<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1999
REGISTRATION STATEMENT NO. 333-58073
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KEYCORP STUDENT LOAN TRUST 1999-A
(ISSUER OF THE NOTES AND THE CERTIFICATES)
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KEY BANK USA, NATIONAL ASSOCIATION
(ORIGINATOR OF THE TRUST DESCRIBED HEREIN)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
UNITED STATES 34-1804148
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (IRS EMPLOYER IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
KEY TOWER
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114
(216) 689-6300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DANIEL R. STOLZER, ESQ.
VICE PRESIDENT AND ASSOCIATE GENERAL COUNSEL
KEYCORP
KEY TOWER
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114
(216) 689-6300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
KATHERINE D. BRANDT, ESQ. REED D. AUERBACH, ESQ.
THOMPSON HINE & FLORY LLP STROOCK & STROOCK & LAVAN LLP
127 PUBLIC SQUARE 180 MAIDEN LANE
3900 KEY TOWER NEW YORK, NEW YORK 10038
CLEVELAND, OHIO 44114-1216
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE(3)
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<S> <C> <C> <C> <C>
Asset Backed Notes .................. $830,400,000 100% $ $230,851.20(4)
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Asset Backed Certificates ........... $ 34,600,000 100% $ $ 9,618.80(4)
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Total ............................... $865,000,000 100% $ $240,470.00
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</TABLE>
(1) This Registration Statement also relates to market-making transactions that
may be made by McDonald Investments Inc., A KeyCorp Company, an affiliate of
the Registrant.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Calculated pursuant to Rule 457(a) of the Securities Act.
(4) $295.00 of which was previously paid.
THIS REGISTRATION STATEMENT IS ALSO BEING USED TO REGISTER SECURITIES THAT
MAY BE SOLD IN MARKET-MAKING TRANSACTIONS BY AN AFFILIATE OF THE REGISTRANT. THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains (i) a Prospectus relating to a public
offering by KeyCorp Student Loan Trust 1999-A (the "Trust") of $260,000,000
aggregate principal amount of Floating Rate Class A-1 Asset Backed Notes,
$570,400,000 aggregate principal amount of Floating Rate Class A-2 Asset Backed
Notes and $34,600,000 aggregate principal amount of Floating Rate Asset Backed
Certificates (collectively, the "Securities"); and (ii) certain pages of a
second Prospectus which may be used in connection with offers and sales relating
to market-making transactions in the Securities by an affiliate of the
Registrant. The Prospectus relating to the Securities follows immediately after
this Explanatory Note. Following such Prospectus are alternate pages of the
market-making Prospectus relating to the Securities. All other pages of the
public offering Prospectus for the Securities are also to be used for the
market-making Prospectus.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 29, 1999
$865,000,000
KEYCORP STUDENT LOAN TRUST 1999-A
$260,000,000 FLOATING RATE CLASS A-1 ASSET BACKED NOTES
$570,400,000 FLOATING RATE CLASS A-2 ASSET BACKED NOTES
$34,600,000 FLOATING RATE ASSET BACKED CERTIFICATES
------------------------
KEY BANK USA, NATIONAL ASSOCIATION
SELLER
(KEYBANK LOGO)
------------------------
The KeyCorp Student Loan Trust 1999-A (the "Trust") will issue $260,000,000
aggregate principal amount of Floating Rate Class A-1 Asset Backed Notes (the
"Class A-1 Notes") and $570,400,000 aggregate principal amount of Floating Rate
Class A-2 Asset Backed Notes (the "Class A-2 Notes" and together with the Class
A-1 Notes, the "Notes") and $34,600,000 aggregate principal amount of Floating
Rate Asset Backed Certificates (the "Certificates" and together with the Notes,
the "Securities") as set forth below. The Class A-1 Notes and Class A-2 Notes
will be secured by a pool of law school, medical school, dental school, graduate
business school, and other graduate school student loans ("Student Loans"),
originated by Key Bank USA, National Association (the "Seller"). The
Certificates will represent undivided beneficial ownership interests in the
Trust. Pennsylvania Higher Education Assistance Agency ("PHEAA" and in its
capacity as servicer, "Servicer") and EFS Services, Inc. ("EFS" or "Servicer")
will service the Student Loans included in the Trust.
Interest on and principal of the Securities will be payable quarterly on or
about the twenty-seventh day of each March, June, September and December,
commencing June 28, 1999; provided, that no distributions in respect of
principal of the Class A-2 Notes will be payable until the Class A-1 Notes are
paid in full, and no distributions in respect of principal of the Certificates
will be payable until the Class A-2 Notes are paid in full. The rights of
Certificateholders to receive payments of interest and principal shall be
subordinated to the rights of the Noteholders to receive payments of interest
and principal to the extent described herein.
Neither the Notes nor the Certificates will be listed on any national
securities exchange. Credit Suisse First Boston Corporation intends to, and
McDonald Investments Inc., A KeyCorp Company ("McDonald Investments") may, make
a secondary market in the Notes and the Certificates but neither has any
obligation to do so. There can be no assurance that a secondary market for the
Notes or the Certificates will develop or, if it does develop, that it will
continue.
SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE SECURITIES.
------------------------
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN, AND THE NOTES REPRESENT
OBLIGATIONS OF, THE TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS
OF THE SELLER, THE SERVICERS OR ANY AFFILIATE THEREOF. NEITHER THE CERTIFICATES
NOR THE NOTES ARE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAVE APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
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ORIGINAL UNDERWRITING PROCEEDS TO
PRINCIPAL BALANCE INTEREST RATE(1) PRICE TO PUBLIC DISCOUNT SELLER(2)
----------------- ---------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes............. $ $ $ $
Class A-2 Notes............. $ $ $ $
Certificates................ $ $ $ $
Total....................... $ $ $ $
</TABLE>
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(1) Interest will accrue with respect to each Interest Period at a rate per
annum equal to the lesser of (i) the applicable Investor Index plus the
applicable Margin and (ii) the Student Loan Rate as described herein.
(2) Before deducting expenses, estimated to be $1,123,000.
------------------------
The Securities are offered by Credit Suisse First Boston Corporation and
McDonald Investments (the "Underwriters") when, as and if issued by the Trust,
delivered to and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that delivery of the
Securities in book-entry form will be made through the facilities of The
Depository Trust Company on the Same Day Funds Settlement System and, in the
case of the Notes, also Cedelbank, societe anonyme and the Euroclear System on
or about February , 1999.
After the initial distribution of the Securities by the Underwriters, this
Prospectus may be used by McDonald Investments, an affiliate of the Seller, in
connection with market-making transactions in the Securities. McDonald
Investments, may act as principal or agent in such transactions. Such
transactions will be at prices related to prevailing market prices at the time
of sale. Certain information in this Prospectus will be updated from time to
time as described in "Incorporation of Certain Documents by Reference."
CREDIT SUISSE FIRST BOSTON MCDONALD INVESTMENTS
A KEYCORP COMPANY
------------------------
The date of this Prospectus is January , 1999.
<PAGE> 4
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS WHICH
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES AND THE
CERTIFICATES OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE
EXCHANGE OF NOTES AND CERTIFICATES TO COVER SHORT POSITIONS. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Seller, as originator of the Trust, has filed a Registration Statement
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act")
with the Securities and Exchange Commission (the "Commission") with respect to
the Securities offered pursuant to this Prospectus. This Prospectus, which forms
part of the Registration Statement, does not contain all the information
contained in the Registration Statement. For further information reference is
made to the Registration Statement and amendments thereof and exhibits thereto,
which are available for inspection without charge at the office of the
Commission at 450 Fifth Street N.W., Washington, D.C. 20549; Northeast Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048; and Midwest
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of the Registration Statement can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates and electronically through the Commission's Electronic
Gathering and Retrieval System at the Commission's Web Site
(http://www.sec.gov).
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes or Definitive Certificates are issued,
quarterly and annual unaudited reports containing information concerning the
Financed Student Loans will be prepared by Key Bank USA, National Association in
its capacity as Administrator (the "Administrator") and sent on behalf of the
Trust only to Cede & Co. ("Cede"), as nominee of The Depository Trust Company
("DTC") and registered holder of the Notes and the Certificates, but will not be
sent to any beneficial holder of the Securities. Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. See "Description of the Securities -- Book-Entry
Registration" and " -- Reports to Securityholders." The Trust will file with the
Commission such periodic reports as are required under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations of
the Commission thereunder. The Trust may suspend the filing of such reports
under the Exchange Act when and if the filing of such reports is no longer
statutorily required.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Administrator, on behalf of
the Trust, pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Notes and Certificates shall be deemed to be incorporated by
reference into this Prospectus and to be part hereof. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Administrator will provide, without charge to each person to whom a
copy of this Prospectus is delivered, on the written or oral request of any such
person, a copy of any or all of the documents incorporated herein by reference,
except the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to Key Bank USA, National Association, Education Resources,
800 Superior Avenue, 4th Floor, Cleveland, Ohio, 44114, Attention: Trust
Administrator, KeyCorp Student Loan Trust 1999-A. Telephone requests for such
copies should be directed to the Administrator at (800) 523-7248.
2
<PAGE> 5
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein. Certain capitalized terms used
herein are defined elsewhere herein on the pages indicated in the "Index of
Principal Terms."
Issuer........................ KeyCorp Student Loan Trust 1999-A (the
"Trust").
Securities Offered............ The Class A-1 Notes, the Class A-2 Notes and
the Certificates (the "Securities"). The
initial principal amount of each of the
Securities, is set forth on the cover page
hereof. The Securities will be available for
purchase in denominations of $1,000 and
integral multiples of $1,000 in excess thereof
in book-entry form only. Persons acquiring
beneficial ownership interests in the Notes
will hold their interests in the Notes through
The Depository Trust Company ("DTC") in the
United States or Cedellbank societe anonyme
("Cedel") or the Euroclear System ("Euroclear")
in Europe and persons acquiring beneficial
ownership interests in the Certificates will
hold their interests in the Certificates
through DTC. See "Description of the
Securities -- Book-Entry Registration."
Securityholders will not be entitled to receive
a Definitive Security, except in the event that
Definitive Securities are issued in the limited
circumstances described herein. See
"Description of the Securities -- Definitive
Securities."
Designations
Class A-1 Notes............. Floating Rate Class A-1 Asset Backed Notes.
Class A-2 Notes............. Floating Rate Class A-2 Asset Backed Notes.
Notes....................... Class A-1 Notes and Class A-2 Notes.
Certificates................ Floating Rate Asset Backed Certificates.
Securities.................. Class A-1 Notes, Class A-2 Notes and
Certificates.
T-Bill Indexed Securities... As specified in the final Prospectus.
LIBOR Indexed Securities.... As specified in the final Prospectus.
Seller........................ Key Bank USA, National Association, a national
banking association (the "Seller"). See "The
Seller, the Administrator and the
Servicers -- The Seller and Administrator."
Servicers..................... Pennsylvania Higher Education Assistance
Agency, an agency of the Commonwealth of
Pennsylvania ("PHEAA") and EFS Services, Inc.,
a wholly-owned subsidiary of EFS, Inc. of
Indiana ("EFS" and together with PHEAA, the
"Servicers"). See "The Seller, the
Administrator and the Servicers -- The
Servicers."
Eligible Lender Trustee....... The First National Bank of Chicago, as trustee
(the "Eligible Lender Trustee") under the
Amended and Restated Trust Agreement dated as
of January 1, 1999 (as amended and supplemented
from time to time, the "Trust Agreement")
between the Seller and the Eligible Lender
Trustee pursuant to which the Eligible Lender
Trustee acts as holder of legal title to the
Financed Student Loans on behalf of the Trust.
See "Formation of the Trust -- Eligible Lender
Trustee."
Indenture Trustee............. Bankers Trust Company, as trustee (the
"Indenture Trustee") under the Indenture dated
as of January 1, 1999 (as amended
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and supplemented from time to time, the
"Indenture") between the Trust and the
Indenture Trustee.
Administrator................. Key Bank USA, National Association, as
administrator (the "Administrator") on behalf
of the Trust pursuant to the Administration
Agreement dated as of January 1, 1999 (as
amended and supplemented from time to time, the
"Administration Agreement"), among the
Administrator, the Trust and the Indenture
Trustee. See "The Seller, the Administrator and
the Servicers -- The Seller and Administrator."
Transaction Overview.......... The Trust will issue the Notes pursuant to the
Indenture and Certificates pursuant to the
Trust Agreement. The assets of the Trust will
include certain law school, medical school,
dental school, graduate business school and
other graduate school student loans
(collectively, "Student Loans"). Such Student
Loans will be acquired by the Trust from the
Seller on the Closing Date and from time to
time thereafter as described under " -- Assets
of the Trust -- Financed Student Loans"
(collectively, "Financed Student Loans"). The
Financed Student Loans will consist of Financed
Student Loans that are reinsured by the United
States Department of Education (the
"Department") as described under "-- Assets of
the Trust -- Financed Student Loans"
(collectively, "Financed Federal Loans") and
Financed Student Loans that are not reinsured
by the Department or any other government
agency (collectively, "Financed Private
Loans"). The Notes will be secured by the
Financed Student Loans and certain other assets
of the Trust. The Certificates represent
undivided beneficial ownership interests in the
Trust and certain other assets of the Trust.
Payments of interest on and principal of the
Securities will be made from collections and
other payments received with respect to the
Financed Student Loans.
The rights of the holders of Certificates will
be subordinated to the rights of the holders of
Notes to the extent described herein. See
"Description of the Transfer and Servicing
Agreements -- Credit
Enhancement -- Subordination of the
Certificates."
Set forth below is a summary of the material
payment terms of the Securities.
A. Distribution Dates......... The twenty-seventh day of each March, June,
September and December (unless such day is not
a Business Day, then the immediately following
Business Day), commencing June 28, 1999.
B. Record Date................ Payments in respect of the Securities will be
payable to holders of record as of the Business
Day preceding each Distribution Date.
C. Closing Date............... February , 1999
D. Interest Period............ With respect to any Distribution Date (except
for the initial Distribution Date), interest
will accrue on the Securities from the previous
Distribution Date to but excluding such
Distribution Date. With respect to the initial
Distribution Date, interest will accrue on the
Securities from the Closing Date to, but
excluding such Distribution Date.
4
<PAGE> 7
E. Interest................... Interest will accrue with respect to each
Interest Period on each class of Securities at
a per annum rate equal to the lesser of the
Formula Rate and the Student Loan Rate
(determined as described under "Description of
the Securities -- The Notes -- Distributions of
Interest").
The "Formula Rate" for any class of Securities
shall mean the applicable Investor Index plus
the applicable Margin.
The "Investor Index" means:
- For T-Bill Indexed Securities: the daily
weighted average of the T-Bill Rates within
such Interest Period (determined as described
under "Description of the
Securities -- Determination of the T-Bill
Rate"); and
- For LIBOR Indexed Securities: Three-Month
LIBOR (determined as described under
"Description of the Securities -- Determination
of LIBOR").
In the case of any LIBOR Indexed Securities and
the Initial Interest Period, interest will
accrue for the period from the Closing Date to
but excluding March 29, 1999 based on Three
Month LIBOR as determined on the initial LIBOR
Determination Date and for the period from
March 29, 1999 to but excluding June 28, 1999
based on Three Month LIBOR as determined on the
LIBOR Determination Date in March 1999. See
"-- Description of The
Securities -- Determination of LIBOR".
The "Margin" for each class of Securities is as
follows:
Class A-1 Notes: %
Class A-2 Notes: %
Certificates: %
The Student Loan Rate for any Interest Period
is a rate calculated generally on the basis of
collections on the Financed Student Loans
available or expected to be available to pay
interest on the Securities after payment of
certain expenses of the Trust for such Interest
Period. See "Description of the
Securities -- The Notes -- Distributions of
Interest."
Interest on the T-Bill Indexed Securities will
be calculated on the basis of the actual number
of days elapsed in the related Interest Period
divided by 365, or 366 in the case of leap
year. Interest on the LIBOR Indexed Securities
will be calculated on the basis of the actual
number of days elapsed in the related Interest
Period divided by 360.
The amount of interest payable on any class of
Securities on any Distribution Date will not
exceed the Student Loan Rate for such class. To
the extent that for any Interest Period the
rate for any class of Securities calculated on
the basis of the Formula Rate exceeds the
Student Loan Rate, the amount of such excess
(together with the unpaid portion of any such
excess from prior Distribution Dates and
interest accrued thereon at the Formula Rate
for such class of Securities) will be paid on
such Distribution Date or any subsequent
Distribution Date on a subordinated basis to
the extent funds are allocated and available
therefor after making all required prior
allocations and
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<PAGE> 8
distributions on such Distribution Dates, as
described under "Description of the Transfer
and Servicing Agreements -- Distributions." The
payment of such amounts due to
Certificateholders on any Distribution Date
(such amount, the "Certificateholders' Interest
Index Carryover") is further subordinated to
the payment of such amounts due to the
Noteholders on any Distribution Date (such
amount, the "Noteholders' Interest Index
Carryover"). To the extent funds are available
therefor, the Certificateholders' Interest
Index Carryover may be paid prior to the time
that the Notes are paid in full. The ratings on
the Securities do not address the likelihood of
payment of any Noteholders' Interest Index
Carryover or Certificateholders' Interest Index
Carryover.
F. Principal.................. Principal on the Notes will be payable on each
Distribution Date, first to the principal
balance of the Class A-1 Notes until such
principal balance is reduced to zero and then
to the principal balance of the Class A-2 Notes
until such principal balance is reduced to
zero. Principal of the Certificates will be
payable on each Distribution Date on and after
the Class A-2 Notes have been paid in full. The
amount of principal distributable on any
Distribution Date for Securities generally will
be equal to the amount of collections received
on the Financed Student Loans during the
related Collection Period (less certain
expenses of the Trust and other allocations
described herein) necessary to reduce the sum
of the principal balances of the Notes and
Certificates to the Specified Collateral
Balance for such Distribution Date. See
"Description of the Transfer and Servicing
Agreements -- Distributions."
On the Closing Date, the sum of the aggregate
initial principal amount of the Notes and the
initial Certificate Balance is 103.48% of the
sum of the aggregate principal balance of the
Initial Financed Student Loans as of the
Statistical Cutoff Date, the Pre-Funded Amount
as of the Closing Date and the amounts on
deposit in the Collection Account on the
Closing Date. The transaction is structured
such that collections on the Financed Student
Loans should be available to make accelerated
payments of principal on the Notes, thereby
reducing the amount by which the outstanding
principal balance of the Notes and the
Certificate Balance exceeds the sum of the
aggregate principal balance of the Financed
Student Loans and the Pre-Funded Amount. The
actual rate and timing of any accelerated
payments of principal, however, will depend on
a number of factors, including the rate and
timing of the payments on the Financed Student
Loans. It is expected that initially there may
not be any such accelerated payments of
principal because of the payment status of many
of the Financed Student Loans and the fact that
certain of the Financed Student Loans require
the related borrowers to pay only interest for
a period of two years. There can be no
assurance of the actual rate or timing of such
accelerated payments of principal or when the
sum of the aggregate principal amount of the
Notes and the Certificate Balance will equal
the sum of the Pool Balance and the Pre-
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Funded Amount. See "Risk Factors -- Principal
Balance of Securities Exceeds the Sum of the
Aggregate Principal Balance of Initial Financed
Student Loans and Pre-Funded Amount."
Until the outstanding principal balance of the
Notes and the Certificate Balance has been
reduced to the Specified Collateral Balance and
any Excess Servicing Fee has been paid, no
amounts will be available for the payment of
any Noteholders' Interest Index Carryover or
Certificateholders' Interest Index Carryover
with respect to the Notes and the Certificates.
In addition, on the Distribution Date on or
immediately following the last day of the
Funding Period, the amount remaining on deposit
in the Other Additional Funding Subaccount will
be deposited into the Collection Account for
distribution on the immediately following
Distribution Date. Such reduction in the
Pre-Funded Amount will result in a
corresponding increase in the amount of
principal distributable on the Securities on
such Distribution Date.
"Principal Distribution Amount" means, for the
Securities and with respect to any Distribution
Date, the amount by which the sum of the
outstanding principal balance of the Notes and
the Certificate Balance exceeds the Specified
Collateral Balance.
"Specified Collateral Balance" generally means,
with respect to any Distribution Date, the sum
of (a) the Pool Balance as of the last day of
the related Collection Period plus (b) the Pre-
Funded Amount as of the last day of the related
Collection Period. Following a TERI Trigger
Event, the Specified Collateral Balance will
equal zero.
A "TERI Trigger Event" shall occur when (i) the
Cumulative TERI Claims Ratio (as defined below)
exceeds 20% and (ii) a claim has been made
under the TERI Guarantee Agreement and TERI has
failed to fully satisfy such claim.
