<PAGE>
As filed with the Securities and Exchange Commission on \\ September __, 1996
Registration No. 333-\\8929
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
PRE-EFFECTIVE AMENDMENT NO. 1
to
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
\\
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT(1) AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Notes \\$700,000,00 100% \\$700,000,000 \\$241,381(2)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457.
\\(2) Of this amount, $344.83 was paid with the initial filing, and
$241,036.17 is paid herewith.
<PAGE>
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the
time the Registration Statement becomes effective. This Prospectus
Supplement and Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any state.
<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.] \\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\\. 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. THE SERIES 199__-__ NOTES ARE SUBJECT TO OPTIONAL,
MANDATORY AND EXTRAORDINARY OPTIONAL REDEMPTION AS MORE FULLY DESCRIBED HEREIN.
SEE "TERMS OF THE OFFERING" HEREIN.
[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 __ \\[LIBOR][Treasury] Rate Notes [and the Class __
\\[LIBOR][Treasury] 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 ___ \\[LIBOR][Treasury] Rate Notes [and the Class ___
\\ [LIBOR][Treasury] Rate Notes] will be determined from time to time as
described herein by reference to the rate of interest described as the
[LIBOR][\\Treasury]-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]]. [Accrual Notes]
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]
<PAGE>
[designate Class] of Series 199__-__ Notes is ______ 1, 20___.\\ 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 $_________ $_________ $_________
- ------------------------------------------------------------------------------
(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 \\ under "Index to and Glossary of Terms."
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 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 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
S-2
<PAGE>
Auction Period] days as set forth \\under "Certain
Definitions and Provisions Related to Auction Rate
Notes and Auction Procedures--Auction Procedures"
in the Prospectus. 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 \\under "Certain
Definitions and Provisions Related to Auction
Rate Notes and Auction Procedures--Auction
Procedures" in the Prospectus (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.]
The following definitions [and procedures]
with respect to each Class of Series 199_-_
Auction Rate Notes should be read in conjunction
with the information under "Certain Definitions
and Provisions Related to Auction Rate Notes and
Auction Procedures" in the Prospectus.
CLASS ___ AUCTION RATE NOTES
"Auction Date" means
"Auction Period" means
"Initial Rate" means
"Initial Rate Adjustment Date" means
CLASS ___ AUCTION RATE NOTES
"Auction Date" means
"Auction Period" means
"Initial Rate" means
"Initial Rate Adjustment Date" means
[PROCEDURES]
[Describe any additional auction procedures
and the number of additional Broker-Dealers.]
[LIBOR NOTE RATES] \\[The Class ___ \\LIBOR 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 \\LIBOR Rate Notes
on the Business Day immediately preceding the
Interest Payment Date. The
S-3
<PAGE>
Applicable Rate (as defined herein) with respect to the
Class __\\LIBOR Rate Notes will be determined from time
to time as described herein by reference to the rate of
interest described as the \\LIBOR-Based Rate.
After the initial Interest Period for the Class
__\\LIBOR Rate Notes, the Applicable Rate for the Class
__\\LIBOR Rate Notes will be reset to equal [describe
index], but in no event exceeding [describe applicable
cap]. \\See "Description of the Notes--LIBOR Rate
Notes" and "Certain Definitions and Provisions Related
to LIBOR Rate Notes" in the Prospectus with respect to
the determination of and certain procedures with
respect to LIBOR-Based Notes and certain definitions
relating thereto.
\\The following definitions [and procedures] with
respect to each Class of Series 199 - LIBOR Rate Notes
should be read in conjunction with the information
under "Certain Definitions and Provisions Related to
LIBOR Rate Notes" in the Prospectus.
CLASS LIBOR RATE NOTES
"Applicable Rate" means .
"Initial Interest Payment Date" means .
"Initial Interest Period" means .
"Initial Period Interest" means .
"Initial Payment Date" means .
"LIBOR-Based Rate" means .
CLASS LIBOR RATE NOTES
"Applicable Rate" means .
"Initial Interest Payment Date" means .
"Initial Interest Period" means .
"Initial Period Interest" means .
"Initial Payment Date" means .
"LIBOR-Based Rate" means .
[PROCEDURES]
[Describe any additional LIBOR procedures.]
[TREASURY NOTE RATES] [The Class Treasury 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
S-4
<PAGE>
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
Treasury Rate Notes on the Business Day immediately
preceding the Interest Payment Date. The Applicable
Rate (as defined herein) with respect to the Class
Treasury Rate Notes will be determined from time to
time as described herein by reference to the rate of
interest described as the Treasury-Based Rate.
After the initial Interest Period for the Class
Treasury Rate Notes, the Applicable Rate for the Class
Treasury Rate Notes will be reset to equal
[describe index], but in no event exceeding [describe
applicable cap]. [See "Description of the Notes--
Treasury Rate Notes" in the Prospectus with respect to
the determination of and certain procedures with
respect to Treasury-Based Notes.]
[Describe determination of interest rate and procedures
relating thereto for \\Treasury Rate Notes.]]
[ACCRUAL NOTES] [The Accrual Notes will be issued as 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 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
\\Accrual Notes will be entitled to receive payments of
interest on each Interest Payment Date.] The \\Accrual
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 \\[designate date].
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
S-5
<PAGE>
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
\\included herein under "Certain
Characteristics of the Financed Eligible
Loans." 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 $_______
[SERVICER AND \\SUBSERVICER] [_______________ shall act as Servicer (in
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.]
S-6
<PAGE>
INDENTURE The Series 199_-__Notes are being issued pursuant to
\\an Amended and Restated Indenture of Trust between
the Issuer and the Trustee\\, 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 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 on a parity with the Prior Class A
Notes, 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.
[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) \\subsequent to , 19 , from moneys
representing principal payments received with respect
to the Financed Eligible Loans acquired with respect to
such Series and other excess revenues transferred to
the Senior Note Redemption Account\\; and (ii) on the
Interest Payment Date next succeeding ___1, 199_ from
moneys \\not previously used to purchase Eligible Loans
that remain 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.]
S-7
<PAGE>
[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) \\subsequent to , 19 ,
from moneys representing principal payments received
with respect to the Financed Eligible Loans acquired
with respect to such Series and other excess revenues
transferred to the Subordinate Note Redemption
Account\\; and (ii) from moneys \\not previously used
to purchase Eligible Loans that remain 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)\\subsequent to , 19 , from
moneys representing principal payments received with
respect to the Financed Eligible Loans acquired with
respect to such Series and other excess revenues
transferred to the Junior-Subordinate Note Redemption
Account\\; and (ii) from moneys \\not previously used
to purchase Eligible Loans that remain 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 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 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
S-8
<PAGE>
amount thereof to be redeemed, plus interest accrued, if
any, to the date of redemption.]
[EXTRAORDINARY [The Series 199__-____ Notes shall also be subject to
OPTIONAL extraordinary optional redemption, in whole or in part,
REDEMPTION] 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.\\]
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 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.]
\\If moneys in the Revenue Fund are insufficient to make
certain payments or distributions therefrom (relating
generally to interest payments, redemption amounts and
certain losses), 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
S-9
<PAGE>
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 $__________].]
[LETTER OF CREDIT] \\[At the time of delivery of the Series 199__ Notes, there
will be issued an irrevocable [standby] [direct pay] letter
of credit (the "Letter of Credit") issued by [Name of Bank]
in favor of the Trustee, on behalf of the holders of the
[designate Classes of Notes]. The initial Letter of Credit
will expire no earlier than _______________ . The Letter of
Credit is designed to help protect such Noteholders against
losses on the Financed Eligible Loans to the maximum of the
stated amount of the Letter of Credit.
The drawing to be made on the Letter of Credit with respect
to any Interest Payment Date will be the lesser of (a) the
excess, if any, of the amount required to make distributions
to the holders of the [designate Classes of Notes] [and to
pay [describe fees] on such Interest Payment Date, over the
amount on deposit in the [Revenue Fund] [Interest Account]
[Principal Account] and (b) the stated amount of the Letter
of Credit with respect to such Interest Payment Date. On the
____ Business Day preceding each Interest Payment Date, the
Trustee will draw on the Letter of Credit with respect to
deficiencies in the amount of interest received on the
Financed Eligible Loans as compared to the amount of
interest required to be paid to the [designate Class of
Noteholders] on the related Interest Payment Date and any
shortfall in the amounts required to pay the fees of the
[Servicer [describe other persons]].
The stated amount of the Letter of Credit on the first
Interest Payment Date will be ____% of the aggregate
initial principal amount of the [Class A Notes] [Financed
Eligible Loans] [$____]. The amount available under the
Letter of Credit on any subsequent Interest Payment Date
will be reduced by the prior cumulative draws under the
Letter of Credit. See "Credit Enhancement--The Letter of
Credit" herein and "Description of Credit \\Enhancement--
Letter of Credit" in the Prospectus\\.
S-10
<PAGE>
[NOTE GUARANTEE
INSURANCE] [At the times of delivery of the Series 199__ Notes, there
will be issued Note Guarantee Insurance issued by [Name of
Insurer] in favor of the Trustee, on behalf of [designate
Class of Noteholders]. The Note Guarantee Insurance will be
in force so long as the [designate Class of Noteholders] are
outstanding.
Drawings will be made by the Trustee on the Note Guarantee
Insurance with respect to any Interest Payment Date in an
amount equal to the lesser of (a)_______ and (b)_______ for
the purpose of [described insurance use terms].
The Note Guarantee Insurance will be in an amount equal to
________% of the aggregate initial principal amount of the
[[Class A] Notes] [Financial Eligible Loans] [$____]. [The
amount available under the Note Guarantee Insurance will be
reduced by the prior cumulative draws under the policy.]
See "Credit Enhancement-Note Guarantee Insurance" herein and
"Description of Credit Enhancement--Note Guarantee Insurance
and Surety Bonds" in the Prospectus.]
[SUBORDINATED
NOTES] [The rights of the [Class B Noteholders] [Class C
Noteholders] to receive payments with respect to the
Financed Eligible Loans will be subordinated to such rights
of the Class A Noteholders to the extent described below.
This subordination is intended to enhance the likelihood of
regular receipt by the Class A Noteholders of the full
amount of scheduled monthly payments of principal and
interest due them and to protect the Class A Noteholders
against losses.
The protection afforded to the Class A Noteholders from the
subordination feature will be effected by the preferential
right of the Class A Noteholders to receive, before any
distributions to [Class B Noteholders] [Class C
Noteholders], current distributions from the Trust Fund and,
if necessary, by the right of such Holders to receive future
distributions on the Financed Eligible Loans that would
otherwise have been payable to the Holders of [Class B
Notes] [Class C Holders]. The [Class B Notes] [Class C
Notes] are then entitled to the available amounts, if any,
remaining in the Revenue Fund, Interest Account and
Principal Account allocated to such Holders after payment
due. See "Description of Credit Enhancement--Subordinates
Notes" in the Prospectus.]
[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.]
S-11
<PAGE>
CERTAIN FEDERAL INCOME The [Series 199__-__ Notes] [designate Classes of
TAX CONSEQUENCES Notes] will be treated as debt of Issuer rather
than as 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 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
Department of Labor, the Series 1999 ___-__ 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-12
<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.
<TABLE>
<CAPTION>
Original Outstanding
Principal Principal Amount Maturity
Series Class Date Issued Amount (As of _______,199__) \\Interest Date
- ------ ----- ------------- ------ ---------------------- ---------- ----
Rate
----
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
As of the date hereof, all payments of principal and interest due and
payable on each Series specified above have been paid in full. [Describe any
defaults.] As of __________,199__, the Financed Eligible Loans by principal
balance pledged to the Trustee as collateral for the outstanding Notes had
delinquencies as follows: $__________ was 30 to 59 days delinquent; $__________
was 60 to 89 day delinquent; $__________ was 90 to 119 days delinquent; and
$__________ was 120 to 180 days delinquent. As of _____________, 199__, the
cumulative amount of Net Losses by principal balance of the Financed Eligible
Loans was $__________.
The following fees are payable with respect to Notes previously issued:
<TABLE>
<CAPTION>
Trustee Servicing Auction Administrative Maintenance and
Series Fee Fee Related Fees Expenses Operating Expenses [Other]
- ------ ------- --------- ------------ ------------- ------------------ -------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
As of the date hereof, all fees and expenses due and payable on each Series
specified above have been paid in full. [Describe any shortfalls.]
