" for "two Business Days" in subsection (d) thereof.
2. This change shall take effect on _______________ which shall be the
Auction Date for the Auction Period commencing on _______________.
3. The Auction Date for the Class [199__A-__] Notes shall be subject to
further change hereafter as provided in the Indenture of Trust.
4. Terms not defined in this Notice shall have the meaning set forth in
the Amended and Restated Indenture of Trust, as amended relating to the Class
[199__A-__] Notes.
[ ], as Market Agent
Dated: By
------------------- --------------------------------
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<PAGE>
EXHIBIT K
NOTICE OF PROPOSED ADJUSTMENT TO PERCENTAGE
USED IN DETERMINING [MAXIMUM AUCTION RATE]
[ALL HOLD RATE] [NON-PAYMENT RATE]
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES
CLASS [199__A-__]
AUCTION RATE NOTES
Notice is hereby given that the Market Agent hereby proposes to change the
[percentage] [Applicable Percentage] used in determining the [Maximum Auction
Rate] [All Hold Rate] [Non-Payment Rate] with respect to the captioned Auction
Rate Notes pursuant to the Amended and Restated Indenture of Trust, as amended
(the "Indenture") relating to such Auction Rate Notes:
1. The change shall take effect on the date of commencement of the next
Auction Period (the "Effective Date").
2. For the Auction Period commencing on the Effective Date, and each
Auction Period thereafter, it is proposed that the percentage used in
determining the [Maximum Auction Rate] [All Hold Rate] [Non-Payment Rate] shall
be ____________________.
3. The adjustment to the percentage used in determining the [Maximum
Auction Rate] [All Hold Rate] [Non-Payment Rate] in paragraph 2 above shall take
place only if (A) the Trustee, the Auction Agent and the Market Agent receive,
by 11:00 a.m., eastern time, on the Business Day immediately preceding the
Effective Date, an Issuer Certificate authorizing the adjustment of such
percentage as specified in such Certificate, together with a copy of the Issuer
consent thereto and the opinion of Note Counsel as required by the Indenture;
and (B) the Trustee and the Issuer have received written confirmation from each
of the Rating Agencies then rating the Auction Rate Notes that such proposed
adjustment will not adversely affect its ratings then applicable to any of the
Auction Rate Notes.
4. If any of the conditions referred to in paragraph 3(A) and (B) above
are not met, the existing percentage used to determine the [Maximum Auction
Rate] [All Hold Rate] [Non-Payment Rate] shall remain in effect, and the rate of
interest on the captioned Auction Rate Notes for the next succeeding Interest
Period shall be determined in accordance with the Auction Procedures.
Terms used herein have the meanings set forth in the Indenture.
[ ], as Market Agent
Dated: By
------------------- ----------------------------------
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<PAGE>
EXHIBIT L
NOTICE ESTABLISHING NEW PERCENTAGE USED IN DETERMINING
[MAXIMUM AUCTION RATE] [ALL HOLD RATE] [NON-PAYMENT RATE]
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES
CLASS [199__A-__]
AUCTION RATE NOTES
Notice is hereby given that the Issuer hereby establishes a new
[percentage] [Applicable Percentage] to be used in determining the [Maximum
Auction Rate] [All Hold Rate] [Non-Payment Rate] with respect to the captioned
Auction Rate Notes pursuant to the Amended and Restated Indenture of Trust, as
amended (the "Indenture") relating to such Auction Rate Notes:
1. The change shall take effect on ______________________, the
commencement of the next Auction Period (the "Effective Date").
2. For the Auction Period commencing on the Effective Date, and each
Auction Period thereafter, the percentage used in determining the [Maximum
Auction Rate] [All Hold Rate] [Non-Payment Rate] shall be ____________________.
3. The change described in paragraph 2 above shall take place only upon
delivery of this Notice and the satisfaction of other conditions set forth in
the Indenture and the Market Agent's prior notice dated ___________________
regarding the proposed change.
Terms used herein have the meanings set forth in the Indenture.
UNION FINANCIAL SERVICES-1, INC.
Dated: By
------------------- ---------------------------------------
L-1