Notwithstanding the foregoing, no TERI Trigger
Event will be deemed to occur if each rating
agency rating the Securities waives the TERI
Trigger Event.
"Cumulative TERI Claims Ratio" means, with
respect to any Distribution Date, the fraction,
expressed as a percentage, the numerator of
which is equal to the aggregate dollar amount
of claims filed against TERI under its
Guarantee Agreement from the Closing Date
through and including the last day of the
Collection Period preceding such Distribution
Date and the denominator of which is equal to
the dollar amount of the Financed Private Loans
guaranteed by TERI as of the Closing Date.
G. Maturity Dates............. Securities Final Maturity
Date
Class A-1 Notes December 2006 Distribution
Date
Class A-2 Notes December 2009 Distribution
Date
Certificates December 2035 Distribution
Date
Although the maturity of some of the Financed
Student Loans will extend beyond the maturity
dates for the Securities, the actual maturity
of one or more classes of such Securities could
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<PAGE> 10
occur sooner than such maturity dates as a
result of a variety of factors as described
under "Description of the Securities -- The
Notes" and " -- The Certificates."
H. Mandatory Redemption of
Notes and Certificates... On the Closing Date approximately $32,180,804
(the "Subsequent Pool Pre-Funded Amount") will
be allocated to the Subsequent Pool Pre-Funding
Subaccount of the Pre-Funding Account to
purchase Student Loans, from a pool of Student
Loans currently owned by the Seller (the
"Subsequent Pool") and having as of January 1,
1999 (the "Statistical Cutoff Date") the
characteristics described under "The Financed
Student Loan Pool."
If as of March 1, 1999 (the "Special
Determination Date"), the Subsequent Pool
Pre-Funded Amount has not been reduced to zero,
then the remaining Subsequent Pool Pre-Funded
Amount, if greater than $10,000,000, will be
distributed on the first Distribution Date
thereafter to redeem each class of Notes and
prepay the Certificates on a pro rata basis,
based on the initial principal balance of each
class of Notes and the initial principal
balance of the Certificates; if such amount is
$10,000,000 or less, it will be distributed on
the first Distribution Date only to holders of
the Class A-1 Notes.
In addition, on the Distribution Date on or
immediately following the last day of the
Funding Period, any amounts remaining on
deposit in the Other Additional Pre-Funding
Subaccount on such Distribution Date will be
deposited into the Collection Account for
distribution on the immediately following
Distribution Date. Such reduction in the
Pre-Funded Amount will result in a
corresponding increase in the amount of
principal distributable on the Securities on
such Distribution Date.
Risk Factors.................. There are material risks associated with an
investment in the Securities. Prospective
investors should consider the risks associated
with any investment in the Securities. See
"Risk Factors."
The Trust..................... The Trust was established under the laws of New
York by the Trust Agreement. The activities of
the Trust and the Eligible Lender Trustee will
be limited by the terms of the Trust Agreement
to acquiring, owning and managing the Financed
Student Loans and the other assets of the Trust
as described herein, issuing the Securities,
making payments thereon and other activities
related thereto.
Assets of the Trust........... The assets of the Trust will include the
following:
A. Financed Student Loans..... The Financed Student Loans were or will be
originated by the Seller and will include
Student Loans ("Financed Federal Loans") that
are guaranteed as to the payment of principal
and interest by PHEAA, the Massachusetts Higher
Education Assistance Corporation now doing
business as American Student Assistance
("ASA"), the Nebraska Student Loan Program
("NSLP"), or the Educational Credit Management
Corporation ("ECMC" and together with PHEAA in
its capacity as a guarantor, ASA and NSLP, the
"Federal Guarantors"), and are rein-
8
<PAGE> 11
sured by the United States Department of
Education (the "Department"). The Financed
Student Loans will also include Student Loans
("Financed Private Loans") that are guaranteed
or insured as to the payment of principal and
interest by The Education Resources Institute,
Inc., a Massachusetts non-profit corporation
("TERI") or by HEMAR Insurance Corporation of
America ("HICA" and together with TERI, the
"Private Guarantors"), and are not reinsured by
the Department or any other governmental
entity. The Private Guarantors together with
the Federal Guarantors may be referred to
herein as the "Guarantors". The Financed
Student Loans will be selected from the Student
Loans owned by the Seller based on the criteria
specified in the Sale and Servicing Agreement
and described herein. The Financed Federal
Loans include certain additional Student Loans
to be made under the Federal Consolidation Loan
Program and certain Serial Loans which are
Stafford Loans. The Financed Private Loans may
also include certain additional Student Loans
to be made under the Private Consolidation Loan
Program and certain Serial Loans which are
Private Loans. Financed Federal Loans made on
or after October 1, 1993 are 98% guaranteed
against default by the applicable Federal
Guarantor. The applicable Federal Guarantor is
reinsured by the Department up to a maximum of
98% of Guarantee Payments for loans first
disbursed on or after October 1, 1993 and 95%
for Financed Federal Loans first disbursed on
or after October 1, 1998. All references herein
to the guarantee and reinsurance coverage with
respect to the Financed Federal Loans should be
understood to mean such 98% guarantee and 98%
maximum reinsurance coverage, respectively,
with respect to Financed Federal Loans made on
or after October 1, 1993 (but before October 1,
1998), and such 98% guarantee and the 95%
maximum reinsurance coverage, respectively for
Financed Federal Loans made on or after October
1, 1998.
Certain incentive programs currently or
hereafter made available by the Seller to
borrowers under certain loan programs may also
be made available by each Servicer to borrowers
with Financed Student Loans. Any such incentive
program that effectively reduces borrower
payments on Financed Student Loans and, with
respect to Financed Federal Loans, is not
required by the Higher Education Act of 1965,
as amended (such Act, together with all rules
and regulations promulgated thereunder by the
Department and/or the Federal Guarantors, the
"Higher Education Act") will be applicable to
the Financed Student Loans only if and to the
extent that the Trust receives payment from the
Seller (or Seller deposits or causes a deposit
to be made into the Collection Account) in an
amount sufficient to offset such effective
yield reductions. See "The Student Loan
Financing Business -- General -- Incentive
Programs." The Financed Student Loans will not
include any non-prime or sub-prime Student
Loans. Non-prime or sub-prime Student Loans are
Student Loans originated to individuals who
have previously defaulted on their Student
Loans. As of the Statistical Cutoff
9
<PAGE> 12
Date, none of the Initial Financed Student
Loans and none of the Subsequent Pool Student
Loans are non-performing Student Loans.
Non-performing Student Loans are Student Loans
which are in default and the Seller expects to
write-off as a loss.
As of the Statistical Cutoff Date, the weighted
average interest rate per annum with respect to
the Initial Financed Student Loans was
approximately 8.06% and the weighted average
remaining term to maturity (exclusive of any
future deferral or forbearance periods and
assuming expected graduation dates and typical
grace periods) of the Initial Financed Student
Loans was approximately 200.04 months. As of
the Statistical Cutoff Date, approximately
61.82% of the outstanding principal balance of
the Initial Financed Student Loans consisted of
Financed Federal Loans and approximately 38.18%
consisted of Financed Private Loans. Of the
Initial Financed Student Loans, approximately
36.60% are guaranteed by PHEAA, approximately
25.22% are guaranteed by ASA, approximately
37.15% are guaranteed by TERI and approximately
1.02% are insured by HICA.
As of the Statistical Cutoff Date, the weighted
average interest rate per annum with respect to
the Subsequent Pool Student Loans was
approximately 8.24% and the weighted average
remaining term to maturity (exclusive of any
future deferral or forbearance periods and
assuming expected graduation dates and typical
grace periods) of the Subsequent Pool Student
Loans was approximately 122.53 months. As of
the Statistical Cutoff Date, the Subsequent
Pool Student Loans consisted entirely of
Financed Federal Loans (of which approximately
1.57% are guaranteed by PHEAA, approximately
0.46% are guaranteed by ASA, approximately
95.97% are guaranteed by NSLP and approximately
2.00% are guaranteed by ECMC).
The statistical information presented in this
Prospectus with respect to the Subsequent Pool
Student Loans is as of the Statistical Cutoff
Date. While the statistical distribution of the
final characteristics of the Subsequent Pool
Student Loans when transferred to the Trust
will vary somewhat from the statistical
information presented in this Prospectus, the
Seller does not anticipate that the
characteristics of such Subsequent Pool Student
Loans will vary materially from such
statistical information as of the Statistical
Cutoff Date.
"Collection Period" means each period of three
calendar months from and including the date
following the end of the preceding Collection
Period (or, with respect to the first
Collection Period, the period beginning on the
Statistical Cutoff Date and ending on May 31,
1999).
The "Initial Pool Balance" will equal (i)
$767,111,823.09 plus (ii) the aggregate
increase in the Pool Balance during the Funding
Period (by the Special Determination Date)
occurring as a result of the purchase of
Subsequent Pool Student Loans.
"Pool Balance" is defined in "Description of
the Transfer and Servicing
Agreements -- Distributions." The Pool Balance
at
10
<PAGE> 13
any time generally represents the aggregate
principal balance of the Financed Student Loans
at the end of the preceding Collection Period
(including accrued interest thereon for such
Collection Period to the extent such interest
will be capitalized upon commencement of
repayment), after giving effect to all payments
received by the Trust on the Financed Student
Loans during such Collection Period allocable
to principal, all losses realized on Financed
Student Loans liquidated during such Collection
Period, and all Additional Fundings during such
Collection Period.
B. Pre-Funding Account........ During the Funding Period, an account will be
maintained in the name of the Indenture Trustee
(the "Pre-Funding Account"). On the Closing
Date, approximately $62,180,804 (the "Pre-
Funded Amount") of the net proceeds received
from the sale of the Securities will be
deposited in the Pre-Funding Account. During
the Funding Period, the Pre-Funded Amount will
be reduced from time to time by the amount
thereof used to purchase Additional Student
Loans to be included in the Trust, and, under
certain limited circumstances described below,
to cover payments of certain fees with respect
to the Trust and interest payments on the
Securities, in accordance with the Sale and
Servicing Agreement. See "Description of the
Transfer and Servicing Agreements -- Additional
Fundings."
On the Closing Date, for administrative
convenience, a portion of the Pre-Funded Amount
equal to the Subsequent Pool Pre-Funded Amount
will be allocated to an administrative
subaccount of the Pre-Funding Account (the
"Subsequent Pool Pre-Funding Subaccount"). The
remaining portion of the Pre-Funded Amount
equal to $30,000,000 (the "Other Additional
Pre-Funded Amount") will be allocated to an
administrative subaccount of the Pre-Funding
Account (the "Other Additional Pre-Funding
Subaccount"). The Subsequent Pool Pre-Funded
Amount may only be used by the Trust on or
prior to the Special Determination Date to
purchase from the Seller Subsequent Pool
Student Loans. The Subsequent Pool Pre-Funded
Amount will be reduced on each date Subsequent
Pool Student Loans are transferred to the Trust
by the aggregate Purchase Price of such
Subsequent Pool Student Loans transferred on
such date. In the event that the Subsequent
Pool Pre-Funded Amount is insufficient to pay
the Purchase Price of the Subsequent Pool
Student Loans, then the amount of such
deficiency may be withdrawn from the amounts on
deposit in the Other Additional Pre-Funding
Subaccount.
The Other Additional Pre-Funded Amount shall
also be available to purchase Other Subsequent
Student Loans, to pay capitalized interest on
any Financed Student Loan and to pay Guarantee
Fee Advances during the Funding Period. The
"Purchase Price" of any Financed Student Loan
will be (i) in the case of Initial Financed
Student Loans, an amount equal to 102.85% of
the aggregate principal balance of such Initial
Financed Student Loan as of the Statistical
Cutoff Date, (ii) in the case of Subsequent
Pool Student Loans, an amount equal to 102.85%
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<PAGE> 14
of the aggregate principal balance thereof as
of the related Subsequent Cutoff Date and (iii)
in the case of Other Subsequent Student Loans,
an amount equal to 100.00% of the aggregate
principal balance thereof as of its Subsequent
Cutoff Date. For purposes of the foregoing
calculations, the aggregate principal balance
of each Financed Student Loan includes accrued
interest thereon from the date of origination
to, with respect to each Initial Financed
Student Loan, the Statistical Cutoff Date, and
to, with respect to each Additional Student
Loan, the related Subsequent Cutoff Date, in
each case expected to be capitalized upon entry
into repayment.
Failure of the Seller to sell sufficient
Student Loans to the Trust during the Funding
Period as required by the Sale and Servicing
Agreement shall result in a mandatory
redemption of the Securities. See
"-- Transaction Overview -- Mandatory
Redemption of Notes and Certificates."
"Initial Financed Student Loans" means the
Student Loans transferred by the Seller to the
Trust as of the Closing Date having an
aggregate principal balance of approximately
$767,111,823.09, as of the Statistical Cutoff
Date.
"Subsequent Pool Student Loans" means the
Student Loans included in the Subsequent Pool.
"Other Subsequent Student Loans" means
Consolidation Loans and Serial Loans made to a
borrower which is also a borrower under at
least one outstanding Financed Student Loan
which the Trust is obligated to purchase from
the Seller during the Funding Period with funds
on deposit in the Escrow Account and funds on
deposit in the Pre-Funding Account and
allocated to the Other Additional Pre-Funding
Subaccount.
"Additional Student Loans" means collectively
the Subsequent Pool Student Loans, the Other
Subsequent Student Loans, the Other Student
Loans and Guarantee Fee Advances.
"Loan Purchase Termination Date" means the last
day of the Funding Period.
"Other Student Loans" means Serial Loans and
Consolidation Loans made to a borrower who is
also a borrower under at least one outstanding
Financed Student Loan which the Trust is
obligated to purchase from the Seller during
the period which begins following the end of
the Funding Period and ends on the Loan
Purchase Termination Date, from amounts on
deposit in the Escrow Account and Available
Loan Purchase Funds (as defined below) to the
extent permitted by the Sale and Servicing
Agreement. Notwithstanding the foregoing,
because the Loan Purchase Termination Date is
defined as the last day of the Funding Period,
the Trust will not apply any Available Loan
Purchase Funds to purchase Other Student Loans.
The "Funding Period" means the period from the
Closing Date until the first to occur of (i) an
Event of Default occurring under the Indenture,
a Servicer Default occurring under the Sale and
Servicing Agreement or an Administrator Default
occurring under the Sale and Servicing
Agreement or the Administration
12
<PAGE> 15
Agreement, (ii) certain events of insolvency
with respect to the Seller or (iii) the date on
which the amounts on deposit in the Pre-Funding
Account would be reduced to zero after giving
effect to purchases of Other Subsequent Student
Loans on such date, or (iv) the last day of the
Collection Period preceding the March 2001
Distribution Date.
C. Escrow Account............. Pursuant to the Sale and Servicing Agreement,
an account in the name of the Indenture Trustee
(the "Escrow Account") will be established and
maintained by the Administrator and such
account will be an asset of the Trust. With
respect to each Consolidation Loan, the
Eligible Lender Trustee on behalf of the Trust
will convey to the Seller all Underlying
Federal Loans and Underlying Private Loans, as
applicable, on each Transfer Date (as defined
below) held by it with respect to that
borrower, as specified in a notice delivered by
or on behalf of the Seller. In exchange for and
simultaneously with such conveyance, the Seller
will deposit into the Escrow Account an amount
of cash equal to the principal balances of all
such Underlying Federal Loans and Underlying
Private Loans, in each case plus accrued
interest thereon to the date (the "Transfer
Date") of such conveyance. Amounts on deposit
in the Escrow Account will be invested in
Eligible Investments and will be used on the
succeeding Transfer Date to purchase Additional
Student Loans, as described above, from the
Seller.
Any amounts remaining in the Escrow Account on
such Transfer Date, after giving effect to the
conveyance of all such Student Loans on such
Transfer Date, will be deposited into the
Collection Account and distributed on the
Distribution Date immediately following such
Transfer Date. See "Description of the Transfer
and Servicing Agreements -- Additional
Fundings."
D. Collection Account......... The Administrator will establish in the name of
the Indenture Trustee one or more accounts into
which all collections in respect of the
Financed Student Loans will be required to be
deposited.
1. Deposits into Collection Account. Pursuant
to the Sale and Servicing Agreement, an account
in the name of the Indenture Trustee (the
"Collection Account") will be established and
maintained by the Administrator and such
account will be an asset of the Trust. The
Seller will make an initial deposit into the
Collection Account on the Closing Date of cash
or certain Eligible Investments equal to
$6,614,533.55. Except under certain conditions
described herein, the Servicers will be
required to remit all collections received with
respect to the Financed Student Loans within
two Business Days of receipt thereof to the
Collection Account. Except under certain
conditions described herein, the Eligible
Lender Trustee will be required to remit
Interest Subsidy Payments and Special Allowance
Payments (each as defined under "The Student
Loan Financing Business -- Federal Loans Under
the Programs") it receives with respect to the
Financed Federal Loans within two Business Days
of receipt thereof to the Collection Account.
If, however, such conditions are satisfied as
described herein,
13
<PAGE> 16
such collections received by a Servicer and the
Eligible Lender Trustee will be remitted to the
Administrator, who will not be required to
deposit such amounts into the Collection
Account generally until on or before the
Business Day preceding each Distribution Date.
See "Description of the Transfer and Servicing
Agreements -- Payments on Financed Student
Loans."
2. Distributions from the Collection Account.
Pursuant to the Sale and Servicing Agreement,
the Administrator will instruct the Indenture
Trustee to withdraw funds on deposit in the
Collection Account and to apply such funds on
or about the twenty-seventh day of each month
(the "Monthly Servicing Payment Date") (i) to
the payment to the Seller of any amounts on
deposit in the Collection Account which consist
of Guarantee Payments made by TERI in excess of
the Maximum TERI Payments Amount and (ii) to
the payment of the Servicing Fee (as defined
under " -- Transfer and Servicing Agreements"
below) and on each Distribution Date to the
following (except as otherwise described
herein, in the priority indicated): (i)
Guarantee Payments made by TERI in excess of
the Maximum TERI Payments Amount payable to the
Seller; (ii) the Servicing Fee and all overdue
Servicing Fees; (iii) the quarterly fee payable
to the Administrator and all overdue
administration fees; (iv) interest due on the
Notes and all overdue interest thereon (other
than the Noteholders' Interest Index Carryover)
as described above under "-- Transaction
Overview -- Interest"; (v) interest due on the
Certificates and all overdue interest (other
than the Certificateholders' Interest Index
Carryover) as described above under
"-- Transaction Overview -- Interest"; (vi) the
amount, if any, necessary to be deposited in
the Reserve Account to reinstate the balance
thereof to the Specified Reserve Account
Balance; (vii) principal payable on the Notes
as described above under " -- Transaction
Overview -- Principal"; (viii) on each
Distribution Date on and after which the Notes
are paid in full, principal payable on the
Certificates as described above under
" -- Transaction Overview -- Principal"; (ix)
the Excess Servicing Fee (as defined under
" -- Transfer and Servicing Agreements" below),
if any; (x) the aggregate unpaid amount of
Noteholders' Interest Index Carryover due to
any Noteholders, if any; (xi) the aggregate
unpaid amount of Certificateholders' Interest
Index Carryover due to any Certificateholders,
if any; and (xii) any remaining amounts after
application of clauses (i) through (xi) above
to the Seller. Additionally, if on any
Distribution Date the outstanding principal
balance of the Notes (prior to giving effect to
distributions on such Distribution Date) is in
excess of the Note Collateralization Amount for
the Notes, principal will be payable on the
Notes in the amount of such excess, to the
extent of funds available, before any amount is
payable on the Certificates. See "Description
of the Transfer and Servicing
Agreements -- Distributions -- Distributions
from Collection Account."
14
<PAGE> 17
The "Maximum TERI Payments Amount" means 19% of
the Initial Pool Balance.
The "Specified Reserve Account Balance" with
respect to any Distribution Date will be equal
to the greater of (i) 0.30% of the aggregate
outstanding principal amount of the Notes and
the Certificate Balance on such Distribution
Date before giving effect to any distribution
on such Distribution Date and (ii) $1,297,500;
provided, however, that in no event will such
balance exceed the sum of the outstanding
principal amount of the Notes and the
outstanding principal balance of the
Certificates. See "Description of the Transfer
and Servicing Agreements -- Credit
Enhancement -- Reserve Account."