S-13
<PAGE>
[CREDIT ENHANCEMENT]
[\\NOTE GUARANTEE INSURANCE]
[Subject to the limitations described under "Description of Credit
\\Enhancement--Notes Guarantee Insurance" in the Prospectus, the [Issuer] will
obtain Note Guarantee Insurance for the [Class A] Notes which will guarantee
timely payments of interest and payments of principal. Principal payments will
be guaranteed by the Guarantee Insurance Provider on the following basis:
\\[Describe terms of guarantee]
\\The amount of the Note Guarantee Insurance on the Date of Issuance will
be [ ]% of the aggregate initial principal amount of the [Class ___ Notes]
[Financed Eligible Loans]. The amount available under the Note Guarantee
Insurance policy on any subsequent Interest Payment Date will be
[the initial amount minus the sum of the prior cumulative claims under the
policy] [[ ]% of the then existing principal amount of the [Class ]
[Notes] [Financed Eligible Loans]].
The \\Guarantee Insurance Provider is [Name of Guarantee Insurance
Provider] [which is a member of [Name of insurance group]. The claims paying
ability of the [Name of Guarantee Insurance Provider][Name of insurance group]
is rated " " by the [Name of rating agency]]. The address of the Guarantee
Insurance Provider is [address].]
\\[THE RESERVE FUND]
\\[The Issuer shall establish a reserve fund (the "Reserve Fund") on the
Date of Issuance. The Reserve Fund will initially be funded with [cash] [a
letter of credit] [securities] [or a combination thereof] in an amount equal to
the $[ ] ([ ]%)percent of the principal balance of the [Financed Eligible
Loans\\] [[Class ] [Notes] as of the Cutoff Date, to be held by the Trustee.
[Funds available to be paid to the Issuer will be deposited first by the Trustee
into the Reserve Fund for the benefit of the [Class ] Noteholders to the
extent required to maintain the Reserve Fund Requirement.] Funds in the Reserve
Fund may be used to the extent the amounts in the [Revenue Fund], [the Interest
Fund] [or the Principal Fund] are not sufficient to pay the interest due and
payable to the Class A Noteholders [and the Class B Noteholders]. After the
Cutoff Date, the Reserve Fund shall be maintained at the lower of $[ ] or
[ ]% of the principal balance of the [Financed Eligible Loans] [[Class ]
Notes] as of the respective Interest Payment. [Amounts in excess of [ ]% shall
be distributed to the Issuer; [; provided, that the minimum Reserve Fund balance
shall be $[ ].
\\[THE LETTER OF CREDIT]
The Letter of Credit will initially be an irrevocable [standby] [direct
pay] letter of credit issued by [Name of Bank] (the "Issuing Bank"). The
initial Letter of Credit will expire no earlier than ________. The Letter of
Credit will protect [Class ] Noteholders against losses on Financed Eligible
Loans to the maximum of the stated amount of the Letter of Credit.
The amount of the Letter of Credit on the Date of Issuance will be [ ]% of
the aggregate initial principal amount of the [Class Notes] [Financed Eligible
Loans]. The amount available
S-14
<PAGE>
under the Letter of Credit on any subsequent Interest Payment Date will be
equal to this initial amount minus the sum of the prior cumulative draws
under the Letter of Credit to cover any shortfall between in the amounts
payable to the [Class ] Noteholders [and the Class ___ Noteholders].
The Issuer will be required to renew or replace the Letter of Credit
before its expiration until the [designate Class] Series 199 Notes are no
longer outstanding. If the Issuer does not renew or replace a letter of
credit, the [Trustee], before the expiration of the then existing Letter of
Credit, will draw under such Letter of Credit an amount equal to the full
amount available thereunder on such date and will transfer such funds to a
separate trust fund. Thereafter, the [Trustee] will be entitled to withdraw
such funds on each Interest Payment Date if and to the extent draws would
have been required under the Letter of Credit.
[The long-term debt of the Issuing Bank is rated " " by [Name of Rating Agency]
[and " " by [Name of Ratind Agency]]. For the year ended
[end of fiscal year], the Issuing Bank reported total assets of $ , total
deposits of $ and total capital and reserves of $ . Upon request
therefore, a copy of the Annual Report of [Name of Issuing Bank] may be
obtained [without charge] from [Name of Issuing Bank] at [address].
CERTAIN CHARACTERISTICS OF THE
<TABLE> FINANCED ELIGIBLE LOANS'
<CAPTION>
COMPOSITION OF THE FINANCED ELIGIBLE LOANS AS OF THE CUTOFF DATE
<S> <C>
Aggregate Outstanding Principal Balance $
Number of Borrowers
Average Outstanding Principal Balance Per Borrower $
Number of Loans
Average Outstanding Principal Balance Per Loan $
Weighted Average Annual Interest Rate %
Weighted Average Annual Effective Rate %
</TABLE>
________________
*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.
S-15
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE FINANCED ELIGIBLE LOANS BY LOAN TYPE
<S> <C> <C> <C> <C>
Percent of Loans
Number of Number of Outstanding by Outstanding
Loan Types Loans Borrowers Balance Balance
- ---------- --------- --------- ----------- -----------------
</TABLE>
<TABLE>
<CAPTION>
COMPOSITION OF THE FINANCED ELIGIBLE LOANS AS OF THE CUTOFF DATE
DISTRIBUTION OF THE FINANCED ELIGIBLE LOANS BY INTEREST RATE
<S> <C> <C> <C> <C>
Percent of Loans
Number of Number of Outstanding by Outstanding
Interest Rate Loans Borrowers Balance Balance
- ------------- --------- --------- ----------- -----------------
</TABLE>
S-16
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE FINANCED ELIGIBLE LOANS BY OUTSTANDING BALANCE
<S> <C> <C> <C> <C>
Percent of Loans
Outstanding Number of Number of Outstanding by Outstanding
Balance Loans Borrowers Balance Balance
- ---------- --------- --------- ----------- -----------------
</TABLE>
<TABLE>
<CAPTION>
COMPOSITION OF THE FINANCED ELIGIBLE LOANS AS OF THE CUTOFF DATE
DISTRIBUTION OF THE FINANCED ELIGIBLE LOANS BY BORROWER PAYMENT STATUS
<S> <C> <C> <C> <C>
Percent of Loans
Borrower Number of Number of Outstanding by Outstanding
Payment Status Loans Borrowers Balance Balance
- ------------- --------- --------- ----------- -----------------
Deferment
Forbearance
Grace
In-School
Repayment
Total
</TABLE>
S-17
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE FINANCED ELIGIBLE LOANS
<S> <C> <C> <C> <C>
Percent of Loans
Number of Number of Outstanding by Outstanding
Location(1) Loans Borrowers Balance Balance
- ------------- --------- --------- ----------- -----------------
AR
AL
AR
AZ
CA
CO
CT
DC
DE
FL
Foreign
GA
Guam
HI
ID
IL
IN
LA
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 of the borrowers of the Financed Loans
shown on the Servicer's records.
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
COMPOSITION OF THE FINANCED ELIGIBLE LOANS AS OF THE CUTOFF DATE
DISTRIBUTION OF THE FINANCED ELIGIBLE LOANS BY DATE OF DISBURSEMENT
<S> <C> <C> <C> <C>
Percent of Loans
Disbursement Number of Number of Outstanding by Outstanding
Date Loans Borrowers Balance Balance
- ------------- --------- --------- ----------- -----------------
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE FINANCED ELIGIBLE LOANS BY \\GUARANTEE AGENCY
<S> <C> <C> <C> <C>
Percent of Loans
\\Guarantee Number of Number of Outstanding by Outstanding
Agencies Loans Borrowers Balance Balance
- ------------- --------- --------- ----------- -----------------
[specify guarantors]
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
COMPOSITION OF THE FINANCED ELIGIBLE LOANS AS OF THE CUTOFF DATE
DISTRIBUTION OF THE FINANCED ELIGIBLE LOANS BY YEARS TO REPAYMENT
<S> <C> <C> <C> <C>
Percent of Loans
Number of Number of Outstanding by Outstanding
Years Loans Borrowers Balance Balance
- ------------- --------- --------- ----------- -----------------
</TABLE>
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.
S-20
<PAGE>
\\CERTAIN INFORMATION RELATING \\TO THE \\GUARANTEE AGENCIES
GUARANTEE AGENCIES FOR THE \\FINANCED ELIGIBLE LOANS
Set forth below is certain historical information with respect to each
\\GUARANTEE AGENCY OF FINANCED ELIGIBLE Loans listed \\herein that is
expected to guarantee 2% or more of the Financed Eligible Loans as of __,
199__ \\(each, a "Guarantee Agency" and, collectively, the "Guarantee
Agencies"). Except as otherwise indicated below, the information regarding
each \\Guarantee Agency has been obtained from the Department of Education's
Guarantee Student Loan Programs Data book for Federal Years 19__ and 1999__,
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 \\Guarantee Agencies and by
all guarantors of Federal Loans in each of the five Federal Fiscal Year 19__
through 199__.
STAFFORD, UNSUBSIDIZED STAFFORD, SLS, PLUS AND CONSOLIDATED LOANS GUARANTEED
- --------------------------------------------------------------------------------
DOLLARS IN MILLIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal
Fiscal [specify All
Year \\Guarantee _____ _____ _____ _____ _____ _____ _____ \\Guarantee
Agencies] Agencies
</TABLE>
RESERVE RATIO. Each \\Guarantee Agency's reserve ratio is determined by
dividing its cumulative cash reserves by the original principal amount of the
outstanding loans it has agreed to guarantee. The term "cumulative cash
reserves" refers to cash reserves plus (a) sources of funds (including
insurance premiums, state appropriations federal advances, federal
reinsurance payments, administrative costs allowances, collections on claims
paid and investment earnings) 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
____________________
*The information set forth in the table above has been obtained from the
Federal Fiscal Years _____, _____ and _____ DOE Data Books.
S-21
<PAGE>
loans guaranteed by such \\Guarantee Agency minus (i) the original principal
amount of loans canceled, claims paid, loans paid in full and loan guarantees
transferred from such \\Guarantee Agency to other guarantors, plus )ii) the
original principal amount of loan guarantees transferred to such \\Guarantee
Agency to other guarantors. The following table set forth each \\Guarantee
Agency'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 1999_:*
<TABLE>
<CAPTION>
(\\Guarantee Agency) [Guarantee Agency] [Guarantee Agency]
<S> <C> <C> <C> <C> <C> <C> <C>
National
Federal Cumulative Cumulative Cumulative Average
Fiscal Cash Reserve Cash Reserve Cash Reserve Reserve
Year Reserves** Ratio Reserves** Ratio Reserves** Ratio Ratio
- ---- --------- ----- ---------- ------ ---------- ------ ------
</TABLE>
____________________
*The information set forth in the table 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 \\Guarantee Agency'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 \\Guarantee Agency by
the aggregate amount of default claims paid by such \\Guarantee Agency during
the applicable Federal Fiscal Year with respect to borrowers. The table
below set forth the recovery rates for each \\Guarantee Agency 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:*
S-22
<PAGE>
<TABLE>
<CAPTION>
Recovery Rate
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal [Specify
Fiscal \\Guaranty National
Year Agencies] Average
- ---- -------- ----- ----- ----- ----- ----- ----- ----- -------
</TABLE>
____________________
*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 Federal Fiscal Years
1991, 1992 and 1993).
**Date not available.
LOAN LOSS RESERVE. The DOE Data Book does not disclose whether any
\\Guarantee Agency has established a segregated loan loss reserve with
respect to its student loan guarantee obligations. Accordingly, to the extent
that a \\Guarantee Agency has not established such a segregated loan loss
reserve, in the event that a \\Guarantee Agency receives less than full
reimbursement of its guarantee obligations from the Department, the
\\Guarantee Agency 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 \\Guarantee Agencies'
claims rate exceeded 5%, the claims of such \\Guarantee Agencies were not
fully reimbursed by the Department. \\No assurance can be made that any of
the \\Guarantee Agencies 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 \\Guarantee Agency and the national average for all guarantors of
Federal Loans for the last five Federal Fiscal Years 19__ through 199_:*
<TABLE>
<CAPTION>
Claims Rate
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal [Specify
Fiscal \\Guaranty National
Year Agencies] Average
- ---- -------- ----- ----- ----- ----- ----- ----- ----- -------
</TABLE>
____________________
*The information set forth in the table above has been obtained from the
Department.
**Data not available.
Each \\Guarantee Agency 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
____, [address].
S-23
<PAGE>
\\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.
[LEGAL MATTERS]
[Certain legal matters, including certain income tax matters, will be passed
upon for the Issuer by Kutak Rock, Denver, Colorado. [Certain matters involving
the laws of the State of Nevada will be passed upon for the Issuer by .]