3. Additional Fundings from the Collection
Account. Amounts on deposit in the Collection
Account which constitute Available Loan
Purchase Funds may be withdrawn from the
Collection Account to the extent necessary (i)
on each Transfer Date, during the period which
begins following the end of the Funding Period
and ends on the Loan Purchase Termination Date,
to purchase Other Student Loans, subject to the
aggregate purchase limits for the applicable
type of Student Loan and (ii) following the end
of the Funding Period, in the case of amounts
on deposit in the Collection Account, to pay
Guarantee Fee Advances. "Available Loan
Purchase Funds" means with respect to any
Collection Period and any Transfer Date after
the Funding Period, the excess of Available
Funds (with certain exceptions) for the
Collection Period relating to the Distribution
Date next succeeding such Transfer Date that
are on deposit in the Collection Account on
such Transfer Date (before giving effect to any
application thereof) over the accrued expected
expense payment for such Distribution Date as
specified in the Sale and Servicing Agreement.
Notwithstanding the foregoing, because the Loan
Purchase Termination Date is defined as the
last day of the Funding Period, the Trust will
not apply any Available Loan Purchase Funds to
purchase Other Student Loans or to pay any
Guarantee Fee Advances. See "Formation of the
Trust -- The Trust" and "Description of the
Transfer and Servicing Agreements -- Additional
Fundings."
E. Reserve Account............ Pursuant to the Sale and Servicing Agreement,
an account in the name of the Indenture Trustee
(the "Reserve Account") will be established and
maintained by the Administrator and such
account will be an asset of the Trust. The
Seller will make an initial deposit into the
Reserve Account on the Closing Date of cash or
certain Eligible Investments equal to
$2,595,000 (the "Reserve Account Initial
Deposit"). On the Closing Date, the Reserve
Account Initial Deposit will equal the
Specified Reserve Account Balance as of the
Closing Date. The amount on deposit in the
Reserve Account to the extent used will be
replenished up to the Specified Reserve Account
Balance on each Distribution Date by deposits
therein from certain amounts available therefor
remaining after making all prior distributions
on such date. See "Description of the Transfer
and Servicing Agreements -- Distributions."
15
<PAGE> 18
Pursuant to the Sale and Servicing Agreement,
amounts on deposit in the Reserve Account will
be available on each Monthly Servicing Payment
Date to cover any shortfalls in payments of the
Servicing Fee, and on each Distribution Date to
cover any shortfalls in payments of the
Servicing Fee, the Administration Fee, and
interest payable in respect of the Notes and
the Certificates (other than the Noteholders'
Interest Index Carryover and the
Certificateholders' Interest Index Carryover)
for such Distribution Date for which funds
otherwise available therefor for such
Distribution Date are insufficient to make such
payments and distributions; provided, that
amounts on deposit in the Reserve Account shall
only be available to cover shortfalls in
interest payments on the Certificates to the
extent that the Note Collateralization Amount
for the Notes (after giving effect to such
withdrawals from the Reserve Account) is not
less than the outstanding principal balance of
the Notes. In addition, on the Final Maturity
Date for each class of Securities, amounts on
deposit in the Reserve Account, if any, will be
available, if necessary, to be applied to
reduce the principal balance of such classes of
Securities to zero. Amounts on deposit in the
Reserve Account will not be available to cover
any unpaid Excess Servicing Fee, Noteholders'
Interest Index Carryover or Certificateholders'
Interest Index Carryover.
Pursuant to the Sale and Servicing Agreement,
amounts in the Reserve Account on any
Distribution Date (without giving effect to any
distributions on such Distribution Date) in
excess of the Specified Reserve Account Balance
for such Distribution Date will be included as
Available Funds for distribution on such
Distribution Date. See "Description of the
Transfer and Servicing Agreements -- Credit
Enhancement -- Reserve Account."
The funding and maintenance of the Reserve
Account is intended to enhance the likelihood
of timely payment of interest in respect of the
Notes and the Certificates (other than the
Noteholders' Interest Index Carryover and the
Certificateholders' Interest Index Carryover)
and payment of principal in respect of the
Notes and the Certificates on their respective
Final Maturity Dates. In certain circumstances,
however, the Reserve Account could be depleted
and shortfalls in distributions on the Notes or
Certificates could result.
F. Transfer and Servicing
Agreements.................... Under the Sale and Servicing Agreement, the
Seller will sell the Financed Student Loans to
the Trust, with the Eligible Lender Trustee
holding legal title thereto. In addition, the
Servicers will agree with the Trust to be
responsible for servicing, managing,
maintaining custody of and making collections
on the Financed Student Loans. As of the
Statistical Cutoff Date, PHEAA will be the
Servicer with respect to approximately 95.64%
of the outstanding principal balance of the
Initial Financed Student Loans and EFS will be
the Servicer with respect to approximately
4.36% of the outstanding principal balance of
the Initial Financed Student Loans. As of the
Statistical Cutoff Date, PHEAA will be the
Servicer with respect to approximately 100%
16
<PAGE> 19
of the outstanding principal balance of the
Subsequent Pool Student Loans and EFS will be
the Servicer with respect to approximately 0%
of the outstanding principal balance of the
Subsequent Pool Student Loans. The obligations
of the Seller and the Servicers under the Sale
and Servicing Agreement include the following:
The Seller will be obligated to repurchase, and
the Servicers will be obligated to purchase,
any Financed Student Loan if the interests of
the Noteholders or the Certificateholders
therein are materially adversely affected by a
breach of any representation, warranty or
covenant (including the applicable Servicer's
covenant to service all the applicable Financed
Student Loans in accordance with, and to
otherwise comply with, applicable laws,
restrictions and guidelines) made by the Seller
or a Servicer, as the case may be, with respect
to the Financed Student Loan, if the breach has
not been cured following the discovery by or
notice to the Seller or a Servicer, as the case
may be, of the breach (it being understood that
any such breach that does not affect any
Guarantor's obligation to guarantee or insure
payment of such Financed Student Loan will not
be considered to have a material adverse effect
for this purpose). In addition, the Seller or
the applicable Servicer, as the case may be,
will be obligated to reimburse the Trust with
respect to a Financed Federal Loan for any
accrued interest amounts not guaranteed by a
Federal Guarantor due to, or any lost Interest
Subsidy Payments or Special Allowance Payments
as a result of, a breach of the Seller's
representations and warranties or the
Servicer's covenants, as the case may be, with
respect to such Financed Federal Loan.
The Servicers will receive, subject to the
limitations set forth in the following
paragraph, a monthly fee (the "Servicing Fee")
payable on each Monthly Servicing Payment Date.
The Servicing Fee will be payable from
distributions and from amounts on deposit in
the Reserve Account commencing March 1, 1999.
The Servicing Fee shall be equal to the sum of
(i) the Servicing Fee Percentage (as defined
below) of the outstanding principal balance of
Financed Student Loans each Servicer is serving
as of the last day of the calendar month
immediately preceding the applicable Monthly
Servicing Payment Date, and (ii) in the case of
PHEAA, certain one-time fixed fees for each
Financed Student Loan for which a forbearance
period was granted or renewed or for which a
guarantee claim was filed, in each case subject
to certain adjustments, together with other
administrative fees and similar charges. The
"Servicing Fee Percentage" means, with respect
to each Servicer, the per annum percentage
specified in a fee schedule for such Servicer
delivered to the Eligible Lender Trustee on the
Closing Date.
Notwithstanding the foregoing, in the event
that the aggregate fees payable to the
Servicers from distributions as described above
for any Monthly Servicing Payment Date would
exceed 0.50% per annum of the Pool Balance as
of the last day of the calendar month
immediately preceding the applicable Monthly
17
<PAGE> 20
Servicing Payment Date (other than any
deconversion fees), (the "Capped Amount"), then
the "Servicing Fee" with respect to such
Monthly Servicing Payment Date will instead be
the Capped Amount for such date. The remaining
amount in excess of such Servicing Fee,
together with any such excess amounts from
prior Monthly Servicing Payment Dates that
remain unpaid (the "Excess Servicing Fee"),
will be payable to the Servicers on each
succeeding Distribution Date out of funds
available therefor after payment on such
Distribution Date of the Servicing Fee, the
Administration Fee, amounts payable in respect
of the Notes and the Certificates (other than
the Noteholders' Interest Index Carryover and
the Certificateholders' Interest Index
Carryover) and the amount, if any, necessary to
be deposited in the Reserve Account to
reinstate the balance thereof to the Specified
Reserve Account Balance.
Pursuant to the Sale and Servicing Agreement
and the Administration Agreement, the
Administrator will agree with the Trust to be
responsible for, among other things, preparing
and filing with the Department all appropriate
claim forms and other documents and filings on
behalf of the Eligible Lender Trustee in order
to claim the Interest Subsidy Payments and
Special Allowance Payments from the Department
in respect of the Financed Federal Loans
entitled thereto and preparing and providing
monthly, quarterly and annual statements to the
Eligible Lender Trustee and the Indenture
Trustee with respect to distributions to
Noteholders and Certificateholders.
Auction of Trust Assets....... Any Financed Student Loans remaining in the
Trust as of the end of the Collection Period
immediately preceding the March 2009
Distribution Date will be offered for sale by
the Indenture Trustee. KeyCorp, its affiliates
(other than the Seller), PHEAA, TERI and
unrelated third parties may offer bids to
purchase all, but not less than all of such
Financed Student Loans on such Distribution
Date. If at least two bids are received, the
Indenture Trustee will solicit and resolicit
new bids from all participating bidders until
only one bid remains or the remaining bidders
decline to resubmit bids. The Indenture Trustee
will accept the highest of such remaining bids
if it is equal to or in excess of an amount
(the "Minimum Purchase Amount") equal to the
greatest of (i) the Auction Purchase Amount,
(ii) the fair market value of such Financed
Student Loans as of the end of the Collection
Period immediately preceding such Distribution
Date and (iii) the aggregate unpaid principal
amount of the Notes and principal balance of
the Certificates in each case plus accrued and
unpaid interest thereon payable on such
Distribution Date (other than any Noteholders'
Interest Index Carryover and
Certificateholders' Interest Index Carryover).
If at least two bids are not received or the
highest bid after the resolicitation process is
completed is not equal to or in excess of the
Minimum Purchase Amount, the Indenture Trustee
will not consummate such sale. The net proceeds
of any such sale will be used to redeem any
outstand-
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ing Notes and to retire any outstanding
Certificates on such Distribution Date.
If the sale is not consummated in accordance
with the procedures described above, the
Indenture Trustee may, but shall not be under
any obligation to, solicit bids for sale of the
Financed Student Loans on future Distribution
Dates upon terms similar to those described
above. In the event the Financed Student Loans
are not sold in accordance with the foregoing,
the Specified Collateral Balance shall be
reduced to zero and all amounts on deposit in
the Collection Account (after payment of the
Servicing Fee, Administration Fee, and interest
on the Notes and Certificates) on each
subsequent Distribution Date will be paid as
principal to the Noteholders and then the
Certificateholders until the outstanding
principal balance of the Notes and Certificates
has been reduced to zero. No assurance can be
given as to whether the Indenture Trustee will
be successful in soliciting acceptable bids to
purchase the Financed Student Loans on either
the March 2009 Distribution Date or any
subsequent Distribution Date.
"Auction Purchase Amount" with respect to the
Financed Student Loans means the aggregate
unpaid principal balance owed by the applicable
borrowers thereon plus accrued interest thereon
to the date of purchase less the amount on
deposit in the Reserve Account as of such date.
See "Description of the Transfer and Servicing
Agreements -- Termination."
Optional Purchase............. The Seller may repurchase all remaining
Financed Student Loans, and thus effect the
early retirement of the Certificates, on any
Distribution Date on or after which the Pool
Balance is equal to 5% or less of the Initial
Pool Balance. See "Description of the Transfer
and Servicing Agreements -- Termination."
Tax Considerations............ Upon issuance of the Notes and Certificates,
Thompson Hine & Flory LLP, as federal tax
counsel to the Trust ("Federal Tax Counsel")
will deliver an opinion to the effect that, (i)
the Notes will be characterized as debt for
federal income tax purposes, although there is
no specific authority with respect to the
characterization for federal income tax
purposes of securities having the same terms as
the Notes and, (ii) for federal income tax
purposes, the Trust will not be characterized
as an association (or publicly traded
partnership) taxable as a corporation. Each
Noteholder, by acceptance of a beneficial
interest in a Note, will agree to treat such
Note as indebtedness, and each
Certificateholder, by acceptance of a
beneficial interest in a Certificate, will
agree to treat the Trust as a partnership in
which they are partners.
Upon issuance of the Notes and Certificates,
Kirkpatrick & Lockhart LLP, as Pennsylvania tax
counsel to the Trust ("Pennsylvania Tax
Counsel"), will deliver an opinion that the
same characterizations of the Notes and the
Trust would apply for Pennsylvania state income
tax purposes as for federal income tax
purposes.
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See "Income Tax Consequences" for additional
information concerning the application of
federal and Pennsylvania state tax laws.
ERISA Considerations.......... Subject to the considerations discussed under
"ERISA Considerations," the Notes may be
acquired by employee benefit plans or other
retirement arrangements.
The Certificates may not be acquired by
employee benefit plans or other retirement
arrangements subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), and/or Section 4975 of the Internal
Revenue Code of 1986, as amended or by any
other entity that is deemed to hold assets of
such plan or arrangement. See "ERISA
Considerations."
Rating of the Securities...... It is a condition to the issuance and sale of
the Notes and the Certificates that each class
of Notes be rated in the highest investment
rating category and that the Certificates be
rated in one of the four highest investment
rating categories by at least two nationally
recognized rating agencies. The ratings of the
Notes do not address the likelihood of the
payment of any Noteholders' Interest Index
Carryover and the ratings of the Certificates
do not address the likelihood of the payment of
any Certificateholders' Interest Index
Carryover. A rating is not a recommendation to
buy, sell or hold securities and may be subject
to revision or withdrawal at any time by the
assigning rating agency.
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<PAGE> 23
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the
Securities offered hereby.
Limited Assets of Trust. The Trust does not have, nor is it permitted or
expected to have, any significant assets or sources of funds other than the
Financed Student Loans (and the related Guarantee Agreements and other relevant
rights under certain collateral agreements with respect to the Financed Private
Loans to the extent assigned to the Trust by the Seller ("Assigned Rights")),
the Collection Account, the Pre-Funding Account, the Escrow Account and the
Reserve Account. Each Class of Notes represents obligations solely of the Trust,
and the Certificates represent interests solely in the Trust and its assets, and
neither the Notes nor the Certificates will be insured or guaranteed by the
Seller, the Servicers, the Guarantors, the Eligible Lender Trustee or the
Department. Holders of the Notes and the Certificates must rely on payments with
respect to the Financed Student Loans and, if and to the extent available under
the circumstances described herein, amounts on deposit in the Pre-Funding
Account, the Escrow Account and the Reserve Account. The Pre-Funding Account
will only be available during the Funding Period to cover (i) obligations of the
Trust relating to Additional Fundings and (ii) shortfalls in respect of the
payment of interest on the Notes and Certificates (other than the Noteholders'
Interest Index Carryover and the Certificateholders' Interest Index Carryover)
and certain administrative and servicing fees of the Trust to the extent that
the Reserve Account has been reduced to zero. The Escrow Account will also be
available to cover obligations of the Trust relating to purchases of
Consolidation Loans. Except as described above, neither the Pre-Funding Account
nor the Escrow Account are intended to cover losses on the Financed Student
Loans. Similarly, amounts to be deposited in the Reserve Account are limited in
amount and will be reduced, subject to a specified minimum, as the Pool Balance
is reduced. In addition, funds in the Reserve Account will first be made
available to cover shortfalls in distributions of interest and principal on the
Notes. Amounts on deposit in the Reserve Account or the Pre-Funding Account will
not be available to cover shortfalls in payment of interest on the Certificates
if after giving effect to withdrawals from the Reserve Account and the
Pre-Funding Account, respectively, the Note Collateralization Amount for the
Notes is less than the aggregate principal balance of the Notes. If the Reserve
Account and the Pre-Funding Account are exhausted, holders of the Securities
will depend solely on payments with respect to the Financed Student Loans. See
"Description of the Transfer and Servicing Agreements -- Distributions" and
"-- Credit Enhancement."
Principal Balance of Securities Exceeds the Sum of the Aggregate Principal
Balance of Initial Financed Student Loans and Pre-Funded Amount. On the Closing
Date, the sum of the aggregate initial principal balances of the Class A-1 Notes
and Class A-2 Notes and the Certificate Balance is 103.48% of the sum of the
aggregate principal balance of the Initial Financed Student Loans as of the
Statistical Cutoff Date, the Pre-Funded Amount as of the Closing Date and the
amounts on deposit in the Collection Account on the Closing Date. Each Initial
Financed Student Loan will be purchased by the Trust for an amount equal to
102.85% of the principal balance thereof (including any accrued interest thereon
expected to be capitalized upon repayment) as of the Statistical Cutoff Date. In
addition, each Subsequent Pool Student Loan will be purchased by the Trust for
an amount equal to 102.85% of the principal balance thereof (including any
accrued interest thereon expected to be capitalized upon repayment) as of the
related Subsequent Cutoff Date. Because Other Subsequent Student Loans and Other
Student Loans are purchased for an amount equal to 100.00% of the principal
balance thereof (including any accrued interest thereon expected to be
capitalized upon repayment) as of the related Subsequent Cutoff Date, the
purchase of Other Subsequent Student Loans and Other Student Loans should not
increase the amount by which the principal balance of Securities exceeds the sum
of the Pool Balance and the Pre-Funded Amount. However, because the actual rate
and timing of and any accelerated payments of principal will depend on a number
of factors, including the rate and timing of the principal payments on the
Financed Student Loans, there can be no assurance of the actual rate or timing
of such accelerated payments of principal or when the aggregate principal amount
of the Notes and principal balance of the Certificates will be equal to or less
than the sum of the Pool Balance, the Pre-Funded Amount and the amounts on
deposit in the Reserve Account. Also because 14.60% of the Initial
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<PAGE> 24
Financed Student Loans and 1.06% of the Subsequent Pool Student Loans have
repayment terms that require borrowers to make only interest payments for the
first two years after entry into repayment, the actual rate or timing of such
accelerated payments may be reduced. As a result, if, (i) an Event of Default
should occur under the Indenture or an Insolvency Event should occur or (ii) the
Financed Student Loans were liquidated at a time when the outstanding principal
amount of the Securities exceeded the sum of the Pool Balance, the Pre-Funded
Amount and the amounts on deposit in the Reserve Account, such Financed Student
Loans would likely have to be liquidated at a premium for holders of
Certificates and, in some circumstances, holders of Notes, not to suffer a loss.
Subordination of Certificates to Notes. The rights of the holders of
Certificates to receive payments of interest are subordinated to the rights of
the holders of Notes to receive payments of interest (and in certain
circumstances, principal) and the rights of the holders of Certificates to
receive payments of principal are subordinated to the rights of the holders of
Notes to receive payments of interest and principal. Consequently, amounts on
deposit in the Collection Account and, to the extent necessary, the Reserve
Account and, during the Funding Period, the Other Additional Pre-Funding
Subaccount, will be applied to the payment of interest on the Notes before
payment of interest on the Certificates. Moreover, the holders of Certificates
will not be entitled to any payments of principal until the Notes are paid in
full. In addition, if (i) an Event of Default occurs and is continuing under the
Indenture or (ii) an Insolvency Event occurs and the Financed Student Loans are
liquidated, all amounts due on the Notes will be payable before any amounts are
payable on the Certificates. Additionally, if on any Distribution Date the
outstanding principal balance of the Notes (prior to giving effect to
distributions on such Distribution Date) is in excess of the Note
Collateralization Amount, principal will be payable to the holders of the Notes
in the amount of such excess to the extent of funds available before any amounts
are payable to the holders of the Certificates. If amounts otherwise allocable
to the Certificates are used to fund payments of interest or principal on the
Notes, distributions with respect to the Certificates may be delayed or reduced.
Notwithstanding the foregoing, distributions to Certificateholders of the amount
of interest (other than any Certificateholders' Interest Index Carryover) and
principal payable thereon on any Distribution Date will not be subordinated to
the payment of any Noteholders' Interest Index Carryover that may exist from
time to time. The Certificateholders bear directly the credit and other risks
associated with an undivided interest in the Trust. See "Description of the
Securities -- The Certificates -- Subordination of the Certificates,"
"Description of the Transfer and Servicing Agreements -- Distributions" and
"--Credit Enhancement -- Subordination of the Certificates."
Borrower Default Risk on Certain Federal Loans. Under the Omnibus Budget
Reconciliation Act of 1993, Financed Federal Loans first disbursed on or after
October 1, 1993, are 98% insured by Federal Guarantors. As a result, to the
extent a borrower of such a Financed Federal Loan defaults, the Trust will
experience a loss of 2%, of outstanding principal and accrued interest on each
such defaulted Financed Federal Loan. A defaulted loan will be fully assigned to
the applicable Federal Guarantor in exchange for a guarantee payment on the
guaranteed portion and the Trust may have no right thereafter to pursue the
borrower for the unguaranteed portion. Financed Federal Loans continue to be
100% guaranteed in the event of death, disability or bankruptcy of the borrower
regardless of disbursement date. Approximately 99.35% of the Initial Financed
Student Loans and approximately 98.32% of the Subsequent Pool Student Loans
consist of Financed Federal Loans first disbursed on or after October 1, 1993.
Dependence on Guarantors as Security for Financed Student Loans. All of
the Financed Student Loans will be unsecured. As a result, the only security for
payment of the Financed Student Loans are the guarantees provided under the
Guarantee Agreements between the Eligible Lender Trustee and the Guarantors. A
deterioration in the financial status of the Guarantors and their ability to
honor guarantee claims with respect to the Financed Student Loans could result
in a delay in making or a failure to make Guarantee Payments to the Eligible
Lender Trustee. Failures by borrowers of Student Loans generally to pay timely
the principal and interest due on such Student Loans could obligate the
Guarantors to make payments thereon, which could adversely affect the solvency
of the Guarantors and their ability to meet their guarantee obligations
(including with respect to the Financed Student Loans). Moreover, to the extent
that the Department pays reimbursement claims submitted by a Federal Guarantor
in respect of
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<PAGE> 25
defaulting Student Loans for any fiscal year exceeding certain specified levels,
the Department's obligation to reimburse the Federal Guarantor for losses will
be reduced on a sliding scale from 100% (98% for loans made on or after October
1, 1993 but before October 1, 1998, and 95% for loans made on or after October
1, 1998) to a minimum, depending on the guarantors default rate, of 80% (78% for
loans made on or after October 1, 1993 but before October 1, 1998, and 75% for
loans made on or after October 1, 1998).
Pursuant to the Higher Education Amendments of 1992 (the "1992
Amendments"), under Section 432(o) of the Higher Education Act, if the
Department has determined that a federal guarantor is unable to meet its
insurance obligations, the loan holder may submit claims directly to the
Department and the Department is required to pay the full Guarantee Payment due
with respect thereto in accordance with guarantee claim processing standards no
more stringent than those applied by such guarantor. However, the Department's
obligation to pay guarantee claims directly in this fashion is contingent upon
the Department making the determination referred to above. There can be no
assurance that the Department would ever make such a determination with respect
to a Federal Guarantor or, if such a determination was made, whether such
determination or the ultimate payment of such guarantee claims would be made in
a timely manner.
TERI and HICA, the Private Guarantors, are not entitled to any federal
reinsurance or assistance from the Department. Although each of TERI and HICA
maintains loan loss reserves intended to absorb losses arising from guarantee
commitments, there can be no assurance that the amount of such reserves will be
sufficient to cover the obligations of TERI and HICA, respectively, over the
term of the Financed Private Loans. There can be no assurance that TERI, HICA or
any other Guarantor will have the financial resources to make all
guarantee/insurance payments related to the Financed Private Loans that may
arise from time to time. The inability of any Guarantor to meet its
guarantee/insurance obligations could reduce the amount of principal and
interest paid to the holders of the Securities. Although approximately 37.15% of
the Initial Pool Balance consists of Financed Private Loans guaranteed by TERI,
the aggregate amount of all guarantee payments made by TERI with respect to any
Financed Private Loans, which may be available for distributions with respect to
the Securities shall be no greater than the Maximum TERI Payments Amount. See
"The Financed Student Loan Pool -- Insurance of Student Loans; Guarantors of
Student Loans" and "Description of the Transfer and Servicing Agreements."
TERI has advised the Seller that it is currently in compliance with all
operating reserves requirements contained in guarantee agreements TERI has in
place with other student loan lenders and other trustees under prior
securitizations of student loans. However, there can be no assurance that such
compliance will continue.
The failure of TERI (subject to the Maximum TERI Payments Amount) or HICA
to make any Guarantee Payment may extend the weighted average life of one or
more classes of the Securities.
"Maximum TERI Payments Amount" means 19% of the Initial Pool Balance.
Risk of Loss of Federal Guarantor and Department Payments for Failure to
Comply with Loan Origination and Servicing Procedures for Federal Loans. The
Higher Education Act, including the implementing regulations thereunder,
requires lenders and their assignees making and servicing Student Loans that are
reinsured by the Department ("Federal Loans") and guarantors guaranteeing
Federal Loans to follow specified procedures, including due diligence
procedures, to ensure that the Federal Loans are properly made and disbursed to,
and repaid on a timely basis by or on behalf of, borrowers. Certain of those
procedures, which are specifically set forth in the Higher Education Act, are
summarized herein. See "The Student Loan Financing Business" and "Description of
the Transfer and Servicing Agreements -- Servicing Procedures." The Servicers
have agreed pursuant to the Sale and Servicing Agreement to perform servicing
and collection procedures on behalf of the Trust in accordance with the Higher
Education Act and the rules and regulations promulgated thereunder. However,
failure to follow these procedures or failure of the Seller to follow procedures
relating to the origination of any Financed Federal Loans may result in the
Department's refusal to make reinsurance payments to the Federal Guarantors or
to make Interest Subsidy Payments and Special Allowance Payments to the Eligible
Lender
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<PAGE> 26
Trustee with respect to such Financed Federal Loans or in the Federal
Guarantors' refusal to honor their agreements with the Eligible Lender Trustee
to, inter alia, guarantee the payment of such Financed Federal Loans (each such
agreement, a "Guarantee Agreement"). Failure of the Federal Guarantors to
receive reinsurance payments from the Department could adversely affect the
Federal Guarantors' ability or legal obligation to make payments under the
Guarantee Agreements ("Guarantee Payments") to the Trust. Loss of any such
Guarantee Payments, Interest Subsidy Payments or Special Allowance Payments
could adversely affect the amount of Available Funds for any Collection Period
and the Trust's ability to pay timely interest and principal on any Distribution
Date, and principal on such Securities on the related Final Maturity Dates.
Under certain circumstances, pursuant to the Sale and Servicing Agreement,
the Seller is obligated to repurchase, or the applicable Servicer is obligated
to purchase, any Financed Federal Loan, if a breach of the representations,
warranties or covenants of the Seller or the applicable Servicer, as the case
may be, with respect to such Financed Federal Loan has a material adverse effect
on the interests of the Noteholders or the Certificateholders therein and such
breach is not cured within any applicable cure period (it being understood that
any such breach that does not affect any Federal Guarantor's obligation to
guarantee payment of such Financed Federal Loans will not be considered to have
such a material adverse effect). In addition, under certain circumstances
pursuant to the Sale and Servicing Agreement, the Seller or the applicable
Servicer, as the case may be, is obligated to reimburse the Trust with respect
to a Financed Federal Loan for any accrued interest amounts not guaranteed by a
Federal Guarantor due to, or any lost Interest Subsidy Payments and Special
Allowance Payments as a result of, a breach of the Seller's representations and
warranties or the applicable Servicer's covenants, as the case may be, with
respect to such Financed Federal Loan. See "Description of the Transfer and
Servicing Agreements -- Sale of Financed Student Loans; Representations and
Warranties" and "-- Servicer Covenants." There can be no assurance, however,
that the Seller or the applicable Servicer will have the financial resources to
do so. The failure of the Seller to so repurchase or the applicable Servicer to
so purchase a Financed Federal Loan would constitute a breach of the Sale and
Servicing Agreement, enforceable by the Eligible Lender Trustee on behalf of the
Trust or by the Indenture Trustee on behalf of the Noteholders, but would not
constitute an Event of Default under the Indenture or permit the exercise of
remedies thereunder.
Risk of Loss of Private Guarantor Payments for Failure to Comply with Loan
Origination and Servicing Procedures for Private Loans. There are certain rules
and procedures applicable to originating and servicing Student Loans not
reinsured by the Department or any other governmental agencies ("Private
Loans"), which are analogous to those of Federal Loans. Failure to make or
service properly a Financed Private Loan in accordance with those procedures
could adversely affect the Eligible Lender Trustee's ability to obtain guarantee
payments from TERI (subject to the Maximum TERI Payments Amount) or insurance
payments from HICA. Loss of such guarantee/insurance payments could adversely
affect the Trust's ability to pay principal and interest on the Securities. As
described above for Financed Federal Loans, under certain circumstances pursuant
to the Sale and Servicing Agreement, the Seller is obligated to repurchase, or
the applicable Servicer is obligated to purchase, a Financed Private Loan. See
"Description of the Transfer and Servicing Agreements -- Sale of Financed
Student Loans; Representations and Warranties" and "-- Servicer Covenants."
There can be no assurance, however, that the Seller or the applicable Servicer
will have the financial resources to do so.
Changes in Legislation May Adversely Affect Financed Student Loans and
Guarantors. There can be no assurance that the Higher Education Act or other
relevant federal or state laws, rules and regulations and the programs
implemented thereunder will not be amended or modified in the future in a manner
that will adversely impact the programs described in this Prospectus and the
Student Loans made thereunder, including the Financed Student Loans, or the
Guarantors. Such changes could result in a reduction of the Federal Guarantors'
ability to make Guarantee Payments to the Eligible Lender Trustee with respect
to the Financed Federal Loans which in turn could result in a reduction in the
Trust's ability to pay principal and interest on the Notes. In addition,
existing legislation and future measures to reduce the federal budget deficit or
for other purposes may adversely affect the amount and nature of federal
financial assistance available with respect to these programs. In recent years,
federal legislation has
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<PAGE> 27
provided for the recovery of certain funds held by guarantee agencies in order
to achieve reductions in federal spending. There can be no assurance, however,
that future federal legislation or administrative actions will not adversely
affect expenditures by the Department or the financial condition of the Federal
Guarantors.
Under the Omnibus Budget Reconciliation Act of 1993, Congress made a number
of changes that may adversely affect the financial condition of the Federal
Guarantors, as such changes reduce certain financial benefits previously enjoyed
by Federal Guarantors and give the Department broad powers over Federal
Guarantors and their reserves. See "The Student Loan Financing
Business -- Federal Loans Under the Programs" for a more detailed description of
the impact of such legislation on Federal Guarantors. The changes create a
significant risk that the resources available to the Federal Guarantors to meet
their guarantee obligations will be significantly reduced. In addition, this
legislation sought to greatly expand the loan volume under the direct lending
program of the Department (the "Federal Direct Student Loan Program") to a
target of approximately 60% of student loan demand in academic year 1998-1999,
although only about 35% of such loan demand is currently being met under the
direct lending program. The expansion of this program in the future could result
in increasing reductions in the volume of loans made under the Stafford Loan
Program, and the Federal Consolidation Loan Program (such programs being
collectively referred to herein as the "Federal Programs"). Under the Federal
Direct Student Loan Program, the Department directly originates and holds
student loans without the involvement of private lenders. If the Federal Direct
Student Loan Program expands, the Servicers may experience increased costs due
to reduced economies of scale or other adverse effects on their business to the
extent the volume of loans serviced by the Servicers is reduced. Such reductions
or effects could occur as a result of reductions in the volume of new loans made
under the Federal Programs or the consolidation of existing loans under the
Federal Direct Student Loan Program. Such cost increases could affect the
ability of the Servicers to satisfy their obligations to service the Financed
Student Loans or to purchase Financed Student Loans in the event of certain
breaches of its covenants. See "Description of the Transfer and Servicing
Agreements -- Servicer Covenants." Such volume reductions could further reduce
revenues received by the Federal Guarantors available to pay claims on defaulted
Financed Federal 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 Financed Federal Loans and
lower prices available in the secondary market for those loans.
Fees Payable on Certain Financed Federal Loans. The Trust will be
obligated to pay to the Department a monthly rebate fee (the "Monthly Rebate
Fee") at an annualized rate of 1.05% (.62% for applications received between
October 1, 1998 and January 31, 1999) of the outstanding principal balance on
the last day of each month plus accrued interest thereon of each Federal
Consolidation Loan which is a part of the Trust, which rebate will be payable
prior to distributions to the Securityholders and which rebate will reduce the
amount of funds which would otherwise be available to make distributions on the
Securities and will reduce the Student Loan Rate. In addition, the Trust must
pay to the Department a 0.50% origination fee (the "Federal Origination Fee") on
the initial principal balance of each Financed Student Loan which is originated
on its behalf by the Eligible Lender Trustee (i.e., each Other Subsequent
Student Loan and Other Student Loan which is a Federal Consolidation Loan),
which fee will be deducted by the Department out of Interest Subsidy Payments
and Special Allowance Payments. If the amount of Interest Subsidy Payments and
Special Allowance Payments due to the Trust are not sufficient to cover the
amount of the Federal Origination Fee, the balance of such Federal Origination
Fee may be deferred by the Department until sufficient Interest Subsidy Payments
and Special Allowance Payments accrue to cover such fee or may be required to be
paid immediately. If such amounts never accrue, the Trust would be obligated to
pay any remaining fee from other assets of the Trust prior to making
distributions to the Securityholders. The offset of Interest Subsidy Payments
and Special Allowance Payments, and the payment of any remaining fee from other
Trust assets will further reduce the amount of the Available Funds from which
payments to the Securityholders may be made. Furthermore, any offset of Interest
Subsidy Payments and Special Allowance Payments will further reduce the Student
Loan Rate.
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Recent Developments -- Emergency Student Loan Consolidation Act of 1997. On
November 13, 1997, President Clinton signed into law the Emergency Student Loan
Consolidation Act of 1997, which made significant changes to the Federal
Consolidation Loan Program. These changes include: (1) providing that federal
direct student loans are eligible to be included in a Federal Consolidation
Loan; (2) changing the borrower interest rate on new Federal Consolidation Loans
(previously a fixed rate based on the weighted average of the loans
consolidated, rounded up to the nearest whole percent) to the annually variable
rate applicable to Stafford Loans (i.e., the bond equivalent rate at the last
auction in May of 91-day Treasury Bills plus 3.10%, not to exceed 8.25% per
annum); (3) providing that the portion of a Federal Consolidated Loan that is
comprised of Subsidized Stafford Loans retains its subsidy benefits during
periods of deferment; and (4) establishing prohibitions against various forms of
discrimination in the making of Federal Consolidation Loans. Except for the last
of the above changes, all such provisions expired on September 30, 1998. The
combination of the change to a variable rate and the 8.25% interest cap reduced
the lender's yield in most cases below the rate that would have been applicable
under the previous weighted average formula.
Recent Developments -- FY 1998 Budget. In the 1997 Budget Reconciliation
Act (P.L. 105-33), several changes were made to the Higher Education Act that
impact the FFELP. These provisions include, among other things, requiring
federal guarantors to return $1 billion of their reserves to the U.S. Treasury
by September 1, 2002 (to be paid in annual installments), greater restrictions
on use of reserves by federal guarantors and a continuation of the
Administrative Cost Allowance payable to federal guarantors (which is a fee paid
to federal guarantors equal to 0.85% of new loans guaranteed).
Recent Developments -- 1998 Amendments. On May 22, 1998, Congress passed,
and on June 9, 1998, the President signed into law, a temporary measure relating
to the Higher Education Act and FFELP loans as part of the Intermodal Surface
Transportation Efficiency Act of 1998 (the "1998 Amendments") that revised
interest rate changes under the FFELP that were scheduled to become effective on
July 1, 1998. For loans made during the period July 1, 1998 through September
30, 1998, the borrower interest rate for Stafford Loans and Unsubsidized
Stafford Loans is reduced to a rate of 91-day Treasury Bill Rate plus 2.30%
(1.70% during school, grace and deferment), subject to a maximum rate of 8.25%.
As described below, The formula for Special Allowance Payments on Stafford Loans
and Unsubsidized Stafford Loans is calculated to produce a yield to the loan
holder of 91-day Treasury Bill Rate plus 2.80% (2.20% during school, grace and
deferment).
Recent Developments--1998 Reauthorization Bill. On October 7, 1998,
President Clinton signed into law the Higher Education Amendments of 1998 (the
"1998 Reauthorization Bill"), which enacted significant reforms in the FFELP.
The major provisions of the 1998 Reauthorization Bill include the following:
- All references to a "transition" to full implementation of the
Federal Direct Student Loan Program were deleted from the FFELP
statute.
- Guarantor reserve funds were restructured so that federal guarantors
are provided with additional flexibility in choosing how to spend
certain funds they receive.
- Additional recall of reserve funds by the Secretary of Education
(the "Secretary") was mandated, amounting to $85 million in fiscal
year 2002, $82.5 million in fiscal year 2006, and $82.5 million in
fiscal year 2007. However, certain minimum reserve levels are
protected from recall.
- The administrative cost allowance was replaced by two (2) new
payments, a Student Loan processing and issuance fee equal to 65
basis points (40 basis points for loans made on or after October 1,
1993) paid at the time a loan is guaranteed, and an account
maintenance fee of 12 basis points (10 basis points for fiscal years
2001-2003) paid annually on outstanding guaranteed Student Loans.
- The percentage of collections on defaulted Student Loans a federal
guarantor is permitted to retain is reduced from 27% to 24% (23%
beginning on October 1, 2003) plus the
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complement of the reinsurance percentage applicable at the time a claim
was paid to the lender on the Student Loan.
- Federal reinsurance provided to federal guarantors is reduced from
98% to 95% for Student Loans first disbursed on or after October 1,
1998.
- The delinquency period required for a loan to be declared in default
is increased from 180 days to 270 days for loans on which the first
day of delinquency occurs on or after the date of enactment of the
1998 Reauthorization Bill.
- Interest rates charged to borrowers on Stafford Loans, and the yield
for Stafford Loan holders established by the 1998 Amendments, were
made permanent.
- Federal Consolidation Loan interest rates were revised to equal the
weighted average of the loans consolidated rounded up to the nearest
one-eighth of 1%, capped at 8.25%. When the 91-day Treasury Bill
Rate plus 3.1% exceeds the borrower's interest rate, Special
Allowance Payments are made to make up the difference.
- The lender-paid offset fee on Federal Consolidation Loans of 1.05%
is reduced to .62% for Loans made pursuant to applications received
on or after October 1, 1998 and on or before January 31, 1999.
- The Federal Consolidation Loan interest rate calculation was revised
to reflect the rate for Federal Consolidation Loans, and will be
effective for loans on which applications are received on or after
February 1, 1999.
- Lenders are required to offer extended repayment schedules to new
borrowers after the enactment of the 1998 Reauthorization Bill who
accumulate after such date outstanding loans under FFELP totaling
more than $30,000, under these extended schedules the repayment
period may extend up to 25 years subject to certain minimum
repayment amounts.
- The Secretary is authorized to enter into six (6) voluntary flexible
agreements with federal guarantors under which various statutory and
regulatory provisions can be waived.
- Federal Consolidation Loan lending restrictions are revised to allow
lenders who do not hold one of the borrower's Underlying Federal
Loans to issue a Federal Consolidation Loan to a borrower whose
Underlying Federal Loans are held by multiple holders.
- Inducement restrictions were revised to permit federal guarantors
and lenders to provide assistance to schools comparable to that
provided to schools by the Secretary under the Federal Direct
Student Loan Program.
- The Secretary is now required to pay off Student Loan amounts owed
by borrowers due to failure of the borrower's school to make a
tuition refund allocable to the Student Loan.
- Discharge of FFELP and certain other Student Loans in bankruptcy is
now limited to cases of undue hardship regardless of whether the
Student Loan has been due for more than seven (7) years prior to the
bankruptcy filing.
All of the Federal Guarantors will be subject to the new recall of reserves
and reduced reinsurance provisions for federal guarantors. The new recall of
reserves and reduced reinsurance for federal guarantors increases the risk that
resources available to the Federal Guarantors to meet their guarantee
obligations will be significantly reduced.
Consolidation of Federal Benefit Billings and Receipts with Other
Trusts. Due to a Department policy limiting the granting of new lender
identification numbers, the Eligible Lender Trustee is allowed under the Trust
Agreement to permit the Trust, and other trusts established by the Seller to
securitize Student Loans, to use a common Department lender identification
number. The billings submitted to the Department for Interest Subsidy Payments
and Special Allowance Payments on the Financed Student Loans will be
consolidated with the billings for such payments for Student Loans in such other
trusts
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using the same lender identification number and payments on such billings will
be made by the Department in lump sum form. Such lump sum payments will then be
allocated among the various trusts using the lender identification number.
In addition, the sharing of the lender identification number by the Trust
with other trusts may result in the receipt of claim payments by federal
guarantors in lump sum form. In that event, such payments would be allocated
among the trusts in a manner similar to the allocation process for Interest
Subsidy Payments and Special Allowance Payments.