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-24
<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 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 (the " Eligible Lenders\\" and, together with Union Bank, 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
Issuer has issued previously $249,900,000 aggregate principal amount of Taxable
Student Loan Asset-Backed Notes (the "Private Notes"). Notes issued by the
Issuer in the future under the Indenture of Trust (the "Indenture"), 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 per annum rate of interest for a Class of Notes for \\a period of
interest specified with respect to a Series (each, an " 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) \\the interest rate of United States Treasury securities for
one-month or three-month securities plus the amount set forth in the related
Prospectus Supplement (such Notes being referred to herein as " Treasury Rate
Notes"). The LIBOR Rate Notes and \\the Treasury Rate Notes are collectively
referred to herein as "Index Rate Notes." Except as otherwise set forth in a
Prospectus Supplement, interest on each
<PAGE>
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 \\a
stated maturity date ("Stated Maturity") which will be an Interest Payment Date
specified in the related Prospectus Supplement. 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. 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 (each,
the " Date of Issuance").
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. \\The Interest Period for each Class of
Index Rate Notes \\will be as set forth in the related Prospectus Supplement.
\\
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 conducted pursuant to the procedures
described herein (an "Auction"), or to or through a \\specified broker-dealer
(as described herein); provided, that in the case of all transfers other than
those pursuant to an Auction, either the owner of the Auction Rate Notes so
transferred, its \\participant or specified broker-dealer advises the agent
conducting the Auction (the " Auction Agent") of such transfer. See "Certain
Definitions and Provisions Related to Auction Rate Notes and Auction Procedures"
herein.
<PAGE>
All Financed Eligible Loans are, and it is expected that all Financed
\\Eligible Loans to be acquired in the future will be, guaranteed by private,
non-profit corporations or state agencies (each a \\"Guarantee Agency"), 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 (the "Higher Education Act"), 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\\ AND 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 \\NOTES DO NOT REPRESENT AN OBLIGATION OF OR AN INTEREST IN THE TRUSTEE
OR THE SELLERS OR ANY OF THEIR RESPECTIVE AFFILIATES, OTHER THAN A LIMITED
OBLIGATION OF THE ISSUER, AND THE \\NOTES 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. Except as otherwise specified with respect
to a Series, it is not expected that the Offered Notes will be listed on a
national securities exchange. 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.
<PAGE>
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 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 and certain information with
respect to each previously issued Class of Notes, along with the applicable
Stated Maturity\\; (d) certain information concerning the guarantee agencies
with respect to the Financed Eligible Loans (the "Guarantee Agencies");
(e) certain information with respect to any credit enhancements; and
(f) 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 and 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. In addition, the Commission maintains a World Wide
Web site that contains reports, proxy and information statements and other
information regarding registrants, such as the Issuer, that file electronically
with the Commission at the following address: (http://www.sec.gov).
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 \\Notes and the Issuer will be
provided to the Noteholders as required by the Indenture. 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 \\eligible participants (the
i
<PAGE>
"Participants") and eligible indirect participants (the "Indirect
Participants"). Such Participants and Indirect Participants will then forward
such reports to the beneficial owners of Offered Notes. See "Book Entry
Registration" herein. The Issuer will file with the Commission such periodic
reports as are required under the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder, and will suspend the
filing of such reports at its option if not so required.
ii
<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.
iii
<PAGE>
-------------------------------
TABLE OF CONTENTS TO PROSPECTUS
-------------------------------
Page
----
PROSPECTUS SUPPLEMENT..................................................... i
AVAILABLE INFORMATION..................................................... i
REPORTS TO NOTEHOLDERS.................................................... i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... iii
SUMMARY OF THE OFFERING................................................... ix
Securities Offered.................................................... ix
Issuer................................................................ ix
Sellers............................................................... ix
Servicer and Subservicer.............................................. x
Trustee............................................................... x
Indenture............................................................. x
Trust Estate.......................................................... xii
The Financed Eligible Loans........................................... xii
Determination of Interest Rates....................................... xv
Principal Payments.................................................... xvi
Stated Maturity Date.................................................. xvi
Pool Characteristics.................................................. xvii
Cutoff Date........................................................... xvii
Redemption Provisions................................................. xvii
Subordinated Notes.................................................... xx
Additional Parity Notes............................................... xxi
Sales and Repurchases of Certain Eligible Loans....................... xx
Funds and Accounts.................................................... xxii
Credit Enhancement.................................................... xxv
Registration of Notes................................................. xxv
Certain Federal Income Tax Consequences............................... xxv
ERISA Considerations.................................................. xxvi
Ratings............................................................... xxvi
RISK FACTORS................................................................ 1
Nature of the Notes..................................................... 1
Subordination; Limited Assets........................................... 1
Failure to Comply with Loan
Origination and Servicing Procedures for Eligible Loans................. 2
Reliance Upon Sellers................................................... 3
Perfection of Security
Interest in Financed Eligible Loans..................................... 3
Changing Assets of the Trust Estate..................................... 3
Variability of Revenues................................................. 4
iv
<PAGE>
Prepayment Considerations............................................... 5
Unsecured Nature of Financed Eligible Loans;
Financial Status of Guarantee Agencies ................................ 6
Changes in Legislation.................................................. 6
The Financed Eligible Loans and the Student Loan Fund................... 7
Issuance of Additional Notes............................................ 8
Maturity and Prepayment Assumptions..................................... 8
Basis Risk.............................................................. 9
Certain Legal Aspects................................................... 9
Book-Entry Registration................................................. 10
Repurchase of Financed Eligible Loans................................... 11
Ratings of the Notes.................................................... 11
DESCRIPTION OF THE NOTES.................................................... 11
General................................................................. 12
Auction Rate Notes...................................................... 12
\\LIBOR Rate Notes...................................................... 13
Treasury Rate Notes..................................................... 14
Accrual Notes........................................................... 15
Principal Payments of the Notes......................................... 15
Mandatory Redemption.................................................... 16
Optional Redemption..................................................... 16
Extraordinary Optional Redemption....................................... 17
Optional Purchase....................................................... 17
Notice and Partial Redemption of Notes.................................. 17
Accelerated Maturity of Notes........................................... 18
SECURITY AND SOURCES OF PAYMENT FOR THE NOTES............................... 19
General................................................................. 19
Funds and Accounts and Flow of Revenues................................. 19
Student Loan Fund....................................................... 20
Revenue Fund............................................................ 22
Reserve Fund............................................................ 25
Interest Fund........................................................... 26
Note Redemption Fund.................................................... 28
Student Loan Holding Fund............................................... 30
Cost of Issuance Fund................................................... 31
Operating Fund.......................................................... 31
General Fund............................................................ 32
Investment of Funds Held by Trustee..................................... 32
Release................................................................. 33
\\CERTAIN DEFINITIONS AND PROVISIONS RELATED TO AUCTION RATE
TO AUCTION RATE NOTES AND AUCTION PROCEDURES..................... 34
Auction-Related Definitions............................................. 34
v
<PAGE>
Auction Procedures...................................................... 40
Introduction............................................................ 40
Auction Note Interest Rate.............................................. 43
AUCTION RATE NOTE SETTLEMENT PROCEDURES..................................... 60
CERTAIN DEFINITIONS AND PROVISIONS RELATED TO LIBOR RATE
NOTES................................................................... 64
LIBOR-Related Definitions............................................... 64
\\Interest on LIBOR Rate Notes.......................................... 66
Payments................................................................ 67
Notice of Payment Defaults and Cures.................................... 67
Calculation of Rates;
Termination of Book Entry System........................................ 67
Computation of Interest................................................. 68
Notification of Rates, Amounts and Payment Dates........................ 68
Calculation Agent....................................................... 69
Credit Ratings.......................................................... 69
Notice.................................................................. 70
Notice of Payment Default............................................... 70
BOOK ENTRY REGISTRATION..................................................... 70
ADDITIONAL NOTES............................................................ 72
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.............................. 73
Parity of Lien.......................................................... 73
Other Obligations of the Issuer......................................... 74
Pledge for Payment...................................................... 74
Representations and Warranties of the Issuer............................ 74
Covenants as to Additional Conveyances.................................. 75
Further Covenants of the Issuer......................................... 75
Servicing Agreement..................................................... 77
Procedures for Transfer of Funds........................................ 77
Additional Covenants with Respect to the Higher Education Act........... 77
Student Loans; Collections Thereof; Assignment Thereof.................. 78
Appointment of Agents................................................... 78
Capacity to Sue......................................................... 78
Certain Matters Relating to Bankruptcy.................................. 78
\\Events of Default..................................................... 79
\\Remedies on Default................................................... 80
\\The Trustee........................................................... 85
\\Supplemental Indentures............................................... 92
\\Satisfaction of Indenture............................................. 94
SELLER REPRESENTATIONS AND WARRANTIES....................................... 96
The Sellers............................................................. 96
vi
<PAGE>
Representations and Warranties--Portfolio Characteristics............... 96
Representations and Warranties--Eligible Loans.......................... 97
Repurchase Obligation of Seller.........................................100
DESCRIPTION OF CREDIT ENHANCEMENT...........................................101
General.................................................................101
Subordinate Notes.......................................................102
Letter of Credit........................................................102
Note Guarantee Insurance and Surety Bonds...............................103
Reserve Fund............................................................103
THE ISSUER..................................................................104
Executive Management....................................................105
THE ISSUER'S STUDENT LOAN PURCHASE PROGRAM..................................106
The Issuer's Student Loan Purchase Agreement............................106
Servicing of Financed Eligible Loans....................................107
The Servicing Agreements................................................107
UNIPAC..................................................................108
DESCRIPTION OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM....................108
The Federal Family Education Loan Program...............................108
Subsidized Federal Stafford Loans.......................................109
Unsubsidized Federal Stafford Loans.....................................112
Special Allowance Payments..............................................113
Federal PLUS and Federal SLS Loan Programs..............................114
The Federal Consolidation Loan Program..................................116
Federal Insurance and Reimbursement of Guarantee Agencies...............117
Reimbursement...........................................................119
The Guarantee Agreement.................................................119
Higher Education Amendments of 1992.....................................120
1993 Amendments to the Federal Family Education Loan Program............121
GUARANTEE AGENCIES..........................................................125
General.................................................................125
Other Guarantee Agencies................................................127
WEIGHTED AVERAGE LIFE OF THE NOTES..........................................127
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.....................................128
Characterization of the Trust Estate....................................128
Characterization of the Notes as Indebtedness...........................129
Taxation of Interest Income of Registered Owners........................130
vii
<PAGE>
Backup Withholding......................................................131
Limitation on the Deductibility of Certain Expenses.....................131
Tax-Exempt Investors....................................................131
Sale or Exchange of Notes...............................................132
ERISA CONSIDERATIONS........................................................132
CERTAIN RELATIONSHIPS AMONG FINANCING PARTICIPANTS..........................134
PLAN OF DISTRIBUTION........................................................134
LEGAL MATTERS...............................................................135
FINANCIAL INFORMATION.......................................................136
RATINGS.....................................................................136
INDEX TO AND GLOSSARY OF CERTAIN TERMS......................................137
Index to Defined Terms..................................................137
Glossary of Terms.......................................................138
APPENDIX I--FORM OF MASTER PURCHASER'S LETTER...............................I-1
viii
<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 \\referred or assigned to them in "Index to and
Glossary of Certain Terms"; provided, that terms defined in "Index to and
Glossary of Certain Terms" take precedence over the same terms defined more
briefly herein.
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\\ as set forth herein under
"--Trust Estate." The Offered Notes that are
designated as Class B Notes (the "Class B
Notes") and the Private Notes that have been
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 that have been 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 A Notes and 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.
\\
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 (each such agreement,
together with similar agreements entered into
by other Eligible Lenders, a "Student Loan
Purchase \\ Agreement") with the Issuer
ix
<PAGE>
requiring the Seller to make Financed
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 as defined under
the Higher Education Act ("Eligible
Lenders\\" and together with Union Bank,
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 (the
"Subservicer") and custodian (the
"Custodian") of the Financed Eligible Loans.
The Issuer may appoint other entities to act
as a 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.
INDENTURE The Private Notes have been and the Offered
Notes will be issued pursuant to an Amended
and Restated Indenture of Trust between the
Issuer and the Trustee, 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
(a " Supplemental Indenture"), 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 the Private Notes
designated as its (i) 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 $11,100,000 of its
Subordinate LIBOR Rate Class B Notes (the
"Class B Notes"), and (ii) 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")
x
<PAGE>
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 and the
Offered Notes designated as Class A Notes
will 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 and the Offered
Notes designated as Class B Notes will
constitute "Subordinate Notes" under the
Indenture, secured on a basis which is
subordinate to the Senior Notes. Offered
Notes designated as Class A Notes will be
issued on a parity basis with the Prior Class
A Notes. Offered Notes secured on a basis
subordinate to the Prior Class A Notes may be
issued under the Indenture and 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 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.