The Department regards the Eligible Lender Trustee as the party primarily
responsible to the Department for any liabilities owed to the Department or
federal guarantors resulting from the Eligible Lender Trustee's activities in
the FFELP. As a result, if the Department or a federal guarantor were to
determine that the Eligible Lender Trustee owes a liability to the Department or
a federal guarantor on any Student Loan for which the Eligible Lender Trustee is
or was legal titleholder, including loans held in the Trust or other trusts, the
Department or such federal guarantor may seek to collect that liability by
offset against payments due the Eligible Lender Trustee under the Trust. In the
event that the Department or a federal guarantor determines such a liability
exists in connection with a trust using the shared lender identification number,
the Department or such federal guarantor would be likely to collect that
liability by offset against amounts due the Eligible Lender Trustee under the
shared lender identification number, including amounts owed in connection with
the Trust.
In addition, other trusts using the shared lender identification number may
in a given quarter incur Federal Origination Fees that exceed the Interest
Subsidy Payments and Special Allowance Payments payable by the Department on the
loans in such other trusts, resulting in the consolidated payment from the
Department received by the Eligible Lender Trustee under such lender
identification number for that quarter being less than the amount owed by the
Department on the loans in the Trust for that quarter.
The Trust Agreement for the Trust and the trust agreements for other trusts
established by the Seller which share the lender identification number to be
used by the Trust (the Trust and such other trusts, collectively, the "Seller
Trusts") will require each Seller Trust (including the Trust) to indemnify the
other Seller Trusts for a shortfall or an offset by the Department or a federal
guarantor arising from the Financed Federal Loans held by the Eligible Lender
Trustee on such Seller Trust's behalf.
Risks Associated with Year 2000 Compliance. The Servicers, the Guarantors,
the Seller, the Administrator, the Eligible Lender Trustee and the Indenture
Trustee utilize a significant number of computer software programs and operating
systems and are highly dependent on computer systems operated by third parties
which include, but are not limited to, their suppliers, customers, brokers and
agents and the telephone, electric and utility companies. To the extent that any
computer system relied upon by the Servicers, the Guarantors, the Seller, the
Administrator, the Eligible Lender Trustee and the Indenture Trustee or any
third party, has software applications and contains source codes that are unable
to appropriately interpret the upcoming calendar year 2000, some level of
modification or replacement of such applications or hardware may be necessary.
The year 2000 issue is the result of prior computer programs being written using
two digits, rather than four digits, to define the applicable year. Any of the
Servicers', the Guarantors', the Seller's, the Administrator's, the Eligible
Lender Trustee's and the Indenture Trustee's computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. Any such occurrence could result in a major computer system
failure or miscalculations. Several federal regulatory agencies, including the
Commission, require the entities that they regulate to take steps to address
problems which may arise in relation to the year 2000.
The Servicers, the Guarantors, the Seller, the Administrator, the Eligible
Lender Trustee and the Indenture Trustee currently are assessing the impact of
modifications or replacements required to adjust for the year 2000. The
Servicers, the Guarantors, the Seller, the Administrator, the Eligible Lender
Trustee and the Indenture Trustee are utilizing both internal and external
resources to identify, correct or reprogram, and test their systems for year
2000 compliance. It is anticipated that all reprogramming efforts and necessary
testing will be completed prior to the year 2000. The Servicers, the Guarantors,
the
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Seller, the Administrator, the Eligible Lender Trustee and the Indenture Trustee
have initiated formal communications with those third parties on whom they will
rely to determine the extent to which the Servicers, the Guarantors, the Seller,
the Administrator, the Eligible Lender Trustee and the Indenture Trustee are
vulnerable to the failure of these third parties to remediate their own year
2000 issue. However, there can be no assurance that the systems of third parties
on which the systems of the Servicers, the Guarantors, the Seller, the
Administrator, the Eligible Lender Trustee and the Indenture Trustee rely will
be converted in a timely fashion, or that a failure to convert by a third party,
or a conversion that is incompatible with the systems of the Servicers, the
Guarantors, the Seller, the Administrator, the Eligible Lender Trustee and the
Indenture Trustee would not have an adverse effect on the business, financial
condition or results of operations of the Servicers, the Guarantors, the Seller,
the Administrator, the Eligible Lender Trustee and the Indenture Trustee,
respectively. The total year 2000 project cost and estimates for the Servicers,
the Guarantors, the Seller, the Administrator, the Eligible Lender Trustee and
the Indenture Trustee include the estimated costs and time associated with the
impact of the third parties' year 2000 issue, and are based on presently
available information. The costs allocated to the year 2000 project are
significant. The costs of the project and the dates on which the Servicers, the
Guarantors, the Seller, the Administrator, the Eligible Lender Trustee and the
Indenture Trustee plan to complete their year 2000 modifications are based on
their best estimates, which were derived utilizing numerous assumptions of
future events including the continued availability of certain resources, third
party modifications plans and other factors. However, there can be no assurance
that these estimates will be achieved and actual results could differ materially
from such estimates. Specific factors that might cause such material differences
include, but are not limited to: (i) the availability and cost of personnel
trained in this area, (ii) the ability to locate and correct all relevant
computer codes and (iii) similar uncertainties.
No assurance can be given that any or all of the systems discussed above,
including the systems of the Servicers, the Guarantors, the Seller, the
Administrator, the Eligible Lender Trustee and the Indenture Trustee, are or
will be year 2000 compliant or that the costs required to address year 2000
issues will not adversely affect the business, financial condition or results of
operations of the respective party or the performance of their obligations under
the Sale and Servicing Agreement. As a result of this potential effect on the
operations of the Servicers, the Guarantors, the Seller, the Administrator, the
Eligible Lender Trustee and the Indenture Trustee, the timely receipt of payment
by the Securityholders may also be adversely affected.
Year 2000 Compliance of the Department. The Department has undertaken a
year 2000 compliance project to address year 2000 issues. Information regarding
the Department's year 2000 efforts can be obtained at the Department's site on
the World Wide Web at http://www.ed.gov. Officials at the Department have made
statements to the public acknowledging that the Department has been placed on
the Office of Management and Budget's "watch list" for not meeting certain
milestones toward year 2000 compliance, but have further indicated that
compliance for the Department's mission-critical systems relating to FFELP are
on schedule for completion by the Office of Management and Budget's March 1999
deadline. Any failure by the Department to resolve any year 2000 issues or any
adverse effect on the Department caused by a party on which the Department
relies as a result of year 2000 issues may have a material adverse effect on
FFELP, the Federal Guarantors and the Securityholders.
Incentive programs. The Seller currently makes available and may hereafter
make available certain incentive programs to borrowers. The effect of these
incentive programs may be to reduce the yield on the Initial Financed Student
Loans or on Additional Student Loans which may be added to the Trust. If any
such incentive program reduces the yield on the affected Student Loan and, with
respect to Financed Federal Loans, is not required by the Higher Education Act,
such program will be applicable to Student Loans in the Trust only if and to the
extent that the Trust receives payment from the Seller in an amount sufficient
to offset such yield reduction.
Inability of Indenture Trustee to Liquidate Financed Student Loans. If an
Event of Default occurs under the Indenture, subject to certain conditions, the
Indenture Trustee is authorized to sell the Financed Student Loans (without the
consent of the Certificateholders). In that event, PHEAA, TERI and certain
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unrelated parties will be given the opportunity, upon 30 days' prior notice, to
bid to purchase the Financed Student Loans and, if any is the highest bidder,
the Financed Student Loans must be sold to that entity. There can be no
assurance, however, that the Indenture Trustee will be able to find a purchaser
for the Financed Student Loans in a timely manner or that PHEAA, TERI or any
other party will submit a bid therefor or that the market value of such Financed
Student Loans would, at any time, be equal to the aggregate outstanding
principal amount of the Securities and accrued interest thereon. In addition, in
the event of (i) any sale of the Financed Student Loans on behalf of the Trust
prior to the Certificate Final Maturity Date to any person (other than the
Seller, the Administrator or the Servicers) in which the purchaser elects to
deconvert the Financed Student Loans and not retain PHEAA or EFS, as applicable,
as Servicer or (ii) any termination by the Trust of PHEAA as Servicer of the
Financed Student Loans it services or EFS as Servicer of the Financed Student
Loans it services, except for any termination for cause or as a result of any
Servicer Default, the Trust shall pay to PHEAA and EFS, as the case may be as a
part of the Servicing Fee (not subject to the Capped Amount) the following
deconversion fee, per Financed Student Loan, based on the status of the Financed
Student Loan at the time of deconversion: (a) $115 for each in-school Stafford
Loan, in-school deferred SLS Loan, Law Loan, Medical Loan, Dental Loan, Business
Loan, Graduate Loan, Bar Exam Loan and Residency Loan (each as described under
"The Student Loan Financing Business -- Federal Loans Under the Programs" and
"-- Private Loans Under the Programs"); and (b) $62.50 for each Financed Student
Loan of any other status or loan type. If the net proceeds of any such sale,
together with amounts then on deposit in the Reserve Account, do not exceed the
aggregate outstanding principal amount of the Securities and accrued interest
thereon, the Securityholders will suffer a loss. In such circumstances, the
Certificateholders would not be entitled to receive any portion of such
proceeds, however, the Certificateholders have certain consent rights relating
to any liquidation of the Financed Student Loans that would result in such
shortfall. In addition, the amount of principal required to be distributed to
Noteholders under the Indenture is generally limited to amounts available to be
so distributed. Therefore, the failure to pay principal on the Notes may not
result in the occurrence of an Event of Default until the Class A-1 Final
Maturity Date, in the case of the Class A-1 Notes and the Class A-2 Final
Maturity Date, in the case of the Class A-2 Notes. See "Description of the
Transfer and Servicing Agreements -- Credit Enhancement."
Failure to Comply with Third-Party Servicer Regulations May Adversely
Affect Loan Servicing. On November 29, 1994, the Secretary of the Department of
Education published final regulations amending the Student Assistance General
Provisions and Federal Family Education Loan Program ("FFELP") regulations.
These regulations, among other things, establish requirements governing
contracts between holders of Federal Loans and third-party servicers, establish
standards of administrative and financial responsibility for third-party
servicers that administer any aspect of a guarantee agency's or lender's
participation in the FFELP and establish sanctions for third-party servicers.
Under these regulations, a third-party servicer (such as the Servicers) is
jointly and severally liable with its client lenders for liabilities to the
Department arising from the servicer's violation of applicable requirements. In
addition, if the servicer fails to meet standards of financial responsibility or
administrative capability included in the regulations, or violates other FFELP
requirements, the regulations authorize the Department to fine the servicer
and/or limit, suspend, or terminate the servicer's eligibility to contract to
service FFELP loans. The effect of such a limitation or termination on the
servicer's eligibility to service loans already on its system, or to accept new
loans for servicing under existing contracts, is unclear. There can be no
assurance that a Servicer will not be fined or held liable by the Department for
liabilities arising out of its FFELP activities for the Trust or other client
lenders, or that its eligibility will not be limited, suspended, or terminated
in the future. If a Servicer were so fined or held liable, or its eligibility
were limited, suspended, or terminated, its ability to properly service the
Financed Federal Loans and to satisfy its obligation to purchase Financed
Federal Loans with respect to which it breaches its representations, warranties
or covenants under the Sale and Servicing Agreement could be adversely affected.
However, in the event of a termination of eligibility, the Sale and Servicing
Agreement provides for the removal of the applicable Servicer and the
appointment of a Successor Servicer.
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Characteristics of the Financed Student Loans Will Vary. Certain
characteristics of the Financed Student Loans will vary from the characteristics
of the Initial Financed Student Loans and the Subsequent Pool Student Loans. The
distribution by weighted average interest rates may vary as a result of
variations in the effective rates of interest applicable to the Financed Student
Loans after each Additional Funding and the remaining term to maturity may vary
significantly from the actual term to maturity as a result of the granting of
deferral and forbearance periods.
Insolvency Risk of Seller. The Seller intends that the transfer of the
Financed Student Loans by it to the Eligible Lender Trustee on behalf of the
Trust under the Sale and Servicing Agreement constitutes a valid sale and
assignment of such Financed Student Loans. However, a court could treat the
transfer of the Financed Student Loans to the Eligible Lender Trustee as an
assignment of collateral as security for the benefit of the Noteholders and the
Certificateholders. If the transfer of the Financed Student Loans to the
Eligible Lender Trustee is deemed to create a security interest therein, a tax
or government lien on property of the Seller arising before the Financed Student
Loans came into existence may have priority over the Eligible Lender Trustee's
interest in such Financed Student Loans and, if the Federal Deposit Insurance
Corporation (the "FDIC") were appointed receiver or conservator of the Seller,
the FDIC's administrative expenses may also have priority over the Eligible
Lender Trustee's interest in such Financed Student Loans. In the event that the
Seller becomes insolvent, the Federal Deposit Insurance Act ("FDIA"), as amended
by the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), sets forth certain powers which the FDIC could exercise if it were
appointed as receiver or conservator of the Seller. Subject to clarification by
FDIC regulations or interpretations, it would appear from the positions taken by
the FDIC that the FDIC, in its capacity as a receiver or conservator for the
Seller, would not interfere with the timely transfer to the Trust of collections
with respect to the Financed Student Loans. To the extent that the transfer of
the Financed Student Loans is deemed to create a security interest, and that
interest was validly perfected before the Seller's insolvency and was not taken
in contemplation of insolvency or with the intent to hinder, delay or defraud
the Seller or its creditors, based upon opinions and statements of policy issued
by the general counsel of the FDIC addressing the enforceability against the
FDIC, as conservator or receiver for a depository institution, of a security
interest in collateral granted by such depository institution, such security
interest should not be subject to avoidance, and payments to the Trust with
respect to the Financed Student Loans should not be subject to recovery by the
FDIC as receiver or conservator of the Seller. If, however, the FDIC were to
assert a contrary position, certain provisions of the FDIA which, at the request
of the FDIC, have been applied in recent lawsuits to avoid security interests in
collateral granted by depository institutions, would permit the FDIC to avoid
such security interest, thereby resulting in possible delays and reductions in
payments on the Notes and the Certificates. In addition, if the FDIC were to
require the Indenture Trustee or the Eligible Lender Trustee to establish its
right to such payments by submitting to and completing the administrative claims
procedure under the FDIA, as amended by FIRREA, delays in payments on the Notes
and the Certificates and possible reductions in the amount of those payments
could occur. See "Certain Legal Aspects of the Financed Student Loans."
In addition, in the event of the occurrence of certain insolvency related
events with respect to the Seller, the Financed Student Loans may be required to
be sold. There can be no assurance, however, that the net sale proceeds will be
sufficient to repay the principal amount of the Notes and the Certificates in
full plus accrued interest thereon. See "Description of the Transfer and
Servicing Agreements -- Insolvency Event."
Custodial Risk of Servicer. Pursuant to the Sale and Servicing Agreement,
the applicable Servicer as custodian on behalf of the Trust, with respect to the
Financed Student Loans it services, will have custody of the promissory notes
evidencing the related Financed Student Loans following the sale of the Financed
Student Loans to the Eligible Lender Trustee. Although the accounts of the
Seller will be marked to indicate the sale and although the Seller will cause
UCC financing statements to be filed with the appropriate authorities, the
Financed Student Loans will not be physically segregated, stamped or otherwise
marked to indicate that such Financed Student Loans have been sold to the
Eligible Lender Trustee. If, through inadvertence or otherwise, any of the
Financed Student Loans were sold to another
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party, or a security interest therein were granted to another party that
purchased (or took such security interest in) any of such Financed Student Loans
in the ordinary course of its business and took possession of such Financed
Student Loans, then the purchaser (or secured party) would acquire an interest
in the Financed Student Loans superior to the interest of the Eligible Lender
Trustee, if the purchaser (or secured party) acquired such Financed Student
Loans without knowledge of the Eligible Lender Trustee's interest. See
"Description of the Transfer and Servicing Agreements -- Sale of Financed
Student Loans; Representations and Warranties" and "--Servicer Covenants."
Insolvency Risk of Servicer or Administrator. In the event of a Servicer
Default or an Administrator Default resulting solely from certain events of
insolvency or bankruptcy that may occur with respect to a Servicer or the
Administrator, a court, conservator, receiver or liquidator may have the power
to prevent either the Indenture Trustee or the Noteholders from appointing a
successor Servicer or Administrator, as the case may be, and delays in
collections in respect of the Financed Student Loans may occur. See "Description
of the Transfer and Servicing Agreements -- Rights Upon Servicer Default and
Administrator Default."
Prepayment Risk from Pre-Funded Amount. On the Closing Date, the Eligible
Lender Trustee on behalf of the Trust will own the $767,111,823.09 outstanding
principal balance of the Initial Financed Student Loans as of the Statistical
Cutoff Date and the $62,180,803.50 aggregate Pre-Funded Amount on deposit in the
Pre-Funding Account. If, as of the Special Determination Date, the Subsequent
Pool Pre-Funded Amount has not been reduced to zero, then the remaining
Subsequent Pool Pre-Funded Amount, if greater than $10,000,000, will be
distributed on the first Distribution Date thereafter to redeem each class of
Notes and prepay the Certificates on a pro rata basis, based on the initial
principal amount of each class of Notes and the initial principal balance of the
Certificates; if such amount is $10,000,000 or less, it will be distributed on
the first Distribution Date only to holders of the Class A-1 Notes.
Although the Seller intends to sell all of the Financed Student Loans
constituting the Subsequent Pool to the Trust on or prior to the Special
Determination Date, because of the potential for a bankruptcy or death of a
borrower subsequent to the Statistical Cutoff Date and other administrative
reasons, the Seller may not be able to sell all such Financed Student Loans to
the Trust. Further, if the sum of (i) the principal amount of eligible Financed
Student Loans originated by the Seller during the Funding Period, net of the
principal amount of the Financed Student Loans sold to the Seller during the
Funding Period in connection with the Seller's making of Consolidation Loans,
and (ii) the amount of Guarantee Fee Advances during the Funding Period is less
than the difference between the initial Pre-Funded Amount and the initial
principal balance of the Subsequent Pool Student Loans as of the related
Subsequent Cutoff Date, the Trust will have insufficient opportunities to make
Additional Fundings, thereby resulting in a prepayment of principal to
Noteholders as described in the following paragraph.
To the extent that the Pre-Funded Amount has not been fully applied to
Additional Fundings by the Trust by the end of the Funding Period, such amount
will be deposited into the Collection Account for distribution on the
immediately following Distribution Date. Such reduction in the Pre-Funded Amount
will result in a corresponding increase in the amount of principal distributable
on the Securities on such Distribution Date. It is anticipated that the amount
of Additional Fundings made by the Trust will not be exactly equal to the amount
on deposit in the Pre-Funding Account and that therefore there will be at least
a nominal amount of principal prepaid to the Noteholders. Any reinvestment risk
will be borne directly by the Noteholders. See also "The Financed Student Loan
Pool -- Maturity and Prepayment Assumptions" regarding the risk to Noteholders
and Certificateholders of prepayment in the event that Consolidation Loans are
made with respect to the Financed Student Loans by the Seller after the Funding
Period or by another lender at any time.
Prepayment, Maturity and Yield Risks. All the Financed Student Loans are
prepayable 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)). The rate
of prepayments on the Financed Student Loans may be influenced by a variety of
economic, social and other factors affecting borrowers, including interest
rates, the availability of alternative financing and
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the general market for legal, medical, dental and other post-graduate
professional services. In addition, under certain circumstances, the Seller will
be obligated to repurchase or the applicable Servicer will be obligated to
purchase Financed Student Loans from the Trust pursuant to the Sale and
Servicing Agreement as a result of breaches of their respective representations,
warranties or covenants. See "Description of the Transfer and Servicing
Agreements -- Sale of Financed Student Loans; Representations and Warranties"
and "-- Servicer Covenants." Moreover, to the extent borrowers of Financed
Student Loans elect to borrow Consolidation Loans with respect to such Financed
Student Loans from the Seller, (i) after the Loan Purchase Termination Date or
(ii) from another lender at any time, Noteholders (and after the Notes have been
paid in full, Certificateholders) will collectively receive as a prepayment of
principal the aggregate principal amount of such Financed Student Loans. There
can be no assurance that borrowers with Financed Student Loans will not seek to
obtain Consolidation Loans with respect to such Financed Student Loans or, if
they do so, that such Consolidation Loans will not be made (x) after the Loan
Purchase Termination Date or (y) by another lender at any time. See "The Student
Loan Financing Business" and "The Financed Student Loan Pool -- Maturity and
Prepayment Assumptions."
The Federal Direct Consolidation Loan Program provides borrowers with the
opportunity to consolidate outstanding student loans at interest rates below,
and income-contingent repayment terms that some borrowers may find preferable
to, those that would be available from the Seller on a loan originated by the
Seller under the Federal Consolidation Loan Program. The lower rate applies only
to borrowers who apply for Student Loans before February 1, 1999. The
availability of such lower-rate, income-contingent loans may decrease the
likelihood that the Seller would be the originator of a Consolidation Loan with
respect to borrowers with Financed Federal Loans, as well as increase the
likelihood that a Financed Federal Loan in the Trust will be prepaid through the
issuance of a Federal Direct Consolidation Loan. Any such prepayments will
result in a more rapid amortization of the Securities then would otherwise be
the case. The volume of existing loans that may be repaid in this fashion is not
determinable at this time.
On the other hand, scheduled payments with respect to, and maturities of,
the Financed Student Loans may be extended, including pursuant to Grace Periods,
Deferral Periods and, under certain circumstances, Forbearance Periods (each as
defined under "The Student Loan Financing Business -- Federal Loans Under the
Programs") or as a result of the conveyance of Serial Loans to the Eligible
Lender Trustee on behalf of the Trust as described herein or of refinancings
through Consolidation Loans having longer maturities, which may lengthen the
remaining term of the Financed Student Loans and the average life of the Notes
and the Certificates. In addition, the stated maturity of many of the Financed
Student Loans will occur well beyond the Final Maturity Date. See "The Student
Loan Financing Business" and "The Financed Student Loan Pool -- Maturity and
Prepayment Assumptions." Any reinvestment risks resulting from a faster or
slower incidence of prepayment of Financed Student Loans will be borne entirely
by the Noteholders and the Certificateholders. See also (i) "Description of the
Transfer and Servicing Agreements -- Additional Fundings" regarding the
prepayment of principal to holders of Notes and Certificates if, as of the
Special Determination Date the Subsequent Pool Pre-Funded Amount has not been
reduced to zero and the prepayment of principal to holders of the Notes as a
result of excess funds remaining on deposit in the Pre-Funding Account at the
end of the Funding Period, (ii) "-- Insolvency Event" regarding the sale of the
Financed Student Loans if a Seller Insolvency Event occurs and (iii)
"-- Termination" regarding the Seller's option to purchase the Financed Student
Loans when the Pool Balance is less than or equal to 5% of the Initial Pool
Balance and the auction of the Financed Student Loans occurs on or after the
March 2009 Distribution Date. In addition, in the event a TERI Trigger Event
occurs, the holders of Notes and Certificates may receive accelerated payments
of principal. Any reinvestment risk from such accelerated payment of principal
will be borne by the holders of Notes and Certificates receiving such
prepayment.
Any Financed Student Loans remaining in the Trust as of the end of the
Collection Period immediately preceding the March 2009 Distribution Date will be
offered for sale by the Indenture Trustee. If acceptable bids to purchase such
Financed Student Loans on such Distribution Date are received, as described
herein, the proceeds of the sale will be applied on such Distribution Date to
redeem any
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<PAGE> 36
outstanding Notes and to retire any outstanding Certificates on such date. In
addition, if acceptable bids to purchase such Financed Student Loans on such
Distribution Date are not received, the sale of such Financed Student Loans may
occur on a subsequent Distribution Date, as described herein, and applied on
such date to redeem any outstanding Notes and retire any outstanding
Certificates. No assurance can be given as to whether the Indenture Trustee will
be successful in soliciting acceptable bids to purchase the Financed Student
Loans on the March 2009 Distribution Date or any subsequent Distribution Date.
See "Description of the Transfer and Servicing Agreements -- Termination."
Holders of Notes or Certificates should consider, in the case of Notes or
Certificates, as the case may be, purchased at a discount, the risk that a
slower than anticipated rate of principal payments on the Financed Student Loans
could result in an actual yield that is less than the anticipated yield and, in
the case of Notes or Certificates, as the case may be, purchased at a premium,
the risk that a faster than anticipated rate of principal payments on the
Financed Student Loans could result in an actual yield that is less than the
anticipated yield.
Prepayment Risks Differ Between the Notes and the Certificates. Because
(except for certain limited circumstances) the Class A-2 Noteholders will
receive no payments of principal until the Class A-1 Notes have been paid in
full, and the holders of Certificates will receive no payments of principal
until the Class A-2 Notes have been paid in full, the Class A-1 Notes and, to a
lesser extent, the Class A-2 Notes bear relatively greater risk than do the
Certificates of an increased rate of principal repayments with respect to the
Financed Student Loans (whether as a result of voluntary prepayments,
Consolidation Loans or liquidations due to default or breach). In addition, the
Class A-1 Notes generally bear the risk of principal prepayments as a result of
any remaining Pre-Funded Amount at the end of the Funding Period and any
remaining Subsequent Pool Pre-Funding Amount after the Final Subsequent Transfer
Date if either of such amounts is equal to or less than $10,000,000. On the
other hand, Certificateholders, and, to a lesser extent, the Class A-2 Notes
bear a greater risk of delay in the receipt of principal than do Class A-1
Noteholders in the event of a shortfall in Available Funds and in amounts on
deposit in the Reserve Account because the Certificates do not receive principal
distributions from Available Funds until the Class A-2 Notes are paid in full
and the Class A-2 Notes do not receive principal distributions until the Class
A-1 Notes are paid in full.
Variability of Actual Cash Flows. Amounts received with respect to the
Financed Student Loans for a particular Collection Period may vary greatly in
both timing and amount from the payments actually due on the Financed Student
Loans as of such Collection Period for a variety of economic, social and other
factors, including both individual factors, such as additional periods of
deferral or forbearance prior to or after a borrower's commencement of repayment
and the borrower's selection of a repayment option (which may include interest
only payments for certain periods), and general factors, such as a general
economic downturn which could increase the amount of defaulted Student Loans.
Failures by borrowers to pay timely the principal and interest on the Financed
Student Loans will affect the amount of funds available for distribution on a
Distribution Date, which may reduce the amount of principal and interest paid to
the Securityholders on such Distribution Date. In addition, because the funds
available for distribution on any Distribution Date include Interest Subsidy
Payments and Special Allowance Payments on the Financed Federal Loans that are
received during that Collection Period (and which accrued during the prior
Collection Period) and because the Student Loan Rate is based on the amount of
Interest Subsidy Payments and Special Allowance Payments that have accrued
during such Collection Period, a significant increase in the amount of such
payments being made by the Department in respect of the Financed Federal Loans
from one Collection Period to the next (as a result, for example, of a
significant increase in prevailing interest rates) could result in a temporary
shortfall in the funds available for distribution for the given Distribution
Date. In addition, the failure of a Guarantor to timely meet its guarantee
obligations with respect to the Financed Student Loans could also reduce the
amount of funds available for distribution on a given Distribution Date. The
effect of such factors, including the effect on a Guarantor's ability to meet
its guarantee obligations with respect to the Financed Student Loans, or the
Trust's ability to pay principal and interest with respect to the Securities is
impossible to predict.
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<PAGE> 37
Certain incentive programs currently or hereafter made available by the
Seller to borrowers under the Programs may also be made available by a Servicer
to borrowers with Financed Student Loans. Any such incentive program that
effectively reduces borrower payments on Financed Student Loans and is not
required by the Higher Education Act will be applicable to the Financed Student
Loans only if and to the extent that a Servicer receives payment from the Seller
(or Seller deposits or causes a deposit to be made into the Collection Account)
in an amount sufficient to offset such effective yield reductions. See "The
Student Loan Financing Business -- General -- The Graduate Loan
Programs -- Incentive Programs."
Noteholders' Right to Control Upon Certain Defaults may Adversely Affect
Certificateholders. In the event a Servicer Default or an Administrator Default
occurs, the Indenture Trustee or the Noteholders, as described under
"Description of the Transfer and Servicing Agreements -- Rights upon Servicer
Default and Administrator Default," may remove a Servicer or the Administrator,
as the case may be, without the consent of the Eligible Lender Trustee or any of
the Certificateholders. Moreover, only the Indenture Trustee or the Noteholders,
and not the Eligible Lender Trustee or the Certificateholders, have the ability
to remove a Servicer or the Administrator, as the case may be, if a Servicer
Default or an Administrator Default occurs. In addition, the Noteholders have
the ability, with certain specified exceptions, to waive defaults by a Servicer
and the Administrator, including defaults that could materially adversely affect
the Certificateholders. See "Description of the Transfer and Servicing
Agreements -- Waiver of Past Defaults."
Consumer Protection Laws May Affect Enforceability of Student
Loans. Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance. Also, some state laws impose finance charge ceilings and
other restrictions on certain consumer transactions and require contract
disclosures in addition to those required under federal law. These requirements
impose specific statutory liability that could affect an assignee's ability to
enforce consumer finance contracts such as the Student Loans. In addition, the
remedies available to the Indenture Trustee or the Noteholders upon an Event of
Default under the Indenture may not be readily available or may be limited by
applicable state and federal laws. See "Certain Legal Aspects of the Financed
Student Loans."
Basis Risk. Although the interest rate on the Notes and the Certificates
is generally based on the applicable Investor Index it is possible that a
positive spread may not exist between (a) the Student Loan Rate calculated with
respect to any class of Notes or the Certificates and (b) the interest rate on
each class of Notes and the Certificates based on the Investor Index. In such a
case, the interest rate on one or more classes of Notes and the Certificates, as
applicable, for such Distribution Date will be the applicable Student Loan Rate.
See "Description of the Securities -- The Notes -- Distributions of Interest"
and "--The Certificates -- Distributions of Interest." Any Noteholders' Interest
Index Carryover or Certificateholders' Interest Index Carryover arising as a
result of the interest rate on one or more classes of Notes and the Certificates
being determined on the basis of the applicable Student Loan Rate will be paid
on that Distribution Date or on any succeeding Distribution Date to the extent
funds are allocated and available therefor after making all required prior
distributions and deposits with respect to such date. Payment of such amounts,
however, will not be covered, in the case of the Notes, by amounts on deposit in
the Reserve Account or by subordination of distributions in respect of the
Certificates (although distributions of any Certificateholders' Interest Index
Carryover due to Certificateholders will be subordinated to payment of any
Noteholders' Interest Index Carryover due to Noteholders) and, in the case of
the Certificates, by amounts on deposit in the Reserve Account. See "Description
of the Transfer and Servicing Agreements -- Distributions."
Limitations on Credit Ratings of the Securities. It is a condition to the
issuance and sale of each class of Notes and the Certificates that the Notes be
rated in the highest investment rating category and that the Certificates be
rated in one of the four highest investment rating categories by at least two
nationally recognized Rating Agencies. A rating is not a recommendation to
purchase, hold or sell Securities, inasmuch as such rating does not comment as
to market price or suitability for a particular investor. The ratings of the
Securities address the likelihood of the payment of principal on the respective
Final Maturity Dates and the payment of interest on the Securities pursuant to
their terms. However, the
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<PAGE> 38
Rating Agencies do not evaluate, and the ratings of the Securities do not
address, the likelihood of payment of the Noteholders' Interest Index Carryover
or the Certificateholders' Interest Index Carryover. There can be no assurance
that a rating will remain for any given period of time or that a rating will not
be lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances in the future so warrant. In the event that any ratings initially
assigned to any of the Securities were subsequently lowered or withdrawn for any
reason, no person or entity will be obligated to provide any additional credit
enhancement with respect to the Securities. Any reduction or withdrawal of a
rating may have an adverse effect on the liquidity and market price of the
Securities.
Book-Entry Registration -- Beneficial Owners Not Recognized by Trust. Each
class of Securities will initially be represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be registered
in the names of the holders of such Securities or their nominees. Because of
this, unless and until Definitive Securities are issued, holders of the
Securities will not be recognized by the Indenture Trustee or the Eligible
Lender Trustee as "Noteholders" or "Certificateholders," as the case may be (as
such terms are used in the Indenture and the Trust Agreement, respectively).
Hence, until Definitive Securities are issued, holders of such Securities will
only be able to exercise the rights of Securityholders indirectly through DTC,
Cedel or Euroclear and their respective participating organizations. See
"Description of the Securities -- Book-Entry Registration" and "-- Definitive
Securities."
FORMATION OF THE TRUST
THE TRUST
KeyCorp Student Loan Trust 1999-A is a trust formed under the laws of the
State of New York pursuant to the Trust Agreement for the transactions described
in this Prospectus. The Trust will not engage in any activity other than (i)
acquiring, holding and managing the Financed Student Loans and the other assets
of the Trust and proceeds therefrom, (ii) issuing the Certificates and the
Notes, (iii) making payments thereon and (iv) engaging in other activities that
are necessary, suitable or convenient to accomplish the foregoing or are
incidental thereto or connected therewith.
The Trust will be initially capitalized with equity of $34,600,000
excluding amounts deposited in the Reserve Account by the Seller on the Closing
Date, representing the initial principal balance of the Certificates.
Certificates with an original principal balance of approximately $432,500 will
be sold to and retained by the Seller and the remaining Certificates will be
sold to third-party investors that are expected to be unaffiliated with the
Seller, the Servicers, the Guarantors, the Trust or the Department. The equity
of the Trust, together with the proceeds from the sale of the Notes, will be
used by the Eligible Lender Trustee to purchase on behalf of the Trust the
Initial Financed Student Loans from the Seller pursuant to the Sale and
Servicing Agreement and to fund the deposit of the Pre-Funded Amount. The Seller
will use a portion of the net proceeds it receives from the sale of the Initial
Financed Student Loans to make the Reserve Account Initial Deposit. Upon the
consummation of such transactions, the property of the Trust will consist of (a)
a pool of Financed Student Loans, legal title to which is held by the Eligible
Lender Trustee on behalf of the Trust, (b) all funds collected in respect
thereof on or after January 1, 1999, (c) all Assigned Rights with respect to
certain Financed Private Loans contained in such pool, and (d) all moneys and
investments on deposit in the Collection Account, the Pre-Funding Account, the
Escrow Account and the Reserve Account. To facilitate servicing and to minimize
administrative burden and expense, the Servicers will be appointed the
custodians of the promissory notes representing the Financed Student Loans that
each services by the Eligible Lender Trustee.
ELIGIBLE LENDER TRUSTEE
General. The First National Bank of Chicago is the Eligible Lender Trustee
for the Trust under the Trust Agreement. The First National Bank of Chicago
principal offices are located at One First National Plaza, Suite 0126, Chicago,
Illinois 60607 and its New York offices are located at First Chicago Trust
Company of New York, 14 Wall Street, New York, New York 10005. The Eligible
Lender Trustee will acquire on behalf of the Trust legal title to all the
Financed Student Loans acquired from time to time pursuant to the Sale and
Servicing Agreement. The Eligible Lender Trustee on behalf of the Trust will
enter into a Guarantee Agreement with each of the Guarantors with respect to
such Financed Student
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Loans. The Eligible Lender Trustee qualifies as an eligible lender and owner of
all Federal Loans and Private Loans for all purposes under the Higher Education
Act and the Guarantee Agreements. Failure of the Financed Federal Loans to be
owned by an eligible lender would result in the loss of any Guarantee Payments
from any Federal Guarantor and any Federal Assistance with respect to such
Financed Federal Loans. See "The Financed Student Loan Pool -- Insurance of
Student Loans; Guarantors of Student Loans." The Eligible Lender Trustee's
liability in connection with the issuance and sale of the Notes and the
Certificates is limited solely to the express obligations of the Eligible Lender
Trustee set forth in the Trust Agreement and the Sale and Servicing Agreement.
See "Description of the Securities" and "Description of the Transfer and
Servicing Agreements." The Seller plans to maintain normal commercial banking
relations with the Eligible Lender Trustee.
Fees. In consideration for its performance of its obligations under the
Sale and Servicing Agreement, the Eligible Lender Trustee will be entitled to
receive an annual fee of $4,500.
USE OF PROCEEDS
After making the deposit of the Pre-Funded Amount to the Pre-Funding
Account, the balance of the net proceeds from the sale of the Certificates and
the Notes will be paid by the Trust to the Seller in consideration for the
purchase by the Trust of the Initial Financed Student Loans on the Closing Date.
The Seller will use such proceeds paid to it (i) to make the Reserve Account
Initial Deposit and an initial deposit into the Collection Account and (ii) for
general corporate purposes.
THE SELLER, THE ADMINISTRATOR AND THE SERVICERS
THE SELLER AND ADMINISTRATOR
General. Key Bank USA, National Association (the "Bank"), will act as
Seller pursuant to the Sale and Servicing Agreement and Administrator pursuant
to the Administration Agreement. The Bank, a wholly owned subsidiary of KeyCorp,
is a national banking association providing consumer financial services
nationwide, including credit cards, student loans, home equity loans, and
indirect automobile, marine and recreational vehicle loans. Seller, an affiliate
of the Seller, and the predecessor of such affiliate have been collectively
originating graduate student loans since 1990 and student loans in general since
1965.
As of September 30, 1998, the Bank had total assets of approximately $4.73
billion, total liabilities of approximately $3.77 billion and approximately
$0.96 billion in stockholder's equity. As of such date, the Seller had an
aggregate principal amount of student loans outstanding of approximately $2.46
billion, of which approximately $1.69 billion aggregate principal amount
consists of Student Loans originated under various graduate student loan
programs. The principal executive offices of the Bank are located at Key Tower,
127 Public Square, Cleveland, Ohio 44114 and its telephone number is (216)
689-6300.
Services and Fees of Administrator. Pursuant to the Administration
Agreement, the Administrator will be responsible for preparing and filing claim
forms on behalf of the Eligible Lender Trustee for Interest Subsidy Payments and
Special Allowance Payments from the Department and is required to provide
notices and reports and to perform other administrative obligations required by
the Indenture, the Trust Agreement and the Sale and Servicing Agreement. As
compensation for the performance of the Administrator's obligations and as
reimbursement for its expenses related thereto, the Administrator will be
entitled to an administration fee in an amount equal to $3,000 per quarter (the
"Administration Fee") payable by the Trust on each Distribution Date. See
"Description of the Transfer and Servicing Agreements -- Administrator."
THE SERVICERS
PHEAA. Pennsylvania Higher Education Assistance Agency ("PHEAA") is a body
corporate and politic constituting a public corporation and government
instrumentality created pursuant to an act of the Pennsylvania Legislature.
Under its enabling legislation, PHEAA is authorized to issue bonds or notes,
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with the approval of the Governor of the Commonwealth of Pennsylvania for the
purpose of purchasing, making, or guaranteeing loans. Its enabling legislation
also authorizes PHEAA to undertake the origination and servicing of loans made
by PHEAA and others. PHEAA's headquarters are located in Harrisburg,
Pennsylvania with regional offices located throughout Pennsylvania and
additional offices located in California, Delaware and West Virginia. As of
September 30, 1998 it had approximately 2,300 employees.
As of September 30, 1998, PHEAA has outstanding debt and/or credit
facilities (under which the entire aggregate amount of funds available had not
been drawn) in the amount (including amounts drawn or available under such
credit facilities) of approximately $2.3 billion. As of September 30, 1998,
PHEAA owned approximately $1.7 billion outstanding principal amount of student
loans financed with the proceeds of its long-term debt, and had funds available
for acquisition of student loans in the amount of approximately $249 million.
PHEAA has been guaranteeing student loans since 1964 and has guaranteed a
total of approximately $18.1 billion principal amount of Stafford Loans and
approximately $1.8 billion principal amount of PLUS Loans and SLS Loans under
the Higher Education Act. In addition to guaranteeing loans under the Higher
Education Act, PHEAA also operates certain guarantee programs for which it
receives no federal reinsurance. PHEAA has outstanding guarantee obligations of
such loans in the amount of approximately $42.7 million as of September 30,
1998.
PHEAA's two principal servicing products are its full servicing operation
(in which it performs all student loan servicing functions on behalf of its
customers) and its remote servicing operation (in which it provides only data
processing services to its customers that have their own servicing operations).
As of September 30, 1998, PHEAA was servicing under its full service operation
approximately 1.3 million student loan accounts representing approximately $12.6
billion outstanding principal amount for more than 450 customers and under its
remote servicing operation, approximately 725,000 student loans representing
approximately $4.3 billion outstanding principal amount for 5 customers.
The above information relating to PHEAA has been obtained from PHEAA and
the Seller has not conducted any independent verification of such information.
PHEAA has agreed that it will provide a copy of its most recent audited
financial statements to Securityholders upon receipt of a written request
directed to Mr. Tim Guenther, Chief Financial Officer, Financial Management,
1200 North Seventh Street, Harrisburg, Pennsylvania 17102.
EFS. EFS Services, Inc. ("EFS") is a wholly-owned subsidiary of EFS, Inc.,
which is a private, employee-owned company headquartered in Indianapolis,
Indiana. The corporation began operations in 1985 for the purpose of servicing
education loans made by financial institutions under the Higher Education Act to
student and parent borrowers. EFS employs approximately 270 people.
As of September 30, 1998, EFS was servicing approximately $2.8 billion in
student loans representing over 400,000 borrower accounts. It has the ability to
service all Federal Family Education Loan Program (FFELP) loans and currently
maintains relationships with approximately 700 financial institutions and 20
guarantors.
The above information relating to EFS has been obtained from EFS and the
Seller has not conducted any independent verification of such information. EFS
has agreed that it will provide a copy of its most recent audited financial
statements to Securityholders upon receipt of a written request directed to Mr.