\\
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 \\Notes then
outstanding (the "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 \\Notes will
xi
<PAGE>
not result in any Rating Agency reducing or
withdrawing its existing ratings on the
Outstanding Notes. See "Additional Notes"
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 \\Cutoff Dates; (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
\\the Servicing Agreement, the Student Loan
Purchase \\ Agreements and the agreements
between the respective Guarantee Agencies and
the Trustee (the "Guarantee Agreements") as
the same relate to Financed Eligible Loans
and in and to \\any agents conducting an
Auction (each, an "Auction Agent Agreement")
and the custodian holding files on behalf of
the Trust (the " Custodian Agreement"); and
(iv) certain related rights and property held
in trust for the benefit of the \\registered
owners of the Notes (the "Registered
Owners"). In addition, the Trust Estate with
respect to any Series may also consist of
certain rights regarding credit enhancement
as described herein and in the related
Prospectus Supplement.
THE FINANCED
ELIGIBLE LOANS "Financed Eligible Loans" will consist of
\\Federal Loans originated pursuant to the
\\federal family education loan program as
described herein under "Description of the
Federal Family Educational Loan Program" to
students enrolled in qualified accredited
institutions of higher education and will
include rights to receive payments made with
respect to such Financed Eligible Loans and
the proceeds thereof. \\
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
xii
<PAGE>
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
\\loan made to students or parents of
students authorized under the Higher
Education Act for education at a qualified
institution (a " Student Loan") which: (a)
will, subject to compliance with specific
origination and servicing procedures
prescribed by federal and guarantor
regulations, be guaranteed as to the payment
of principal and interest by a state or
private non-profit guarantor (each, a
"Guarantee Agency") which Guarantee Agency is
reinsured by the United States Department of
Education for between 80% and 100% of the
amount of default claims paid by such
Guarantee Agency for a given federal fiscal
year for student loans disbursed prior to
October 1, 1993, for between 78% and 98% of
default claims paid for student loans
disbursed on or after October 1, 1993, and
for 100% of death, disability, bankruptcy,
closed school and false certification claims
paid ("Federal Loans"); (b) and 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; \\provided, that
the Eligible Loans delinquent between 121 and
180 days acquired with respect to the
proceeds of any Series will not exceed 10% by
principal balance of such loans acquired.
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
\\Guarantee Agencies and will be reinsured by
the United States Department of Education
(the "Department") to the extent provided
pursuant to the Higher Education 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\\,
and is also contingent upon certain servicing
procedures to be performed by the Servicer.
See "Risk Factors--Failure to Comply with
Loan Origination and Servicing Procedures for
Eligible Loans" and "Description of the
Federal Family Education Loan
Program--Federal Insurance and Reimbursement
of \\Guarantee Agencies"
xiii
<PAGE>
herein. 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 portfolio
of Financed Eligible Loans (the "Student Loan
Portfolio") will be identified in the related
Prospectus Supplement. Guarantee Agencies
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 (as
defined herein under "Description of the
Federal Family Education Loan Program"),
during the period in which the related
borrower is in school and for certain
authorized periods as described in the
Higher Education Act (the "Deferral Phase"),
the borrower is not required to make payments
on his or her Financed 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 \\may 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," \\"Description of the Federal
Family Education Loan Program" and \\"Summary
of Certain Provisions of the Indenture--Sale
of Financed Eligible Loans" herein and \\
"Certain Characteristics of the Financed
Eligible Loans" in the Prospectus Supplement.
xiv
<PAGE>
DETERMINATION OF INTEREST
RATES 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 herein under "Certain
Definitions and Provisions Related to Auction
Rate Notes and Auction Procedures." The
interest rates for the Auction Rate Notes
will be reset at the Auction Rate with
respect to each such Class as described
herein under "Certain Definitions and
Provisions Related to Auction Rate Notes and
Auction Procedures--Auction Procedures" (but
in no event exceeding the maximum interest
rate (the "Maximum Interest 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.
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") or whose interest
rate is determined with respect to United
States Treasury securities ("Treasury Rate
Notes" and 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 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
xv
<PAGE>
herein under "Certain Provisions Related to
LIBOR Rate Notes" by reference to the rate of
interest described as the LIBOR-Based Rate.
The Applicable Rate with respect to the
Treasury Rate Notes will be as described
herein under "Description of the
Notes--Treasury Rate Notes" and determined as
specified in the related Prospectus
Supplement. See "Description of the
Notes--LIBOR Rate Notes" and "--Treasury Rate
Notes" herein.
ACCRUAL NOTES. 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. The
rate of interest to be accrued and the
accrual period will be specified in the
related Prospectus Supplement. See
"Description of the Notes--Accrual Notes"
herein.
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 the date fixed
for payment (the "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.
AUCTION PROCEDURES Except as may otherwise be specified with
respect to a Series containing a Class or
Classes of Auction Rate Notes in the related
Prospectus Supplement, for each Auction, the
holders of the Auction Rate Notes may submit
orders through a Broker-Dealer (as defined
under "Certain Definitions and Provisions
Related to Auction Rate Notes and Auction
Procedures--Auction-Related Definitions") as
to the principal amount of Auction Rate Notes
they wish to hold, purchase or sell at
various interest rates. If no order is
received from the holder of an Auction Rate
Note, such holder will be deemed to have
submitted a hold order for all Auction Rate
Notes owned by such holder at the new Auction
Rate. As part of the Auction Procedures, the
Broker-Dealers also solicit bids from non-
holders interested in acquiring Auction Rate
Notes as to the principal amount of Auction
Rate Notes they wish to
xvi
<PAGE>
purchase at various interest rates. The
Auction Rate for any Auction Date generally
will be the lowest interest rate at which all
sell orders are fulfilled, but in no event
greater than the Maximum Auction Rate. In
connection with each Auction, the Auction
Rate Notes are transferred at par plus
accrued interest.
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 the
Prospectus Supplement of such Series. The
Student Loan Purchase Agreement with respect
to each Seller includes portfolio
characteristic requirements applicable to all
Financed 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.
REDEMPTION PROVISIONS 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 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) subsequent to the recycling
period with respect to such Series, from
moneys representing principal payments
received with respect to the Financed
Eligible Loans acquired with respect to such
Series and other excess revenues transferred
to the Senior Note Redemption Account; and
(ii) on the Interest Payment Date as
specified with respect to a Series in the
related Prospectus Supplement from moneys not
previously used to acquire Eligible Loans
that remain in the Loan Account designated
with respect to a Series of the Student Loan
Fund unless the Issuer provides to the
Trustee a certificate with respect to the
cash flow of the Financed Student Loans as
required by the Indenture (a "Cash Flow
Certificate") and an opinion of counsel as
described in "Description of the
Notes--Mandatory Redemption" herein.
xvii
<PAGE>
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) subsequent to the recycling
period with respect to such Series, from
moneys representing principal payments
received with respect to the Financed
Eligible Loans acquired with respect to such
Series and other excess revenues transferred
to the Subordinate Note Redemption Account;
and (ii) from moneys not previously used to
acquire Eligible Loans that remain 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 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) subsequent to the recycling
period with respect to such series, from
moneys representing principal payments
received with respect to the Financed
Eligible Loans acquired with respect to such
Series and other excess revenues transferred
to the Junior-Subordinate Note Redemption
Account; and (ii) from moneys not previously
used to acquire Eligible Loans that remain 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 counsel as
described in "Description of the
Notes--Mandatory Redemption" herein.
OPTIONAL REDEMPTION. To the extent described
in the related Prospectus Supplement and at
the discretion of the Issuer, the Offered
Notes of any Series may be subject to
optional redemption, in whole or in part, on
any Interest Payment Date occurring with
respect to any Class on or after the date set
forth in such Prospectus Supplement, at a
redemption price
xviii
<PAGE>
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 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. See "Description of the
Notes--Extraordinary Optional Redemption"
herein for a discussion of the circumstances
under which an Extraordinary Optional
Redemption would be exercised.
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
original issuance under the Indenture (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. See "Description of the
Notes--Optional Purchase" herein. The
Optional Purchase differs from an Optional
Redemption in that an Optional Purchase would
relate to all Series and Classes of Notes and
an Optional Redemption would relate to a
Series or Classes within a Series.
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 order of the Issuer (an "Issuer
Order"); provided, however, that the Class B
Notes may only be redeemed prior to the
Class A Notes of any Series and, the Prior
Class A Notes and the
xix
<PAGE>
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 "Summary of
Certain Provisions of the Indenture" herein.
ADDITIONAL PARITY NOTES 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 respect to the related
Prospectus Supplement and the Prior Class B
Notes and the Class C Notes of any Series.
In addition, while the Indenture provides
that the Issuer may enter into any swap
agreements as it deems necessary or
xx
<PAGE>
desirable with respect to and on a parity
with any or all of the Notes, the Issuer will
not enter into any such agreements without
first filing an amendment to this
registration statement of which this
Prospectus is a part. See "Summary of
Certain Provisions of the Indenture" herein.
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 Eligible Loan;
(ii) the Secretary of the United States
Department of Education (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 \\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.
xxi
<PAGE>
See "The Issuer's Student Loan Purchase
Program--The Servicing Agreements" herein.
FUNDS AND ACCOUNTS Pursuant to the Indenture, there has been
established the Student Loan Fund consisting,
with respect to each Series, of a Loan
Account, a Note Account and a Recycling
Account; the Revenue Fund; the Reserve Fund;
the Interest Fund consisting of a Senior
Interest Account, a Subordinate Interest
Account and a Junior-Subordinate Interest
Account; the Note Redemption Fund consisting
of the Senior Note Redemption Account, the
Subordinate Note Redemption Account and the
Junior-Subordinate Note Redemption Account;
and the Student Loan Holding Fund. In
addition, there are certain other funds
established under the Indenture as described
herein under "Security and Sources of Payment
for the Notes."
Generally, all funds received with respect to
the Financed Student Loans first are
deposited by the Trustee into the Student
Loan Holding Fund. Upon receipt, such
deposits are allocated between principal and
interest, and the principal portion further
allocated among Series with respect to the
Financed Eligible Loans acquired in
connection with such Series. Thereafter, the
interest portion is deposited into the
Revenue Fund and the principal portion with
respect to each Series deposited into the
Recycling Account\\ of the Student Loan Fund
\\with respect to such Series until April 1,
1999 with respect to the Series 1996A Notes
and the Series 1996B Notes, and, with respect
to the Offered Notes, until the date
specified in the related Prospectus
Supplement with respect to each related
Series. Funds in the Recycling Account of
any Series generally will be used to acquire
additional Financed Eligible Loans for the
period specified with respect to such Series.
After such dates, the principal portion with
respect to a Series will be deposited to the
Note Redemption Fund; provided, that if with
respect to an Interest Payment Date, there
exists an insufficiency of funds in the
Revenue Fund to make payments or transfers as
described herein under "Security and Sources
of Payments for the Notes," then such
insufficiency existing shall be transferred
to the Revenue Fund from the Student Loan
Holding Fund but only after first
transferring any such deficiency from the
Note Redemption Fund.
Funds on deposit in the Revenue Fund
(generally representing the interest portion
of receipts with respect to the Financed
xxii
<PAGE>
Eligible Loans) are paid or transferred daily
or monthly as indicated below under
"--Revenue Fund".
REVENUE FUND. Generally, the funds on
deposit in the Revenue Fund shall be used
(A) on any date to pay when due the fees and
expenses of the Servicer, the Trustee, the
Auction Agent, the Broker-Dealers, the Rating
Agencies and any other expenses of the Trust
Estate, and (B) monthly to make payments or
transfers in the order of priority described
under "Security and Sources of Payment for
the Notes--Revenue Fund" (i) to the Interest
Fund to pay interest due on the Notes in the
order of their priority, (ii) to the
Operating Fund to pay expenses of the Issuer
incurred in connection with the Trust Estate
(" Maintenance and Operating Expenses"),
(iii) to pay amounts necessary to redeem any
Notes to the extent deficiencies therefor
exist in the Note Redemption Account, (iv) to
transfer the amount of any losses on the
Financed Eligible Loans to the Recycling
Account or Note Redemption Fund, as
appropriate, (v) to transfer to the Reserve
Fund an amount to maintain the Reserve Fund
requirement, (vi) to transfer amounts as
determined by the Issuer for deposit to the
Note Redemption Fund, and (vii) except in the
case of an Event of Default, remaining
amounts, if any, for transfer to the General
Fund for use by the Issuer as described
herein for "Security and Source of Payments
for the Notes."
STUDENT LOAN FUND. An amount will be
deposited into the Loan Account of the
Student Loan Fund designated with respect to
a Series on the Date of Issuance of a Series
as specified in the related Prospectus
Supplement. Funds on deposit in each Loan
Account shall be used to acquire the Eligible
Loans specified with respect to a Series in
the related Prospectus Supplement on or about
the Date of Issuance. 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 of the Student Loan Fund designated
with respect to a Series \\principal
payments received with respect to the
Financed Eligible Loans \\acquired with
respect to such Series until the date
specified with respect to a Series in the
related Prospectus Supplement. Funds on
deposit in \\each Recycling Account shall be
used prior to the date specified with respect
to a Series \\in the related Prospectus
Supplement solely to acquire additional
Eligible Loans\\ on an ongoing basis. If, on
any of January 1 and July 1 of a year
xxiii
<PAGE>
(each, a "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 for use
as specified therein unless (a) the \\market
value of the Trust Estate determined under
the Indenture (the "Aggregate Market Value")
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
\\counsel, in which case said moneys shall
remain in \\such Recycling Account \\for a
period of up to one additional year. The
Note Account is the account in which the
Financed Eligible Loans themselves are held.