Gary Varner, Chief Financial Officer, 8425 Woodfield Crossing Boulevard,
Indianapolis, Indiana 46240.
Services and Fees of Servicers. Pursuant to the Sale and Servicing
Agreement and except as otherwise expressly assumed by the Administrator, each
of PHEAA and EFS has agreed as a Servicer to service, and perform all other
related tasks with respect to, all the Financed Student Loans acquired by the
Eligible Lender Trustee on behalf of the Trust. PHEAA will be Servicer with
respect to approximately 95.64% of the outstanding principal balance of the
Initial Financed Student Loans and EFS will be the Servicer with respect to
approximately 4.36% of the outstanding principal balance of the Initial Financed
Student Loans. As of the Statistical Cutoff Date, PHEAA will be the Servicer
with respect to approximately 100% of the outstanding principal balance of the
Student Loans in the Subsequent Pool and EFS will be
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the Servicer with respect to approximately 0% of the outstanding principal
balance of the Student Loans in the Subsequent Pool. With respect to the
Financed Student Loans it is servicing for the Trust, each Servicer is required
to perform the services and duties customary to the servicing of Student Loans
it is required to service and to do so in the same manner as such Servicer has
serviced Student Loans on behalf of the Seller and otherwise in compliance with
all applicable standards and procedures. In addition, each Servicer is required
to maintain its eligibility as a third-party servicer under the Higher Education
Act. See "Description of the Transfer and Servicing Agreements -- Servicing
Procedures."
In consideration for performing its obligations under the Sale and
Servicing Agreement, the Servicers will receive, subject to certain limitations
described herein, a monthly fee payable by the Trust on each Monthly Servicing
Payment Date equal to the sum of (i) the Servicing Fee Percentage of the Pool
Balance as of the last day of the preceding calendar month and (ii) in the case
of PHEAA, certain one-time fixed fees for each Financed Student Loan for which a
forbearance period was granted or renewed or for which a guarantee claim was
filed, in each case subject to certain adjustments, together with other
administrative fees and similar charges. See "Description of Transfer and
Servicing Agreements -- Servicing Compensation."
THE STUDENT LOAN FINANCING BUSINESS
GENERAL
The Student Loans to be sold by the Seller to the Eligible Lender Trustee
on behalf of the Trust pursuant to the Sale and Servicing Agreement have been
selected from Student Loans originated by the Seller under various loan programs
("Graduate Loan Programs") and made to students enrolled in or recently
graduated from approved or accredited law schools, medical schools, dental
schools, graduate business schools or other graduate level certificate or degree
programs ("Graduate Schools"). Legal title to all the Financed Student Loans
that from time to time comprise assets of the Trust will be held by the Eligible
Lender Trustee, as trustee on behalf of the Trust. See "Formation of the
Trust -- Eligible Lender Trustee."
The proceeds of these Student Loans are used by students to finance a
portion of the costs of attending law school, medical school, dental school,
graduate business school and other graduate schools, of preparing for and taking
one or more state bar examinations upon graduation from law school and for
participating in medical or dental residency programs upon graduation from
medical or dental school. As described herein, substantially all payments of
principal and interest with respect to the Financed Federal Loans will be
guaranteed against default, death, bankruptcy or disability of the applicable
borrower by PHEAA pursuant to a guarantee agreement to be entered into between
PHEAA and the Eligible Lender Trustee, by ASA pursuant to a guarantee agreement
to be entered into between ASA and the Eligible Lender Trustee, by NSLP pursuant
to a guarantee agreement to be entered into between NSLP and the Eligible Lender
Trustee, or by ECMC pursuant to a guarantee agreement to be entered into between
ECMC and the Eligible Lender Trustee, (such agreements, each as amended or
supplemented from time to time, the "Federal Guarantee Agreements"). Each of
PHEAA, ASA, NSLP and ECMC is entitled, subject to certain conditions, to be
reimbursed by the Department for all or substantially all Guarantee Payments it
makes pursuant to a program of federal reinsurance under the Higher Education
Act of 1965, as amended (such Act, together with all rules and regulations
promulgated thereunder by the Department and/or the Federal Guarantors, the
"Higher Education Act"). In addition, the Eligible Lender Trustee, as a holder
of the Financed Federal Loans on behalf of the Trust, is entitled to receive
from the Department certain Interest Subsidy Payments and Special Allowance
Payments with respect to certain of such Financed Federal Loans as described
herein. See "-- Federal Loans Under the Programs" and "The Financed Student Loan
Pool -- Insurance of Student Loans; Guarantors of Student Loans."
Payment of principal and interest with respect to the Financed Private
Loans will be guaranteed against default, death, bankruptcy or disability of the
applicable borrower by TERI pursuant to a
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guarantee agreement to be entered into among TERI, the Seller and the Eligible
Lender Trustee, or will be insured by HICA pursuant to surety bonds issued to
Seller and assigned to the Eligible Lender Trustee on behalf of the Trust (such
agreement and surety bonds, each as amended or supplemented from time to time,
the "Private Guarantee Agreements" and, together with the Federal Guarantee
Agreements, the "Guarantee Agreements"). See "-- Private Loans Under the
Programs" and "The Financed Student Loan Pool -- Insurance of Student Loans;
Guarantors of Student Loans." PHEAA, ASA, NSLP, ECMC, TERI and HICA are
sometimes individually referred to herein as a "Guarantor" and collectively as
the "Guarantors." TERI and HICA are collectively referred to herein as the
"Private Guarantors." The discussion herein with respect to Private Loans
includes detail on those Private Loans guaranteed by TERI based on the
standards, requirements and policies of TERI. The Seller believes that the
standards, requirements and policies of HICA with respect to Private Loans
insured by HICA are in material respects similar to those of TERI. HICA will
insure approximately 0.98% of the Initial Financed Student Loans and Subsequent
Pool Student Loans in the aggregate.
The description and summaries of the Higher Education Act, the Federal
Programs, the Guarantee Agreements and the other statutes, regulations and
documents referred to in this Prospectus do not purport to be comprehensive, and
are qualified in their entirety by reference to each such statute, regulation or
document (and, with respect to the Guarantee Agreements, by references to the
forms of such agreements, if any, included as exhibits to the Registration
Statement). There can be no assurance that future amendments or modifications
will not materially change any of the terms or provisions of the programs
described in this Prospectus or of the statutes and regulations implementing
these programs. See "Risk Factors -- Changes in Legislation May Adversely Affect
Financed Student Loans and Guarantors."
THE GRADUATE LOAN PROGRAMS
General. The Graduate Loan Programs (the "Programs") provide educational
financing to graduate and professional students enrolled in or recently
graduated from approved or accredited law schools, medical schools, dental
schools, graduate business schools and other graduate schools. The Programs
originally targeted law school students but have been expanded over the years to
include virtually all graduate level fields of study. The Seller (or its
predecessors) has been originating loans under the Programs since 1990. The
Programs consist of Student Loans which are guaranteed by PHEAA, ASA, NSLP, or
ECMC and are reinsured by the Department ("Federal Loans") and Student Loans
which are guaranteed or insured by TERI or HICA but are not reinsured by the
Department or any other governmental entity ("Private Loans"). As described
below, Federal Loans include "Stafford Loans," "SLS Loans" and "Federal
Consolidation Loans" and Private Loans include loans related to each of the
above-mentioned fields of study (including Bar Exam Loans and Residency Loans)
and "Private Consolidation Loans."
Eligibility. To be eligible to obtain a loan under the Programs (other
than a Consolidation Loan, bar examination loan or residency loan), a student
must, among other things, (i) be enrolled in, or admitted for enrollment in, an
approved or accredited graduate school, (ii) be enrolled in, or admitted for
enrollment in an acceptable degree program, be attending at least half-time and
be making satisfactory progress toward the completion of such program according
to the standards of the school, (iii) be a U.S. citizen, U.S. national or
eligible non-citizen, (iv) not have borrowed, together with the loan being
requested, more than the applicable annual and aggregate limits specified from
time to time under the Programs, (v) meet the program credit criteria
established by the lender and (vi) not be in default on any education loan or
owe a refund on an educational grant (each such student, an "Eligible Student").
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The following table sets forth the approved or accredited schools and the
acceptable degree programs for each graduate field of study:
<TABLE>
<CAPTION>
ACCEPTABLE
FIELD OF STUDY APPROVED/ACCREDITED SCHOOLS DEGREE PROGRAMS
-------------- --------------------------- ---------------
<S> <C> <C>
Law American Bar Association approved law schools that Juris Doctor of Law
are members of LSAC or other joint degree
program
Medical Liaison Committee on Medical Education or American Medical Doctor or
Osteopathic Association accredited graduate Doctor of Osteopathy
medical schools
Dental American Dental Association accredited dental Graduate dental
schools program
Business American Assembly of Collegiate Schools of Graduate business
Business ("AACSB") accredited graduate business program
schools; or AACSB candidate schools accredited by
the New England Association of Schools and
Colleges, the Middle States Association of
Colleges and Schools, the North Central
Association of Colleges and Schools, the Southern
Association of Colleges and Schools, the Western
Association of Schools and Colleges, or the North
West Association of Schools and Colleges
Graduate Schools accredited by the New England Association Graduate level
of Schools and Colleges, the Middle States certificate or degree
Association of Colleges and Schools, The North program
Central Association of Colleges and Schools, the
Southern Association of Colleges and Schools, the
Western Association of Schools and Colleges, or
the North West Association of Schools and Colleges
</TABLE>
In addition, a law student may also receive a bar examination loan ("Bar
Exam Loan") to finance the costs of preparing for and taking one or more state
bar examinations if such student has applied for the loan within a limited
period before or after graduation. A medical or dental student may also receive
a residency loan ("Residency Loan") to finance the cost of participating in one
or more medical or dental residency programs if such student has applied for the
loan within a limited period before or after graduation. Under current Programs
rules, a student is not required to have existing Student Loans outstanding
under the Programs in order to receive a bar examination or residency loan.
Origination Process. The Higher Education Act specifies rules regarding
loan origination practices, which lenders must comply with in order for their
Federal Loans to be guaranteed and to be eligible to receive Federal Assistance.
Lenders are prohibited from offering points, premiums, payments or other
inducements, directly or indirectly, to any educational institution, guarantee
agency or individual in order to secure loan applications, and no lender may
conduct unsolicited mailings of student loan applications to students who have
not previously received student loans from that lender.
With respect to all Student Loans made under the Programs (other than
Consolidation Loans discussed below), the Seller forwards each application for
such Student Loans (which should include an executed promissory note) to either
a marketing agent or the Seller's origination department in Boston,
Massachusetts. On behalf of the Seller, either the marketing agent or the
origination department reviews each application to confirm its completeness, to
confirm that the applicant is an Eligible Student and that such loan complies
with certain other conditions of the Programs. In addition, a credit report of
each applicant for Private Loans is obtained from an applicable credit reporting
service, which the Seller then uses to determine, in consultation with TERI in
the case of those Private Loans that would be guaranteed
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by TERI, whether such applicant satisfies certain specified credit underwriting
criteria. Such criteria with respect to such Private Loans include that the
credit report shows that no account has been more than 90 days delinquent in the
past two years, that no more than one account is currently more than 60 days
delinquent, that no account has been charged-off in the past two years, that
there is no record of a bankruptcy in the past seven years and that there has
been no foreclosure, repossession, open judgment or suit, unpaid prior
educational debt or negative public credit items in the past six years. Such
credit criteria for the 1994-1995 Program Year also include requirements that no
account has been delinquent 90 or more days in the past five years (or three
years with respect to any previous borrower), and there have been no more than
three inquiries (and none with respect to a previous borrower) to an authorized
credit reporting agency in the past six months. The credit criteria for the
1997-1998 Program Year includes the additional requirement that no more than two
accounts have been more than 60 days delinquent in the past two years. The
marketing agent or origination department forwards a copy of each application
that satisfies the foregoing reviews to the respective Guarantor (with the
exception of HICA), who reviews such application to determine that such
application satisfies all applicable conditions, including the foregoing, for
the loan to be eligible to receive Guarantee Payments, subject to compliance
with the terms of the applicable Guarantee Agreement, including the proper
servicing of the loan. Upon approval of an application by either the marketing
agent or the origination department and the applicable Guarantor (and approval
by the Seller, in the case of all Private Loans) and receipt of evidence from
such Guarantor that the applicable loan is guaranteed, the Seller causes the
proceeds of such loan to be disbursed in one or more installments. For each loan
that is made, the marketing agent or the origination department forwards the
completed loan application and executed promissory note to the designated
Servicer, which serves as custodian for such materials.
Any borrower inquiries concerning Consolidation Loans received by the
marketing agent or the Seller are forwarded to the appropriate Servicer, who
contacts the borrower, prepares and sends to the borrower an application (which
includes a promissory note) for a Consolidation Loan for the borrower's review
and signature. Although the borrower is permitted to choose any lender to make a
Federal Consolidation Loan, if the borrower has multiple lenders, borrowers
typically express no preference as to the identity of the lender. In that event,
each Servicer is required under the Programs to choose the lender that has the
highest balance of the loans to be consolidated or, if there is no such lender,
the lender that has made the most recent loan to the borrower to be
consolidated. Pursuant to the Programs, the Servicers are required to obtain
certifications from the lenders of the loans to be consolidated and to review
the loan application and the certifications to confirm that the borrower is
eligible for a Federal Consolidation Loan or Private Consolidation Loan, as the
case may be. Upon approval of an application for a Consolidation Loan the
applicable lender causes the proceeds of such Consolidation Loan to be disbursed
to each lender of the loans being consolidated in amounts sufficient to retire
each of such loans. For each Consolidation Loan that is made by the Seller, a
Servicer retains the completed loan application and executed promissory note as
custodian.
Servicing and Collections Process. The Higher Education Act, the Programs,
the applicable Guarantee Agreements and the requirements and policies of the
applicable Guarantor require the holder of Student Loans to cause specified
procedures, including due diligence procedures and the taking of specific steps
at specific intervals, to be performed with respect to the servicing of the
Student Loans that are designed to ensure that such Student Loans are repaid on
a timely basis by or on behalf of borrowers. Each Servicer performs such
procedures on behalf of the Seller and has agreed, pursuant to the Sale and
Servicing Agreement, to perform specified and detailed servicing and collection
procedures with respect to the Financed Student Loans on behalf of the Trust.
Such procedures generally include periodic attempts to contact any delinquent
borrower by telephone and by mail, commencing with a written notice at the tenth
day of delinquency and including multiple written notices and telephone calls to
the borrower thereafter at specified times during any such delinquency. All
telephone calls and letters are automatically registered, and a synopsis of each
call or the mailing of each letter is noted in each Servicer's loan file for the
borrower. Each Servicer is also required to perform skip tracing procedures on
delinquent borrowers whose current location is unknown, including contacting
such borrowers' schools and references. Failure to comply with the established
procedures could adversely affect the ability of the
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Eligible Lender Trustee, as holder of legal title to the Financed Student Loans
on behalf of the Trust, to realize the benefits of any Guarantee Agreement or to
receive the benefits of Federal Assistance from the Department with respect
thereto. Failure to comply with certain of the established procedures with
respect to a Financed Federal Loan may also result in the denial of coverage
under a Guarantee Agreement for certain accrued interest amounts, in
circumstances where such failure has not caused the loss of the guarantee of the
principal of such Financed Federal Loan. See "Risk Factors -- Risk of Loss of
Federal Guarantor and Department Payments for Failure to Comply with Loan
Origination and Servicing Procedures for Federal Loans" and "-- Risk of Loss of
Private Guarantor Payments for Failure to Comply with Loan Origination and
Servicing Procedures for Private Loans."
At prescribed times prior to submitting a claim for payment under a
Guarantee Agreement for a delinquent Financed Student Loan, each Servicer is
required to notify the applicable Guarantor of the existence of such
delinquency. These requests notify the Guarantors of seriously delinquent
accounts and allow the Guarantors to make additional attempts to collect on such
loans prior to the filing of claims. If a loan is delinquent for 180 days (in
the case of Federal Loans made prior to the enactment date of the 1998
Reauthorization Bill), 270 days (in the case of Federal Loans made on or after
October 7, 1998), or 150 days (in the case of Private Loans guaranteed by TERI),
each Servicer may file a default claim with the respective Guarantor. Failure to
file a claim within 270 days (in the case of Federal Loans made prior to the
enactment date of the 1998 Reauthorization Bill), 360 days (in the case of
Federal Loans made on or after October 7, 1998), or 180 days (in the case of
Private Loans guaranteed by TERI) of delinquency may result in denial of the
guarantee claim with respect to such loan. Each Servicer's failure to file a
guarantee claim in a timely fashion would constitute a breach of its covenants
and create an obligation of such Servicer to purchase the applicable Financed
Student Loan. See "Description of the Transfer and Servicing
Agreements -- Servicer Covenants."
Incentive Programs. The Seller has offered, and may continue to offer,
incentive programs to certain Student Loan borrowers. Two such programs are
currently made available by the Seller and may apply to Student Loans owned by
the Trust. These incentive programs currently or hereafter made available by the
Seller to borrowers under the Programs may also be made available by each
Servicer to borrowers with Financed Student Loans. Any such incentive program
that effectively reduces borrower payments on Financed Student Loans and, with
respect to Financed Federal Loans, is not required by the Higher Education Act
will be applicable to the Financed Student Loans only if and to the extent that
the Trust receives payment from the Seller (or Seller deposits or causes a
deposit to be made into the Collection Account) in an amount sufficient to
offset such effective yield reductions.
FEDERAL LOANS UNDER THE PROGRAMS
General. The following descriptions of the Federal Stafford Loan Program,
the Federal Supplemental Loans for Students Program and the Federal
Consolidation Loan Program (such programs being collectively referred to herein
as the "Federal Programs") as authorized under the Higher Education Act are
qualified in their entirety by reference to the Higher Education Act. Since its
original enactment in 1965, the Higher Education Act has been amended and
reauthorized several times, including by the Higher Education Amendments of 1992
(the "1992 Amendments"). The 1992 Amendments extended the principal provisions
of the Federal Programs to September 30, 1998 (or, in the case of borrowers who
have received Federal Loans prior to that date, September 30, 2002), and the
1998 Reauthorization Bill further extended the principal provisions of the
Federal Programs through June 30, 2003.
There can be no assurance that the Higher Education Act or other relevant
federal or state laws, rules and regulations and the programs implemented
thereunder will not be amended or modified in the future in a manner that will
adversely impact the programs described in this Prospectus and the Student Loans
made thereunder, including the Financed Student Loans, or the Guarantors. In
addition, future measures to reduce any future federal budget deficit or for
other purposes may adversely affect the amount and nature of federal financial
assistance available with respect to these programs. In recent years, federal
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 legislation
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or administrative actions will not adversely affect expenditures by the
Department or the financial condition of the Federal Guarantors. For a
discussion of each Federal Guarantor's claims-paying ability, see "The Financed
Student Loan Pool -- Insurance of Student Loans; Guarantors of Student Loans."
On August 10, 1993, President Clinton signed the Omnibus Budget
Reconciliation Act of 1993, which made a number of changes that may adversely
affect the financial condition of the Federal Guarantors. One such change
included 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 Federal
Guarantors are entitled to receive and/or retain and giving the Department broad
powers over Federal Guarantors and their reserves. These powers include the
authority to require a Federal Guarantor to return all reserve funds to the
Department if the Department determines such action is necessary to serve the
best interests of the student loan programs to ensure the proper maintenance of
such Federal Guarantor's funds or assets. The Department is also now authorized
to direct a Federal Guarantor to return a portion of its reserve funds which the
Department determines is unnecessary to pay the program expenses and contingent
liabilities of the Federal Guarantor and/or to cease any activities involving
the use of the Federal Guarantor's reserve funds or assets which the Department
determines is a misapplication or otherwise improper. The Department may also
terminate a Federal Guarantor's reinsurance agreement if the Department
determines that such action is necessary to protect the federal fiscal interest.
These various changes create a significant risk that the resources available to
the Federal Guarantors to meet their guarantee obligations will be significantly
reduced. In addition, this legislation sought to greatly expand the Federal
Direct Student Loan Program volume to a target of approximately 60% of student
loan demand in academic year 1998-1999, although only about 35% of such loan
demand is currently being met under the direct lending program. The expansion of
this program in the future could result in increasing reductions in the volume
of loans made under the Federal Programs. Under the Federal Direct Student Loan
Program, the Department directly originates and holds student loans without the
involvement of private lenders.
The 1998 Reauthorization Bill created additional risks that the resources
available to the Federal Guarantors to meet their guarantee obligations will be
further reduced in the future, by mandating additional recall of guarantor
reserves and reducing reinsurance to guarantors from 98% to 95%.