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 but only
after application first 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.
INTEREST FUND AND NOTE REDEMPTION FUND.
Amounts deposited into the Interest Fund and
Note Redemption Fund will be applied to pay
interest due and payable on the Notes and to
redeem or make principal payments on the
Notes, respectively, as further described
under "Security and Sources of Payment for
the Notes" herein.
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
\\to pay certain administrative costs of the
Issuer and to pay the issuance costs with
respect to each Series, respectively, as
further described under "Security and Sources
of Payment for the Notes" herein.
xxiv
<PAGE>
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 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 \\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,
\\in the form of insurance policies or bonds,
subordination of certain Classes or
subclasses, one or more reserve funds, \\
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
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<PAGE>
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.
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
<PAGE>
redeemed while the Senior Notes and certain Notes remain Outstanding and the
principal on the Subordinate Notes may be 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 \\"Higher Education
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 Higher
Education Act, are summarized herein. See "Issuer's Student Loan Purchase
Program" and \\"Description 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 Higher Education Act be made, the
borrower's responsibilities under the loan be explained to him or her, the
promissory note evidencing the loan be executed by the borrower and then that
the loan proceeds be disbursed in a specified manner by the lender. After the
loan is made, the lender must establish repayment terms with the borrower,
properly administer deferrals and forbearances and credit the borrower for
payments made. If a borrower becomes delinquent in repaying a loan, a lender
must perform certain collection procedures (primarily telephone calls and demand
letters) which vary depending upon the length of time a loan is delinquent.
THE 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. SEE "DESCRIPTION OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM" HEREIN.
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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
4
<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.
The rate of principal payments on the Notes, the amount of principal and
interest payments on the Notes and the yield to maturity of the Notes will be
directly related to the rate of payments of principal on the Financed Eligible
Loans. The timing of changes in the rate of prepayments may significantly
affect an investor's actual yield to maturity, even if the average rate of
principal prepayments is consistent with an investor's expectations. In
general, the earlier a prepayment of principal of a Financed Eligible Loan, the
greater the effect on an investor's yield to maturity. The effect on an
investor's yield as a result of principal payments occurring at a rate higher
(or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Offered Notes will not be offset by a
subsequent like reduction (or increase) in the rate of principal payments. See
"Weighted Average Life of the Notes" herein.
5
<PAGE>
UNSECURED NATURE OF FINANCED ELIGIBLE LOANS;
FINANCIAL STATUS OF GUARANTEE AGENCIES
The Higher Education 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 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
\\"Description of the Federal Family Education Loan Program" herein.
CHANGES IN LEGISLATION
There can be no assurance that the Higher Education Act or other relevant
federal or state laws, rules and regulations and the programs implemented
thereunder will not be amended or modified in the future in a 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
6
<PAGE>
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
\\"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 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 \\ "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
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<PAGE>
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.
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 Higher Education 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
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<PAGE>
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
\\Treasury security rates (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 \\herein under "Description of the
Federal Family Education Loan Program." To 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
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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 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, \\preempted by the Higher Education 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
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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 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.\\
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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.
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 date of Auction \\(the "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 \\herein under "Certain Definitions and
Provisions Related to Auction Rate Notes and Auction Procedures--Auction
Procedures" and in the applicable Prospectus Supplement. The interest rate for
the Auction Rate Notes will be reset at the \\interest rate determined pursuant
to the Auction (the "Auction Rate") with respect to such Auction Rate Notes
pursuant to the Auction \\procedures (but in no event exceeding the \\maximum
interest rate relating to an Auction (the "Maximum Auction Rate") per annum).
Except as may otherwise be specified with respect to a Series containing a Class
or Classes of Auction Rate Notes in the related Prospectus Supplement, for each
Auction, the holders of the Auction Rate Notes may submit orders through a
Broker-Dealer (as defined under "Certain Definitions and Provisions Related to
Auction Rate Notes and Auction Procedures--Auction-Related Definitions") as to
the principal amount of Auction Rate Notes they wish to hold, purchase or sell
at various interest rates. If no order is received from the holder of an
Auction Rate Note, such holder will be deemed to have submitted a hold order for
all Auction Rate Notes owned by such holder at the new Auction Rate. As part of
the Auction Procedures, the Broker-Dealers also solicit bids from non-holders
interested in acquiring Auction Rate Notes as to the principal amount of Auction
Rate Notes they wish to purchase at various interest rates. The Auction Rate
for any Auction Date generally will be the lowest interest rate at which all
sell orders are fulfilled, but in no event greater than the Maximum Auction
Rate. In connection with each Auction, the Auction Rate Notes are transferred
at par plus accrued interest. See "Certain Definitions and Provisions Related
to Auction Rate Notes and Auction Procedures--Auction Procedures--Auction Note
Interest Rate" herein for a more detailed description of the procedures for
establishing the Auction Rates and for tendering Auction Rate Notes for Auction.
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
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<PAGE>
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.
The Issuer currently anticipates that there will be at least two
broker-dealers utilized in connection with an Auction or such other number as
may be specified with respect to a Series in the related Prospectus Supplement.
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
\\"Certain Definitions and Provisions Related to the Auction Rate Notes and
Auction Procedures," \\and "Auction Rate Note--Settlement Procedures" herein
and "Appendix \\I--Form of Master Purchaser's Letter" attached hereto.
\\LIBOR RATE NOTES
The LIBOR 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
\\herein under "Certain Definitions and Provisions Related to the LIBOR Rate
Notes\\." Interest on the \\LIBOR 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 \\LIBOR Rate Notes, means the period
commencing on the Date of Issuance of the \\LIBOR 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 \\LIBOR Rate Notes
payable quarterly, the period commencing on the Date of Issuance of the \\LIBOR
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 \\LIBOR Rate Notes
means the first day of each calendar month, commencing on the date specified in
the related Prospectus Supplement or, with respect to \\a LIBOR Rate Note
payable quarterly, on the quarterly dates set forth in the related Prospectus
Supplement, 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).
The amount of interest payable to Registered Owners of \\ LIBOR 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 \\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 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
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<PAGE>
payable on such Interest Payment Date and the portion payable on the next
succeeding Interest Payment Date.
The rate of interest on the \\LIBOR Rate Notes for each Interest Period
shall be determined by \\a calculation agent. If a default in payment occurs,
the Applicable Rate with respect to the LIBOR 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 LIBOR 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 specified in the related
Prospectus Supplement with respect to such LIBOR Rate Notes. See "Certain
Definitions and Provisions Related to the LIBOR Rate Notes" herein.
TREASURY RATE NOTES
The Treasury Rate Notes will be dated their Date of Issuance and will have
a Stated Maturity set forth in the applicable Prospectus Supplement. Interest
on the Treasury 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 Treasury Rate Notes, means the period commencing on the Date of
Issuance of the Treasury 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 Treasury Rate Notes payable quarterly, the period
commencing on the Date of Issuance of the Treasury 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 Treasury Rate Notes means the first day of each
calendar month, commencing on the date specified in the related Prospectus
Supplement or, with respect to a Treasury Rate Note payable quarterly, on the
quarterly dates set forth in the related Prospectus Supplement, 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).
The amount of interest payable to Registered Owners of Treasury 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 Treasury 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.
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<PAGE>
The rate of interest on the Treasury Rate Notes for each Interest Period
shall be determined by the a calculation agent or such other person as specified
in the related Prospectus Supplement and will be based upon the interest rate
existing for United States Treasury obligations with a maturity corresponding to
the Interest Period of the Treasury Rate Notes plus a spread as set forth in the
related Prospectus Supplement. If a Payment Default occurs, the Applicable Rate
with respect to the Index Rate Notes will be the same \\per annum calculated as
if no such Payment Default had occurred. The rate per annum at which interest
is payable on the \\Treasury 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 specified in the related Prospectus
Supplement with respect to such Treasury Rate Notes. See "Certain Definitions
and Provisions Related to the \\Treasury Rate Notes" herein.
ACCRUAL NOTES
Distributions of interest in respect of the Notes of any Class (other than
any class of Notes that will be entitled to payments of accrued interest
commencing only on the Interest Payment Date, or under the circumstances
specified in the related Prospectus Supplement ("Accrual Notes") will be made on
each Interest Payment Date based on the accrued interest for such Class and such
Interest Payment Date, subject to the sufficiency of the portion of the
available amount allocable to such Class on such Interest Payment Date. Prior
to the time interest is payable on any class of Accrual Notes, the amount of
accrued interest otherwise payable on such Class will be added to the Note
principal balance thereof on each Interest Payment Date. With respect to each
Class of Accrual Notes, accrued interest for each Interest Payment Date will be
equal to interest at the applicable interest rate accrued for a specified period
(generally the period between Interest Payment Dates) on the outstanding Note
principal balance thereof immediately prior to such Interest Payment Date.
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
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at the written request addressed to the Trustee of any other Registered Owner
owning at least $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) \\subsequent to the recycling period with respect to such
Series, from moneys representing principal payments received with respect to the
Financed Eligible Loans \\ and other excess revenues transferred to the Note
Redemption Fund , and (ii) from moneys \\not previously used to purchase
Eligible Loans that are transferred to the Note Redemption Fund \\from the
Student Loan Fund, (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,\\ 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 (primarily, as a
result of any change in the amount of residual interest owned by the Issuer for
failure to so redeem), 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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<PAGE>
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\\ 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\\. See "--Notice and Partial Redemption of
Notes" below for a discussion of the order in which such Notes will be redeemed.
The Issuer expects to redeem Notes pursuant to this paragraph only if changes
are made to the Higher Education Act which the Issuer deems to be materially
adverse to the Trust Estate.
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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<PAGE>
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 \\(or if no \\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, \\(or if no
Senior Notes or \\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\\), 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 \\"Summary of
Certain Provisions of the Indenture--Events of Default" \\herein shall require
the consent of 100% of the Registered Owners of the collective aggregate
principal amount of the appropriate Series of Notes\\, as described above.
\\
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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 (for example,
the right to draw under any letter of credit or guarantee insurance) as
described herein and in the related Prospectus Supplement.
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\\:
(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.
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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)\\ nor the Registered
Owners \\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\\ nor the Registered Owners \\shall have 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.
Generally and as more specifically described below, all funds received with
respect to the Financed Student Loans first are deposited by the Trustee into
the Student Loan Holding Fund. Upon receipt, such deposits are allocated
between principal and interest, and the principal portion further allocated
among Series with respect to the Financed Eligible Loans acquired in connection
with such Series. Thereafter, the interest portion is deposited into the
Revenue Fund and the principal portion with respect to each Series deposited
into the Recycling Account of the Student Loan Fund with respect to such Series
until April 1, 1999 with respect to the Series 1996A Notes and the Series 1996B
Notes, and, with respect to the Offered Notes, until the date specified in the
related Prospectus Supplement with respect to each related Series. Funds in the
Recycling Account of any Series generally will be used to acquire additional
Financed Eligible Loans. After such dates, the principal portion with respect
to a Series will be deposited to the Note Redemption Fund; provided, that if
with respect to an Interest Payment Date, there exists an insufficiency of funds
in the Revenue Fund to make payments or transfers as described herein under
"Security and Sources of Payments under the Notes," then such insufficiency
existing shall be transferred to the Revenue Fund from the Student Loan Holding
Fund but only after first transferring any such deficiency from the Note
Redemption Fund.
Funds on deposit in the Revenue Fund (generally representing the interest
portion of receipts with respect to the Financed Eligible Loans) are paid or
transferred daily or monthly as indicated below under "--Revenue Fund."
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, 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
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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 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
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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, and (c) \\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 each Rating
Agency showing, among other things, that the payments required
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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\\, 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\\, 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\\ , 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\\, 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;
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(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\\, 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\\, 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.];
(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,
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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 \\"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\\, 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\\, 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
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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\\, 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.
(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
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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\\, 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 \\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\\.
If money sufficient to pay all interest due on 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 \\shall
be applied by the Trustee to the payment of such interest \\when due without
further authorization or direction.
If money sufficient to pay all interest due on any 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 \\shall be applied in accordance with this \\PARAGRAPH by
the Trustee to the payment of such interest \\when due without further
authorization or direction.
If money sufficient to pay all interest due on any Junior-Subordinate
Notes, if any, \\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
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<PAGE>
in the Junior-Subordinate Interest Account, if any, of the Interest
Fund required for the payment of interest on any Junior-Subordinate Notes
\\shall be applied as described herein by the Trustee to the payment of such
interest \\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.
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,
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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 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
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<PAGE>
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 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
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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.
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 (as defined under "Index to and Glossary of
Certain Terms"). The Operating Fund shall be held by such depository bank of
the Issuer, and neither the Registered Owners\\ 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
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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\\ 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 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
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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 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.
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\\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.
AUCTION-RELATED 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" means the fee to be paid to the Auction Agent for
services 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
(c) each Auction Period commencing less than two Business Days after
the cure or waiver of a Payment Default.
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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 under "--Auction
Procedures."
"BID" has the meaning set forth under "--Auction Procedures."
"BID AUCTION RATE" has the meaning set forth under "--Auction Procedures."
"BIDDER" has the meaning set forth under "--Auction Procedures."
"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.
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"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" means the fees paid to the Broker-Dealers as set forth
in the Auction Agent Agreement.
"BROKER-DEALER FEE RATE" means the rate per annum at which the fees to be
paid to the Broker-Dealers for the services rendered by them under the
Broker-Dealer Agreements in connection with the Auctions.
"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 is any unpaid Carry-over Amount, an amount equal to
the lesser of (a) interest computed on the
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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 under "--Auction Procedures."
"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.
"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
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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
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
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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 under "--Auction Procedures."
"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.
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"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 under "--Auction Procedures."
"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 under "--Auction Procedures."
"SUBMITTED HOLD ORDER" has the meaning set forth under "--Auction
Procedures."
"SUBMITTED ORDER" has the meaning set forth under "--Auction Procedures."
"SUBMITTED SELL ORDER" has the meaning set forth under "--Auction
Procedures."
"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 under "--Auction Procedures."
"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 the Indenture.
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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
(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
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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 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
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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 described under "Certain Definitions and Provisions Related to Auction
Rate Notes and Auction Procedures" 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 described under "Certain
Definitions and Provisions Related to Auction Rate Notes and Auction
Procedures"; 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
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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:
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
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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
Auction Note Interest Rate determined as provided in
this Section (a) shall be equal to the rate specified
therein; or
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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;
(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
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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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(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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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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(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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(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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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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(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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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 commencing after the occurrence and during the
continuance of such Payment Default and (ii) any Interest
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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, 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
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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
error of judgment made in good faith unless the Auction Agent shall have been
negligent in ascertaining (or failing to ascertain) the pertinent facts.
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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.
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
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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, 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 under the Indenture by giving
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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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AUCTION RATE NOTE SETTLEMENT PROCEDURES
Capitalized terms used herein shall have the respective meanings specified
herein under "Certain Definitions and Provisions Related to Auction Rate Notes
and Auction Procedures." 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 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
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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 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
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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
(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.
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(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.
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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.
LIBOR-RELATED 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, or
any other amount as may be specified with respect to a Series in the related
Prospectus Supplement.
"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 to make
calculations of interest and other matters 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 Section shall mean the beneficial owner of any
Class B-2 Note and any other beneficial owner of a LIBOR Rate Note.
"INITIAL INTEREST PAYMENT DATE" shall mean the date specified in the
related Prospectus Supplement.
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"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 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
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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
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(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.
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.
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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 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.
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(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 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
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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.
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.
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.
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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 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.
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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, 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.
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(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 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.
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.
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.
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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
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 \\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 provided further that any
subordinate lien (i.e., subordinate to the lien securing the Senior Notes,
\\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 \\shall have been paid or deemed paid under the Indenture.
\\
PLEDGE FOR PAYMENT
The Notes and interest thereon \\shall be and are payable from and
equally secured (except as to priority of payment of the Senior Notes\\, over
the Subordinate Notes and \\the Junior-Subordinate Notes, if any, \\the
priority of payment of the Senior Notes\\ and the Subordinate Notes \\over
the Junior-Subordinate Notes, if any, and \\the priority, if any, of payment
of one series of Junior-Subordinate Notes \\over any other class of
Junior-Subordinate Notes\\, as provided in the Indenture 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
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application thereof as permitted by the Indenture, but in no event shall the
Registered Owners\\ 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 of Nevada (the "State") to create and
issue the Notes and to execute and deliver the Indenture and \\to make the
pledge to the payment of Notes \\ thereunder, that all necessary action on
the part of the Issuer \\ for the creation and issuance of the Notes and the
execution and delivery of the Indenture\\ has been duly and effectively
taken; and that the Notes in the hands of the Registered Owners thereof \\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\\ its state of organization 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 established
by its board of directors from time to time (the "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\\.
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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.
\\
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 HIGHER EDUCATION ACT
The Issuer covenants that it will cause the Trustee to be, or replace the
Trustee with, an Eligible Lender under the Higher Education Act, that it will
acquire or cause to be acquired Eligible Loans only\\ from 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 Higher Education 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 related 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 Higher Education 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
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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; (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 Higher Education 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 Higher
Education 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 of
directors, 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.
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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 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\\ any 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\\ such 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\\ any
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 \\such Seller under the United States
Bankruptcy Code. If, however, a bankruptcy trustee for \\any Seller or a
creditor of any\\ Seller were to take the view that \\such Seller and the Issuer
should be substantively consolidated or that the transfer of the Financed
Eligible Loans from\\ such 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":
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(a) default in the due and punctual payment of any interest on any of
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;
(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\\:
(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\\;
(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 \\at the time Outstanding (or if
no 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 \\at the time Outstanding) (or if no Senior Notes or
\\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 \\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\\ then
due, in order of the maturity of the installments of such interest\\, 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\\, 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\ then due, in
order of the maturity of the installments of such interest\\, 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\\, 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,\\ then due, in
order of the maturity of the installments of such interest\\, 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\\, 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 on the Senior Notes\\ then due, with
interest on overdue installments of principal\\ and interest \\then due at
the same rates, respectively, as were borne by the Senior Notes on which
such interest shall be in default, \\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 \\then due,
with interest on overdue installments of principal and interest at the
same rates, respectively, as were borne by the Subordinate Notes on which
such interest shall be in default \\then due at the same rates,
respectively, such payments to be made ratably to the parties entitled
thereto
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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,\\ then due,
with interest on overdue installments of principal\\ and interest\\ then due at
the same rates, respectively, as were borne by the Junior-Subordinate Notes on
which such interest shall be in default\\, 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 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\\ 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
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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 \\(or if no Senior Notes 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) \\(or if no Senior Notes or \\ 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)\\.
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 \\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\\ 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 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 \\(or if no 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) \\(or if no Senior Notes or \\ Subordinate Notes are
Outstanding under the
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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 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\\, 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 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 \\secured by the Indenture and then Outstanding (or, if no
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 \\secured by the Indenture and then Outstanding) (or, if no Senior Notes
or \\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 \\secured by the Indenture and then Outstanding)\\,
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\\, 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 \\hereby secured and then Outstanding (or, if no
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 \\secured by the Indenture and then Outstanding) (or, if no Senior Notes
or \\ 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 \\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\\, 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 \\shall have
any right as such Registered Owner \\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 \\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 \\ 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
\\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\\.
\\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 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.
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(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.
\\
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\\.
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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\\.
\\
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 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,
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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)\\, 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.
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.
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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 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
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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 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
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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.
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
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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 Higher Education 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 Higher
Education 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\\; 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\\.
\\
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 Higher Education 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.
\\
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 such documents,
agreements, understandings and arrangements and the Indenture are 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 Higher Education 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 result from the actions or inactions of the
Issuer or any servicer from moneys
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available, if any, as described \\herein 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 Higher Education 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, \\enter into any indenture or indentures
supplemental to the Indenture for any one or more of the following purposes:
(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
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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 Higher
Education 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 create any additional Funds or Accounts under the Indenture
deemed by the Trustee to be necessary or desirable;
\\
\\(k) To make changes necessary to add a letter of credit to any
subseries of the Auction Rate Notes; or
\\
\\(l) 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\\.
\\
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
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<PAGE>
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, \\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 \\paragraph 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 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 Higher Education Act or \\regulations are hereafter modified so as to
permit the same.
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No amendment to the Indenture or to the indentures supplemental thereto
shall be effective unless the Trustee receives an opinion of \\counsel to the
effect that such amendment was adopted in conformance with 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 \\to the Registered Owners, the principal of and interest
on the Notes, at the times and in the manner stipulated in the Indenture
\\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 \\then due, at
the times and in the manner stipulated in the Indenture\\, such Notes
\\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 Registered Owners thereof \\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
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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\\
paragraph, "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 escrow account which
is irrevocably pledged as security for the Notes. Such term shall not include
mutual funds and unit investment trusts.
\\
\\(c) In no event shall the Trustee deliver over to the Issuer any
Guaranteed Student Loans unless the Issuer is an Eligible Lender, if the
Higher Education Act or \\ regulations then in effect require the owner or
holder of Guaranteed Student Loans to be an Eligible Lender.
\\
\\ (d) The provisions set forth above are applicable to the Notes and
any portion of the Notes.
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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 Student Loan Portfolio as of the Date of
Issuance with respect to any Series will be included in the related Prospectus
Supplement under "--Description of the Student Loan Portfolio."
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 ("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 25% 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
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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 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.
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(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.
(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.
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(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 Higher
Education 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 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
to 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.
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(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
(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 makes 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
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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.
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 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 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
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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, 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 GUARANTEE 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
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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.
RESERVE FUND
In addition to the Reserve Fund described herein, one or more reserve funds
may be established with respect to a Series, in which cash, a letter of credit,
eligible investments, a demand note or a combination thereof, in the amounts, if
any, so specified in the related Prospectus Supplement will be deposited. The
reserve fund for a Series may also be funded over time by depositing therein a
specified amount of the distributions received on the related Receivables as
specified in the related Prospectus Supplement.
Amounts on deposit in any reserve fund for a Series, together with the
reinvestment income thereon, will be applied by the Trustee for the purposes, in
the manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely payments of
principal of and interest on the Notes, if required as a condition to the rating
of such Series by each Rating Agency rating such Series or any Classes relating
thereto. If so specified in the related Prospectus Supplement, a reserve fund
may be established to provide limited protection, in an amount satisfactory to
each Rating Agency which assigns rating to the Notes, against certain types of
losses not covered by insurance policies or other credit support. Following
each Interest Payment Date, amounts in such reserve fund in excess of any
specified reserve fund requirement may be released from the reserve fund under
the conditions and to the extent specified in the related Prospectus Supplement
and will not be available for further application by the Trustee.
Additional information concerning any reserve fund is to be set forth in
the related Prospectus Supplement, including the initial balance of such reserve
fund, the reserve fund balance to be maintained, the purposes for which funds in
the reserve fund may be applied to make distributions to Noteholders and use of
investment earnings from the reserve fund, if any.
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
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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:
<TABLE>
<CAPTION>
Principal Occupation
Name Address or Affiliation
<S> <C> <C>
Michael S. Dunlap 4732 Calvert Street Employee of Union Bank and
Lincoln, Nebraska 68506 Trust Company
Stephen F. Butterfield 6991 East Camelback Road, Suite B290 President of Union Financial
Scottsdale, Arizona 85251 Services, Inc.
Ross Wilcox 4732 Calvert Street Chief Executive Officer of
Lincoln, Nebraska 68506 Union Bank and Trust
Company
Ronald W. Page 3015 S. Parker Road Senior Vice President of
Aurora, CO 80014 Union Financial Services, Inc.
Dr. Paul Hoff Hernia Hill, Rural Route 1 Retired Physician
Seward, Nebraska 68434
</TABLE>
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
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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 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. Such approved compensation currently is one basis point per
month or such other amount as may be specified in the related Prospectus
Supplement.
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 Higher Education Act and be otherwise
approved by the Issuer. An "eligible lender" under the Higher Education 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.
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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.
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 Higher Education Act and
the Guarantee Agencies, and the
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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 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
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
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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."
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 Federal Stafford Loans, "Federal 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
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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 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
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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.
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 were 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 are the bond equivalent rate of the 91-day Treasury
bills auctioned at the final auction prior to each June 1, plus 3.25%. The
annual variable rate for 8/10% loans and other fixed rate loans made to existing
borrowers between July 23, 1992 and October 1, 1992 are 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 is 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 Subsidized 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
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$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 $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
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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.
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 are 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 are 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.
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 with
respect to the involvement of guarantee 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.
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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 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,
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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, 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
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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 GUARANTEE AGENCIES
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 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.
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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 guarantee 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 guarantee agency, the eligible lender is reimbursed by the
guarantee 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 guarantee agreement and an annually renewable
supplemental guarantee agreement with a guarantee 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
guarantee 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 guarantee 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 guarantee agency calculated to
equal the amount of federal 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:
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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 guarantee agency
which are in repayment for purposes of computing reimbursement payments to a
guarantee agency means the original principal amount of all loans guaranteed by
a guarantee agency less: (a) guarantee 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. Guarantee 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 guarantee 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 guarantee 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 guarantee agreement
will not be renegotiated on the same terms as are currently in effect.
Under the guarantee agreements and the supplemental guarantee agreements,
if a payment on a Federal Family Education Loan guaranteed by a guarantee agency
is received after reimbursement by the Secretary of Education, the guarantee
agency is entitled to receive an equitable share of the payment.
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Any originator of any student loan guaranteed by a guarantee agency is
required to discount from the proceeds of the loan at the time of disbursement,
and pay to the guarantee 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 guarantee agency has probable
cause to believe that the holder has made misrepresentations or failed to comply
with the terms of its agreement for guarantee, the guarantee agency may take
reasonable action including withholding payments or requiring reimbursement of
funds. The guarantee agency may also terminate the agreement for cause upon
notice and hearing.
THE GUARANTEE AGREEMENT
Pursuant to most typical agreements for guarantee between a guarantee
agency and the originator of the loan, any eligible holder of a loan insured by
such a guarantee agency is entitled to reimbursement from such guarantee 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). Guarantee 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 guarantee 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 guarantee 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 guarantee agency all rights accruing to the holder under the note
evidencing the loan. The Higher Education Act prohibits a guarantee 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.
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
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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 guarantee
agencies. These include, but are not limited to, a requirement that the
Secretary of Education promulgate regulations to standardize forms and practices
used by guarantee agencies; a requirement that the Secretary of Education work
with guarantee 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
guarantee agency; a provision for the establishment by the Secretary of
standards pursuant to which certain guarantee 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 guarantee agency's
reinsurance contract if it does not submit a satisfactory management plan or if
the Secretary of Education determines the guarantee agency to be financially
nonviable; and a provision that makes the Secretary of Education responsible for
the payment of obligations of insolvent guarantee agencies. The 1992 Amendments
also require that officers and employees of guarantee 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 guarantee 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 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 guarantee agency will not be selected.
The 1993 Amendments, described below, made
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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 provided 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, were eliminated for such obligations which were 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.
Guarantee agency retention on collections was reduced to 27% from 30%. A
one-time lender-paid user fee of 0.5% on new loan volume has been imposed.
Guarantee agency 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
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a lender-of-last-resort program and under an agreement resulting from guarantee
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, may 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 are 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.
DIRECT LOANS. The 1993 Amendments provided that, unless otherwise
specified, loans made to borrowers under the FDSL Program have the same terms,
conditions, and are available in the same amounts as loans made to borrowers for
Subsidized Federal Stafford Loans, Federal PLUS Loans and Unsubsidized Federal
Stafford Loans. The FDSL Program loans are known respectively as Federal Direct
Stafford Loans, Federal Direct PLUS Loans and Federal Direct Unsubsidized
Stafford Loans.
GUARANTEE AGENCIES. The 1993 Amendments also provide that a guarantee
agency's assets are dedicated to the loan programs and may not be used for
unauthorized purposes. Thus, the 1993 Amendments add to the guarantee 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 guarantee 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 are required to be maintained by
each guarantee agency to pay program expenses and contingent liabilities, as
authorized by the Secretary of Education. The 1993 Amendments further provided
that the Secretary of Education is prohibited from requiring the return of all
of a guarantee 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 guarantee agency's
operations and the liquidation of its assets. However, the Secretary of
Education is also authorized to direct a guarantee 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 guarantee 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 guarantee
agency's reserve funds or assets which the Secretary of Education determines is
a misapplication, misuse or improper expenditure.
The 1993 Amendments gave the Secretary of Education increased flexibility
to terminate a guarantee 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
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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 expanded the Secretary of Education's authorized
functions when a guarantee agency's agreement is terminated. The Secretary of
Education is authorized to provide the guarantee 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 guarantee agency, ensure the uninterrupted payment of claims, or
ensure that the guarantee 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 provided that if the Secretary of Education has
terminated or is seeking to terminate a guarantee agency's agreement, or has
assumed a guarantee 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 guarantee agency; (b) any contract
entered into by the guarantee 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 guarantee agency. Finally, notwithstanding
any other provision of law, the 1993 Amendments provided that the Secretary of
Education's liability for any outstanding liabilities of a guarantee 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 guarantee
agency, minus any necessary liquidation or other administrative costs.
AMENDMENTS TO TERMS OF FEDERAL FAMILY EDUCATION LOAN PROGRAM LOANS. The
1993 Amendments also amended 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 are 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
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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 provided 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 average of the rates on the
Federal Consolidation Loans, rounded upward to the nearest whole percent.
The 1993 Amendments modified 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 repealed 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 was 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 are
the 91-day T-bill rate plus 3.1%,
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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, are 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 rates 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 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%.
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:
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Claims Rate of Reimbursement
0% to less than 5% 100% or 98%, as applicable
Equal to or greater 100% or 98%, as applicable, of claims
than 5% but less than 9% up to 5% 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 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
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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.
WEIGHTED AVERAGE LIFE OF THE NOTES
The weighted average life of the Notes of any Series will generally be
influenced by the rate at which the principal balances of the related Financed
Eligible Loans are paid, which payment may be in the form of scheduled
amortization or prepayments. (For this purpose, the term "prepayments" includes
prepayments in full or in part (including pursuant to Federal consolidation
loans), as a result of (i) borrower default, death, disability or bankruptcy,
(ii) a closing of or a false certification by the borrower's school and (iii)
subsequent liquidation or collection of guarantee payments with respect thereto
and as a result of Financed Eligible Loans being repurchased by the respective
Seller as a result of a breach of a representation and warranty. All of the
Financed Eligible Loans are prepayable at any time without penalty to the
borrower. The rate of prepayment of Student Loans is influenced by a variety of
economic, social and other factors, including as described below. In general,
the rate of prepayments may tend to increase to the extent that alternative
financing becomes available at prevailing interest rates which fall
significantly below the interest rates applicable to the Student Loans.
However, because many of the Financed Eligible Loans bear interest that either
actually or effectively is floating, it is impossible to predict whether changes
in prevailing interest rates will be similar to or will vary from changes in the
interest rates on the Financed Eligible Loans. The addition of Financed
Eligible Loans to the Trust Estate during the recycling period could affect the
weighted average life of the Notes of the related Series.
On the other hand, scheduled payments with respect to, and maturities of,
the Financed Eligible Loans may be extended, including pursuant to applicable
grace, deferral and forbearance periods. The rate of payment of principal of
the Notes and the yield on the Notes may also be affected by the rate of
defaults resulting in losses on Financed Eligible Loans, by the severity of
those losses and by the timing of those losses, which may affect the ability of
the Guarantee Agencies to make guarantee payments with respect thereto.
In light of the above consideration, there can be no assurance as to the
amount of principal payments to be made on the Notes of a given series on each
Interest Payment Date, since such amount will depend, in part, on the amount of
principal collected on the pool of Financed Eligible Loans. Any reinvestment
risks resulting from a faster or slower incidence of prepayment of Financed
Eligible Loans will be borne entirely by the Noteholders of a given series. The
related Prospectus Supplement may set forth certain additional information with
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respect to the maturity and prepayment considerations applicable to the Financed
Eligible Loans and the related Series of Notes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of all material federal income tax consequences
of the purchase, ownership and disposition of Notes for the investors described
below and is based on the advice 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 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
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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 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
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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 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
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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.
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.
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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.
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
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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.
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.
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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
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 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 based, among other things, upon
existing interest rates, general economic conditions and investors' judgments as
to the price of the Offered Notes.
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
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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 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 the Issuer or 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.
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RATINGS
It is a condition to the issuance of the Offered Notes of any Series that
the Classes of Notes publicly offered be rated by at least one nationally
recognized statistical rating organization in one of its generic rating
categories which signifies investment grade (typically, in one of the four
highest rating categories). 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 CERTAIN TERMS
There is provided below an index to and a glossary of certain definitions
used in this Prospectus. To the extent not contained herein, certain
definitions may be set forth in the Indenture included as an exhibit to this
Registration Statement of which this Prospectus is a part. In addition, certain
definitions related to Auction procedures are set forth herein under "Certain
Definitions and Provisions Related to Auction Rate Notes and Auction
Procedures--Auction--Related Definitions" and certain definitions related to
LIBOR Rate Notes are set forth herein under "Certain Definitions and Provisions
Related to LIBOR Rate Notes--LIBOR--Related Definitions."
INDEX TO DEFINED TERMS
There follows a reference to the definitions of capitalized terms used in
this Prospectus.
1933 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
1993 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .124
1993 Technical Amendments. . . . . . . . . . . . . . . . . . . . . . . . .110
427A Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110
8/10% loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110
ABI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Accrual Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 15
Additional Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, ix
Aggregate Market Value . . . . . . . . . . . . . . . . . . . . . . . . .xxiii
Applicable Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 14
Auction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Auction Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Auction Agent Agreement. . . . . . . . . . . . . . . . . . . . . . . . . .xii
Auction Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Auction Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Auction Period Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . 57
Auction Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Auction Rate Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Available Auction Rate Notes . . . . . . . . . . . . . . . . . . . . . . . 49
Beneficial Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Buyer's Broker-Dealer. . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Cash Flow Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . xvii
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xxv
Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, ix
Class A-1 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .x
Class A-2 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .x
Class A-3 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .x
Class A-4 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .x
Class B Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix, x
Class B-2 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
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Class C Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .i
Custodian. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .x
Custodian Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . .xii
Date of Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . 2, xviii
Deferment Periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . .112
Deferral Phase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xiv
Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, xiii
Disqualified Persons . . . . . . . . . . . . . . . . . . . . . . . . . . .132
DOL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133
DTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xxv
Eligible Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, x
Eligible Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xii
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132
ERISA Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iii
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
FDSL Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122
Federal Consolidation Loans. . . . . . . . . . . . . . . . . . . . . . . .109
Federal Family Education Loan Program. . . . . . . . . . . . . . . . . . .108
Federal Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, xiii
Federal PLUS Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
Federal Reinsurance Agreements . . . . . . . . . . . . . . . . . . . . . .125
Federal SLS Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
Federal Supplemental Loans for Students. . . . . . . . . . . . . . . . . .109
FFEL Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121
Financed Eligible Loans. . . . . . . . . . . . . . . . . . . . . . . . 1, xii
Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
FISLP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108
Forbearance Periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Grace Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112
Grace Periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Guarantee Agency . . . . . . . . . . . . . . . . . . . . . . . . . . .3, xiii
Guarantee Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . .xii
Guarantee Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .i
Higher Education Act . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 2
IHE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122
Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, x
Index Rate Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, xv
Index Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Indirect Participants. . . . . . . . . . . . . . . . . . . . . . . . . ii, 71
Insolvency Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104
Insolvency Proceeding. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
141
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Interest Payment Date. . . . . . . . . . . . . . . . . . . . . .2, xv, 12, 14
Interest Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, 14
IRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Issuer Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xix
Junior-Subordinate Notes . . . . . . . . . . . . . . . . . . . . . . . xi, 12
L/C Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
LIBOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
LIBOR Rate Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, xv
Loan Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Maintenance and Operating Expenses . . . . . . . . . . . . . . . . . . . xxii
Maximum Auction Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
National Direct Student Loan . . . . . . . . . . . . . . . . . . . . . . .116
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, ix
Offered Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, ix
Outstanding Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, 70
Parties in Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . .132
Placement Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .134
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132
Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132
Prior Class A Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
Prior Class B Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
Private Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Prospectus Supplement. . . . . . . . . . . . . . . . . . . . . . . . . .1, ix
PTCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133
Qualified Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . .132
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv, 12
Registered Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . .xii
Registered Owners Approval . . . . . . . . . . . . . . . . . . . . . . . . 80
Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133
Repayment Phase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xiv
Reserve Fund Requirement . . . . . . . . . . . . . . . . . . . . . . . . xxiv
Scheduled Sale Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Secretary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xx
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, ix, x, 96
Seller's Broker-Dealer . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Sellers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .x
Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi, 12
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, ix
Series 1996A Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .x
Series 1996B Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .x
Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .x
Servicing Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . .107
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Special Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Stafford Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
Stated Maturity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, xvi
Student Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xii
Student Loan Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . .xii
Student Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . .xiii, xiv
Student Loan Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . ix
Submitted Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Subordinate Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . xi, 12
Subservicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .x
Subservicing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .107
Subsidized Federal Stafford Loans. . . . . . . . . . . . . . . . . . . . .109
Sufficient Bids. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Supplemental Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . .x
Tax-Favored Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . .132
Transfer Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xxiii
Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100
Treasury Rate Notes. . . . . . . . . . . . . . . . . . . . . . . . . . .1, xv
Trust Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
UFS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104, 134
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .134
Union Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, ix, 96
UNIPAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x, 107
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GLOSSARY OF TERMS
There follows definitions of certain capitalized terms used in this
Prospectus. 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.
"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.
"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
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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.
"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.
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"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 Higher Education 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.
"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 Higher
Education 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 Higher
Education 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 Stafford Loan, a PLUS
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Loan or an SLS Loan or a Consolidation Loan, is an "eligible loan" under the
Higher Education Act for purposes of receiving Interest Benefit Payments;
(d) bears interest at not less than the maximum applicable rate of interest
permitted by the Higher Education 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.
"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
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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 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.
"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
Higher Education Act with respect to a particular Student Loan.
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"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
Higher Education Act available to pay the costs of a student attending
post-secondary schools, whether under the Guarantee Agency program or the FISL
Program.
"HIGHER EDUCATION 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.
"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 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 Higher Education Act (as evidenced by
a Contract of
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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 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
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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 fund (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 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
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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.
"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
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.
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"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.
"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.
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"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 and under "Security and Sources of Payment for the
Notes."
"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.
"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, 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.
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"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 for the Financed Eligible
Loans 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 and under "Security and Sources of
Payment for the Notes."
"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 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
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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 and under "Security and Sources of
Payment for the Notes."
"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 Higher
Education 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.
"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.
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"SENIOR INTEREST ACCOUNT" shall mean the Account by that name created
within the Interest Fund by the Indenture and further described in the Indenture
and under "Security and Sources of Payment for the Notes."
"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 and under "Security and Sources of Payment for the Notes."
"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 mean the date set forth in the Indenture on
which any defaulted interest shall be paid to Noteholders.
"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 Higher Education Act to an
Eligible Borrower for education at an Eligible Institution (or a loan to
consolidate the same) authorized
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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 and under "Security and Sources
of Payment for the Notes."
"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
and under "Security and Sources of Payment for the Notes."
"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 and under "Security and Sources of Payment for the Notes."
"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 the Servicer and the Subservicer and any other
subservicing agreement with any other Subservicer relating to Financed Eligible
Loans.
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"SUPPLEMENTAL INDENTURE" shall mean an agreement supplemental to the
Indenture executed pursuant to the Indenture.
"TRANSFER DATE" shall mean each January 1 and July 1, commencing July 1,
1996.
"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;
(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; and
(e) 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.
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APPENDIX I
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
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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.
I-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
I-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
\\
__________________________________
__________________________________
__________________________________
I-4
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT Page
----
Terms of the Offering S-2
Previously Issued Notes S-\\13
[Credit Enhancement] S-\\14
Certain Characteristics of the Financed Eligible Loans S-15
Certain Information Relating to the Guarantee Agencies S-21
Plan of Distribution S-\\24
[Legal Matters] S-\\24
[Other Information] S-\\24
\\
PROSPECTUS
PROSPECTUS SUPPLEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . i
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . i
REPORTS TO NOTEHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . . . . . . . . .iii
SUMMARY OF THE OFFERING. . . . . . . . . . . . . . . . . . . . . . . . . \\ix
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DESCRIPTION OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECURITY AND SOURCES OF PAYMENT FOR THE NOTES. . . . . . . . . . . . . . . 18
CERTAIN DEFINITIONS AND PROVISIONS RELATED TO AUCTION RATE NOTES AND
AUCTION PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
AUCTION RATE NOTE SETTLEMENT PROCEDURES. . . . . . . . . . . . . . . . . . 60
CERTAIN DEFINITIONS AND PROVISIONS RELATED TO LIBOR RATE
NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
BOOK ENTRY REGISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . \\70
ADDITIONAL NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . \\72
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE . . . . . . . . . . . . . . 73
SELLER REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . \\96
\\DESCRIPTION OF CREDIT ENHANCEMENT. . . . . . . . . . . . . . . . . . .\\101
THE ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .\\104
THE ISSUER'S STUDENT LOAN PURCHASE PROGRAM . . . . . . . . . . . . . . .\\106
DESCRIPTION OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM . . . . . . . . .108
GUARANTEE AGENCIES . . . . . . . . . . . . . . . . . . . . . . . . . . .\\125
WEIGHTED AVERAGE LIFE OF THE NOTES . . . . . . . . . . . . . . . . . . . .127
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . .\\128
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . .\\132
CERTAIN RELATIONSHIPS AMONG FINANCING PARTICIPANTS . . . . . . . . . . .\\134
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . .\\134
LEGAL MATTERSq . . . . . . . . . . . . . . . . . . . . . . . . . . . . .\\135
FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . .\\136
RATINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .\\136
INDEX TO AND GLOSSARY OF CERTAIN TERMS . . . . . . . . . . . . . . . . .\\137
APPENDIX I--FORM\\ OF MASTER PURCHASER'S LETTER. . . . . . . . . . . . .\\I-1
I-5
<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>
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. . . . . . . . . . .\\$34,483
*Accounting fees and expenses . . . . . . \\25,000
*Legal fees and expenses . . . . . . . \\75,000
*Printing costs . . . . . . . . . . . . \\15,000
*Blue Sky fees and expenses . . . . . . \\15,000
*Trustee's fees . . . . . . . . . . . . \\15,000
*Rating Agency fees . . . . . . . . . . \\50,000
*Miscellaneous . . . . . . . . . . . . \\20,517
*Total . . . . . . . . . . . . . . \\$250,000
_______________
* Estimates based on the offering of a single Series of Notes in the aggregate
principal amount of $100 million.
\\
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***
*\\Previously filed\\.
II-1
<PAGE>
**Filed herewith.
***To be incorporated by reference in connection with the specified offering
of securities.
ITEM 17. UNDERTAKINGS.
\\
\\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 ("Act") in accordance
with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Act.
II-2
<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 Pre-Effective Amendment
No. 1 to this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on \\September 16, 1996.
UNION FINANCIAL SERVICES-1, INC.,
a Nevada corporation
By /s/ Ronald W. Page
-----------------------------------
Ronald W. Page, Vice-President and
Secretary
II-3
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 1 to this registration statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
** Chairman of the Board \\September 16, 1996
- ----------------------------
Michael S. Dunlap (Principal Executive Officer)
/s/ Stephen F. Butterfield President and Director \\September 16, 1996
- ----------------------------
Stephen F. Butterfield
/s/ Ronald W. Page Vice-President, Secretary, \\September 16, 1996
- ----------------------------
Ronald W. Page Treasurer and Director
(Principal Financial and
Accounting Officer)
** Director \\September 16, 1996
- ----------------------------
Ross Wilcox
** Director \\September 16, 1996
- ----------------------------
Dr. Paul Hoff
</TABLE>
** Stephen F. Butterfield and Ronald W. Page, by signing their respective names
hereto, sign this document on behalf of Messrs. Dunlap and Wilcox and Dr.
Hoff, indicated above, pursuant to a power of attorney duly executed by
such persons and previously filed with the Securities and Exchange
Commission with this Registration Statement.
II-4
<PAGE>
EXHIBITS INDEX
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***
*\\Previously filed\\.
**Filed herewith.
***To be incorporated by reference in connection with the specified offering
of securities.
<PAGE>
[LETTERHEAD]
KUTAK ROCK ATLANTA
A PARTNERSHIP KANSAS CITY
INCLUDING PROFESSIONAL CORPORATIONS LITTLE ROCK
SUITE 2900 NEW YORK
717 SEVENTEENTH STREET OKLAHOMA CITY
DENVER, COLORADO 80202-3329 OMAHA
(303) 297-2400 PHOENIX
FACSIMILE (303) 292-7799 PITTSBURGH
WASHINGTON
September 13, 1996
Union Financial Services-1, Inc.
6991 East Camelback Road, Suite B290
Scottsdale, AZ 85251
Gentlemen:
We have acted as counsel to Union Financial Services-1, Inc. (the
"Registrant") in connection with the preparation of (i) the Registration
Statement on Form S-3 (Registration No. 333-8929) filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), including the forms of Prospectus and Prospectus
Supplements forming a part thereof (collectively, the "Prospectus") and
(ii) Pre-Effective Amendments thereto (together, the "Registration Statement").
The Registration Statement and the Prospectus relate to the registration of up
to $700 million aggregate principal amount of Taxable Student Loan Asset-Backed
Notes (the "Securities"). Each Series of such Securities will be created and
issued pursuant to a Second Amended and Restated Indenture of Trust entered into
between you and Norwest Bank Minnesota, National Association, as trustee, and a
supplement to such Indenture of Trust relating to such Series (collectively, the
"Indenture"), as described in the Registration Statement. Except as otherwise
indicated herein, all terms defined in the Prospectus are used herein as so
defined.
We have made such investigations of law as we deemed appropriate and have
examined the proceedings heretofore taken and are familiar with the procedures
proposed to be taken by the Registrant in connection with the authorization,
issuance and sale of such Securities. We have examined the Registration
Statement, the Prospectus and such other documents as we have deemed necessary
or advisable for purposes of rendering this opinion. Additionally, our advice
has formed the basis for the description of the selected federal income tax
consequences of the
<PAGE>
Union Financial Services-1, Inc.
September 13, 1996
Page 2
purchase, ownership and disposition of the Securities to an original purchaser
that appears under the heading "Certain Federal Income Tax Consequences" in the
Prospectus.
In rendering the following opinions, we have assumed the accuracy and
truthfulness of all public records of the Registrant and of all certifications,
documents and other proceedings examined by us that have been executed or
certified by officials of the Registrant acting within the scope of their
official capacities and have not verified the accuracy or truthfulness thereof.
We also have assumed the genuineness of the signatures appearing upon such
public records, certifications, documents and proceedings.
We have assumed for the purposes of the opinions set forth below that
(i) the Indenture has been and any supplements with respect to each Series will
be duly authorized by all necessary action and duly executed and delivered by
the parties thereto substantially in the form filed in the Exhibits to the
Registration Statement, (ii) the Securities will be created and issued
substantially in the form set forth in the Indenture and sold in Series, all as
described in the Registration Statement, (iii) the Securities of each Series
will be duly authorized by all necessary action, duly executed, authenticated by
the trustee and delivered in accordance with the provisions of the Indenture,
and (iv) such Securities will be sold by you for reasonably equivalent
consideration. In addition, we have assumed that the parties to the Indenture
will satisfy their respective obligations thereunder.
In rendering this opinion herein, we do not express any opinion concerning
the laws of any jurisdiction other than the substantive laws of the State of
Colorado (without regard to conflict of law principles) and the federal income
tax law of the United States, and to present judicial interpretations thereof
and to facts as they presently exist. For purposes of expressing the opinions
herein, we note that the Indenture is expressly governed by the laws of other
than the State of Colorado. Notwithstanding the foregoing, for purposes of this
opinion we have reviewed the corporate statutes and other relevant laws of the
State of Nevada and believe that such statutes and law are not inconsistent with
those of the State of Colorado for purposes of the opinions set forth herein.
We do not express any opinion, either implicitly or otherwise, on any issue not
expressly addressed below.
The opinion set forth in paragraph 2 of this letter is based upon the
applicable provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations promulgated and proposed thereunder, current positions of the
Internal Revenue Service (the "IRS") contained in published Revenue Rulings and
Revenue Procedures, current administrative positions of the IRS and existing
judicial decisions. This opinion is subject to the explanations and
qualifications set
<PAGE>
Union Financial Services-1, Inc.
September 13, 1996
Page 3
forth under the caption "Certain Federal Income Tax Consequences" in the
Prospectus. No tax rulings will be sought from the IRS with respect to any of
the matters discussed herein.
On the basis of the foregoing examination and assumptions, and upon
consideration of applicable law, it is our opinion that:
1. The Securities of each Series offered pursuant to the Registration
Statement will, when sold, be legally and validly issued, fully paid and
nonassessable, and will be binding obligations of the Registrant entitled to
the benefits of the Indenture and the supplements pursuant to which such
Securities were issued; and
2. The above-mentioned description of selected federal income tax
consequences of the ownership of the Securities discusses all material federal
income tax consequences of the purchase, ownership and disposition of the
Securities, to the purchasers described in such description, subject to special
rules under the Internal Revenue Code of 1986, as amended, and the description
is accurate in all material respects with respect to those tax consequences that
are discussed. There can be no assurance, however, that the tax conclusions
presented therein will not be successfully challenged by the IRS, or
significantly altered by new legislation, or changes in IRS positions or
judicial decisions, any of which challenges or alterations may be applied
retroactively with respect to completed transactions. We further note that the
form of Prospectus Supplement filed herewith does not relate to a specific
transaction.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the headings
"Certain Federal Income Tax Consequences", "Legal Matters" and other references
thereto in the Prospectus forming a part of the Registration Statement, without
admitting that we are "experts" within the meaning of the Act or the rules and
regulations or the Commission issued thereunder, with respect to any part of the
Registration Statement, including this exhibit.
Respectfully submitted,
/s/ Kutak Rock