Stafford Loans. "Stafford Loans" are loans made by eligible lenders in
accordance with the Higher Education Act to Eligible Students, based on
financial need, to finance a portion of the costs of attending an eligible
institution of higher education or a vocational school. The Higher Education Act
limits the amount of Stafford Loans that may be made to a student in any given
academic year, the amount a student may have outstanding in the aggregate and
specifies certain payment terms, including the interest rates that may be
charged on Stafford Loans. Holders of Stafford Loans complying with these
limitations and the other conditions specified in the Higher Education Act will
be entitled to the benefits of: (i) a guarantee of the payment of principal and
interest with respect to such Stafford Loans by a guarantee agency (PHEAA, ASA,
NSLP or ECMC in the case of the Financed Federal Loans), which guarantee will be
supported by federal reinsurance of all or most of such guaranteed amounts as
described herein; (ii) federal interest subsidy payments equal to the interest
payable on such Stafford Loans prior to the time the borrower begins repayment
of such Stafford Loans and during any applicable Deferral Periods, together with
interest on any such amounts not paid by the Department when due ("Interest
Subsidy Payments"), and (iii) federal special allowance payments, in varying
amounts, during the term of such Stafford Loans to ensure that interest payable
on such Stafford Loans approximates current market interest rates, together with
interest on any such amounts not paid by the Department when due ("Special
Allowance Payments"), (such federal reinsurance obligations, together with those
obligations referred to in clauses (ii) and (iii) above, being collectively
referred to herein as "Federal Assistance").
The Initial Financed Federal Loans and certain Subsequent Pool Student
Loans include Stafford Loans that do not qualify for Interest Subsidy Payments
but otherwise qualify for all other forms of Federal Assistance ("Unsubsidized
Stafford Loans"). These loans are identical to Stafford Loans in all material
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respects, except that interest accruing thereon during periods when the borrower
is in school or in a Deferral Period or Grace Period is either paid periodically
by the borrower during such periods or added periodically to the principal
balance of the loan by the holder thereof. A borrower qualifies for an
Unsubsidized Stafford Loan if, and to the extent that, the borrower's need for a
Stafford Loan, as calculated pursuant to the Higher Education Act, is more than
the maximum Subsidized Stafford Loan authorized by statute.
(1) Eligibility Requirements. Subject to the annual and aggregate limits
on the amount of Stafford Loans that a student can borrow discussed below,
Stafford Loans are available to eligible students (who, in the case of law
school, medical school, dental school, graduate business school and other
graduate school students, constitute Eligible Students) in amounts not exceeding
their unmet need for financing as determined in accordance with the provisions
of the Higher Education Act.
In addition to complying with the borrower's eligibility requirements set
forth above under the caption "-- The Graduate Loan Programs," each Stafford
Loan (i) must be unsecured, (ii) must provide for deferral of the obligation of
the borrower to make (x) interest payments for as long as the Department makes
Interest Subsidy Payments and (y) principal payments so long as the borrower
remains an Eligible Student and thereafter during any applicable Grace Periods,
Deferral Periods or Forbearance Periods and (iii) must provide for repayment
over a period not to exceed 10 years (excluding any Deferral Periods or
Forbearance Periods) from the date repayment commences.
(2) Loan Limits. In order to qualify for Federal Assistance under the
Federal Stafford Loan Program, the Higher Education Act imposes an annual limit
on the amount of Stafford Loans and other Federal Loans that may be made to any
single student and an aggregate limit on the amount of such Federal Loans such
student may have outstanding. For the time periods applicable to the Financed
Federal Loans, the annual and aggregate limitations are as follows: such student
can borrow no more than $7,500 per year of Stafford Loans (subsidized and
unsubsidized) and cannot have outstanding Federal Loans (but excluding for this
purpose SLS Loans and loans made under the Parent Loans to Undergraduate
Students program) in excess of $54,750 at any one time (or $65,500, for loans
first disbursed on or after July 1, 1993). On July 1, 1993, the annual
limitation for Unsubsidized Stafford Loans was increased to $10,000, and the
graduate student aggregate loan limit amount was increased to $138,500, not to
exceed $65,500 in subsidized loans. On October 1, 1993, the annual limitation
for subsidized Stafford Loans was increased to $8,500. As a result of both
revisions, a graduate student may borrow up to $18,500 per year of Stafford
Loans (subsidized and unsubsidized). On August 15, 1996, the Secretary
authorized higher annual (but not aggregate) Unsubsidized Stafford Loan limits
for certain new health professions student borrowers to compensate for
restrictions recently enacted by Congress on the ability of those students to
borrow under other federal loan programs. As a result, some Unsubsidized
Stafford Loans sold into the Trust made for periods of enrollment beginning on
or after July 1, 1996 may reflect the higher limits.
(3) Interest. Stafford Loans made to students with respect to periods of
enrollment commencing prior to July 1, 1988 (or thereafter to students who had
Federal Loans outstanding on such date), bear interest at either 7%, 8% or 9%
per annum, depending on the date of issuance and the interest rate applicable to
such student's outstanding Federal Loans. Except as noted in the next paragraph,
for the time periods applicable to the Financed Federal Loans, Stafford Loans
made on or after July 1, 1988, to students with no outstanding Federal Loans on
the date such Stafford Loan is made ("new borrowers"), bear interest at rates of
8% per annum from disbursement through four years after repayment commences and
at a variable rate reset each July 1 equal to the 91-day Treasury Bill Rate plus
3.25% or, for Stafford Loans to such borrowers which are first disbursed after
July 23, 1992, 3.10%, not to exceed 10% per annum thereafter. The rate for
variable rate Stafford Loans applicable for any 12-month period beginning on
July 1 and ending on June 30 is determined on the preceding June 1 and is equal
to the lesser of (a) the applicable maximum rate and (b) the sum of (i) the bond
equivalent rate of 91 day Treasury bills auctioned at the final auction held
prior to such June 1 and (ii) the applicable interest rate margin.
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A Stafford Loan made on or after October 1, 1992, to a student with no
outstanding Federal Loans on the date such Stafford Loan is made, bears interest
at a variable rate, based on the 91-day Treasury Bill Rate plus 3.10%, or 9%,
whichever is less. A Stafford Loan made on or after October 1, 1992, to a
student with prior outstanding Federal Loans on the date such Stafford Loan is
made, bears interest at a variable rate, equal to the 91-day Treasury Bill Rate
plus 3.10%, with a maximum rate ranging from 7% to 10% based upon the borrower's
outstanding loans and how long the new Stafford Loan has been in repayment.
Stafford Loans first disbursed on or after July 1, 1995 and prior to July 1,
1998 bear interest at a rate equal to the 91-day Treasury Bill Rate plus 2.50%
while the borrowers are in in-school, grace, or deferment status, and at a rate
equal to the 91-day Treasury Bill Rate plus 3.10% during periods in which the
loan does not qualify for Interest Subsidy Payments. Stafford Loans made on or
after July 1, 1998, bear interest at a rate equal to the 91-day Treasury Bill
Rate plus 1.7% while the borrowers are in in-school, grace, or deferment status,
and at a rate equal to the 91-day Treasury Bill Rate plus 2.3% during repayment
periods, with a cap of 8.25%.
Interest is payable on each Stafford Loan monthly in arrears until the
principal amount thereof is paid in full. However, prior to the date the
borrower begins repaying the principal of such Stafford Loan and during any
applicable Deferral Period, the borrower has no obligation to make interest
payments. Instead, the Department makes quarterly Interest Subsidy Payments to
the holder of the Stafford Loan on behalf of the borrower during such periods,
in amounts equal to the accrued and unpaid interest for the previous quarter
with respect to such Stafford Loan. During a Forbearance Period, the Department
will not make any Interest Subsidy Payments; instead, at the borrower's option,
interest on each Stafford Loan may be paid currently or capitalized and added to
the outstanding principal balance of such Stafford Loan at the end of such
Forbearance Period. See "-- (6) Interest Subsidy Payments."
"91-day Treasury Bill Rate" means, on any date of determination, the
weighted average per annum discount rate (expressed on a bond equivalent basis
and applied on a daily basis) for 91-day Treasury Bills at the most recent
91-day Treasury Bills auction prior to such date as published by the Board of
Governors of the Federal Reserve System or as reported by the U.S. Treasury
Department.
(4) Repayment. No principal and/or interest payments with respect to a
Stafford Loan are required to be made during the time a borrower remains an
Eligible Student and during the existence of an applicable Grace Period,
Deferral Period or Forbearance Period. In general, a borrower must repay each
Stafford Loan in monthly installments over a period of not more than 10 years
(excluding any Deferral Period or Forbearance Period) after commencement of
repayment. New borrowers on or after October 7, 1998 who accumulate outstanding
loans under FFELP totaling more than $30,000, are entitled to extended repayment
schedules of up to 25 years subject to certain minimum repayment amounts. Any
borrower may voluntarily prepay without premium or penalty any Federal Loan and
in connection therewith may waive any Grace Period or Deferral Period. The
Higher Education Act presently requires a minimum annual principal and interest
payment with respect to a Stafford Loan of $600 in the aggregate (but in no
event less than accrued interest), unless the borrower and the lender agree to a
lesser amount. For Stafford Loans and SLS Loans first disbursed on or after July
1, 1993 to a borrower who has no outstanding Federal Loans on the date such loan
is made, the borrower must be offered the opportunity to repay the loan
according to a graduated or income-sensitive repayment schedule established in
accordance with Department regulations. For Stafford Loans entering repayment on
or after October 1, 1995, borrowers may choose among several repayment options,
including the option to make interest only payments for limited periods.
(5) Grace Periods, Deferral Periods, Forbearance Periods. Borrowers of
Stafford Loans must generally commence repaying the loans following a period of
(a) not less than 9 months nor more than 12 months (with respect to loans for
which the applicable interest rate is 7% per annum) and (b) not more than 6
months (with respect to loans for which the applicable interest rate is other
than 7% per annum) (a "Grace Period") after the borrower ceases to be an
Eligible Student. However, subject to certain conditions, no principal
repayments need be made with respect to Stafford Loans during periods when the
borrower has returned to an eligible educational institution on at least a
half-time basis or is pursuing studies pursuant to an approved graduate
fellowship program, during certain other periods
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(varying from six months to three years) when the borrower has joined the
military or certain volunteer organizations (for all loans made prior to July 1,
1993, or loans made after such date to borrowers with loans already outstanding
on such date), for periods when the borrower is unable to secure employment (up
to three years) or for periods during which the borrower is experiencing
economic hardship (for loans made after July 1, 1993, to borrowers with no
outstanding loans on such date) (each, a "Deferral Period"). In addition, the
lender may, and in some circumstances must, allow, in accordance with standards
and guidelines approved by the applicable guarantor and the Department, periods
of forbearance during which the borrower may defer principal and/or interest
payments because of temporary financial hardship (a "Forbearance Period").
(6) Interest Subsidy Payments. Interest Subsidy Payments are payments made
quarterly to the holder of a subsidized Stafford Loan by the Department with
respect to those Stafford Loans as to which the applicable conditions of the
Higher Education Act have been satisfied, in an amount equal to the accrued and
unpaid interest on the outstanding principal amount of each Stafford Loan for
such quarter, commencing from the date such Stafford Loan is made until the end
of the applicable Grace Period after the borrower ceases to be an Eligible
Student and during any applicable Deferral Period. The Department will not make
Interest Subsidy Payments during any Forbearance Period. The Higher Education
Act provides that the holder of such a qualifying Stafford Loan has a
contractual right against the United States, to receive Interest Subsidy
Payments from the Department (including the right to receive interest on any
Interest Subsidy Payments not timely paid). Receipt of Interest Subsidy Payments
is conditioned on compliance with the requirements of the Higher Education Act,
including satisfaction of certain need-based criteria (and the delivery of
sufficient information by the borrower and the lender to the Department to
confirm the foregoing) and continued eligibility of the Stafford Loan for
federal reinsurance. Such eligibility may be lost, however, if the loans are not
originated and serviced, or are not held by an eligible lender, in accordance
with the requirements of the Higher Education Act and the applicable guarantee
agreements. See "-- (1) Eligibility Requirements"; "Risk Factors -- Risk of Loss
of Federal Guarantor and Department Payments for Failure to Comply with Loan
Origination and Servicing Procedures;" "Formation of the Trust -- Eligible
Lender Trustee" and "Description of the Transfer and Servicing
Agreements -- Servicing Procedures." The Seller expects that each of the
subsidized Stafford Loans that are part of the pool of Financed Student Loans
will be eligible to receive Interest Subsidy Payments.
(7) Special Allowance Payments. The Higher Education Act requires, subject
to certain conditions, the Department to make quarterly Special Allowance
Payments to holders of qualifying Federal Loans (including Stafford Loans), in
an amount equal to a specified percentage of the average outstanding principal
amount of each such Federal Loan during each quarter.
The percentage or rate used to determine the Special Allowance Payments for
a particular loan varies based on a number of factors, including when the loan
was disbursed and the period of enrollment with respect to which it was made.
Generally, the Special Allowance Payment with respect to a loan such as any
Financed Federal Loan for a quarter will be equal to the excess, if any, of (i)
the amount of interest that would be payable on such loan at a rate per annum
equal to the average bond equivalent rates of (x) 91-day Treasury bills
auctioned for such quarter plus 3.25% (3.10% for loans first disbursed on or
after October 1, 1992) or (y) for loans first disbursed on or after July 1,
1998, 91-day Treasury bills auctioned for such quarter plus 2.2% while borrowers
are in in-school, grace, or deferment status, or 2.8% while borrowers are in the
repayment period, over (ii) the stated amount of interest payable on such loan.
The Higher Education Act provides that a holder of a qualifying loan who is
entitled to receive Special Allowance Payments has a contractual right against
the United States to receive those Special Allowance Payments (including the
right to receive interest on any Special Allowance Payments not timely paid).
Receipt of Special Allowance Payments, however, is conditioned on compliance
with the requirements of the Higher Education Act, including satisfaction of
certain need-based criteria (and the delivery of sufficient information by the
borrower and the lender to the Department to confirm the foregoing) and
continued eligibility for federal reinsurance. Such eligibility may be lost,
however, if the loans are not
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originated and serviced, or are not held by an eligible lender, in accordance
with the requirements of the Higher Education Act and the applicable guarantee
agreement. See "-- (1) Eligibility Requirements"; "Risk Factors -- Risk of Loss
of Federal Guarantor and Department Payments for Failure to Comply with Loan
Origination and Servicing Procedures;" "Formation of the Trust -- Eligible
Lender Trustee" and "Description of the Transfer and Servicing
Agreements -- Servicing Procedures." The Seller expects that each of the
Stafford Loans that are part of the pool of Financed Student Loans will be
eligible to receive Special Allowance Payments, if any are payable from time to
time.
Interest Subsidy Payments and Special Allowance Payments are generally
received within 45 to 60 days after submission to the Department of the
applicable claims forms for any given calendar quarter, although there can be no
assurance that such payments will in fact be received from the Department within
that period. See "Risk Factors -- Inability of Indenture Trustee to Liquidate
Financed Student Loans" and "--Variability of Actual Cash Flows." The
Administrator has agreed to prepare and file with the Department all such claims
forms and any other required documents or filings on behalf of the Eligible
Lender Trustee as owner of the Financed Federal Loans on behalf of the Trust.
The Administrator has also agreed to assist the Eligible Lender Trustee in
monitoring, pursuing and obtaining such Interest Subsidy Payments and Special
Allowance Payments, if any, with respect to such Financed Federal Loans. Except
under certain conditions described herein, the Eligible Lender Trustee will be
required to remit Interest Subsidy Payments and Special Allowance Payments it
receives with respect to the Financed Federal Loans within two Business Days of
receipt thereof to the Collection Account.
SLS Loans. In addition to the Federal Stafford Loan Program, the Higher
Education Act provides a separate program to facilitate additional loans to
graduate and professional students and independent undergraduate students. This
program is referred to as the "Federal Supplemental Loans for Students Program"
(the "SLS Program"). The basic framework and principal provisions of the Federal
Stafford Loan Program as described above are similar in many respects to those
that are applicable to loans under the SLS Program ("SLS Loans"). In particular,
SLS Loans are subject to similar eligibility requirements and, provided that
such requirements are satisfied, are entitled to the same guarantee and federal
reinsurance arrangements. SLS Loans differ significantly from Stafford Loans,
however, in the context of the Interest Subsidy Payments and Special Allowance
Payments discussed above.
The annual and aggregate limitations that are applicable to SLS Loans in
the case of those constituting Financed Student Loans are as follows: SLS Loans
to a single borrower cannot exceed $4,000 per academic year (or $10,000 for
loans first disbursed on or after July 1, 1993) and $20,000 in aggregate
principal amount (or $73,000 for loans first disbursed on or after July 1, 1993)
(exclusive of any capitalized interest) at any one time outstanding. SLS Loans
are also limited, generally, to the cost of attendance minus other financial aid
for which the borrower is eligible. A determination of a borrower's eligibility
for the Federal Stafford Loan Program, among other programs, is a condition to
the making of an SLS Loan.
As specified by the Higher Education Act, the applicable interest rate for
an SLS Loan depends upon the date of issuance of the loan and the period of
enrollment for which the loan is made. The interest rate per annum for SLS Loans
made and disbursed on or after July 1, 1987 is fixed each July 1 for each
succeeding 12-month period at a rate equal to the sum of (i) the bond equivalent
rate of 52-week Treasury bills auctioned at the final auction held prior to the
preceding June 1 and (ii) 3.25% (3.10% for loans first disbursed on and after
October 1, 1992), with a maximum rate of 12% per annum (11% for loans first
disbursed on or after October 1, 1992).
Although holders of SLS Loans are not entitled to receive Interest Subsidy
Payments with respect thereto, interest on such SLS Loans accrues from the date
each such SLS Loan is made and may either be paid currently by a borrower or may
be capitalized and added to the outstanding principal amount of such SLS Loan at
the time the borrower begins repayment. SLS Loans are eligible for Special
Allowance Payments only if and to the extent that the interest rate for such SLS
Loans calculated based on the 52-week Treasury bill rate referred to above would
exceed the applicable maximum borrower interest rate. Because the basis for
determining the amount, if any, of Special Allowance Payments due to lenders
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<PAGE> 51
is based on the 91-day Treasury Bill Rate while the interest rate for SLS Loans
is based on the 52-week Treasury bill rate (which may differ from the 91-day
Treasury Bill Rate), there can be no assurance that any Special Allowance
Payments will be due and payable with respect to SLS Loans even though such SLS
Loans are deemed to be eligible therefor. See "-- (7) Special Allowance
Payments."
A borrower of an SLS Loan is required to begin repayment of the principal
of such SLS Loan within 60 days after the date the last installment of such SLS
Loan is advanced, subject to deferral so long as such borrower remains an
Eligible Student or as a result of any applicable Deferral Period or Forbearance
Period. In addition, any borrower of an SLS Loan made and advanced after July
23, 1992, who also has Stafford Loans outstanding may defer commencing repayment
of such SLS Loan for the Grace Period applicable to such Stafford Loans. For SLS
Loans entering repayment on or after October 1, 1995, borrowers may choose among
several repayment options, including the option to make interest only payments
for limited periods.
As of July 1, 1994, the SLS Program was discontinued and SLS Loans are no
longer made.
Federal Consolidation Loans. The Higher Education Act established a
program to facilitate the ability of eligible borrowers of Stafford Loans or SLS
Loans (each, an "Underlying Federal Loan") to consolidate such Federal Loans,
together with such borrowers' other education loans that are made or guaranteed
by the federal government, into a single loan (a "Federal Consolidation Loan").
Subject to the satisfaction of certain conditions set forth in the Higher
Education Act, including limitations on the timing and payment of principal and
interest with respect to Federal Consolidation Loans and a requirement that the
proceeds of Federal Consolidation Loans are to be used to repay the respective
Underlying Federal Loans (and any other loans consolidated thereunder) of any
borrower, each holder of a Federal Consolidation Loan will be entitled to
substantially the same guarantee and federal reinsurance arrangements as are
available on Stafford Loans and SLS Loans. Federal Consolidation Loans, like
Stafford Loans, are also eligible for Interest Subsidy Payments and Special
Allowance Payments. Under this program, an eligible borrower of Federal
Consolidation Loans such as those that may be Additional Student Loans means a
borrower (i) with outstanding Underlying Federal Loans and (ii) who has begun
repaying, who is in a grace period preceding repayment of, or who is a
delinquent or defaulted borrower who will, through such loan consolidation,
recommence repayment of, such Underlying Federal Loans. A married couple, each
of whom has outstanding Underlying Federal Loans, may apply for and obtain a
single Federal Consolidation Loan so long as both individuals agree to be held
jointly and severally liable on such Federal Consolidation Loan.
Under this program, a lender may make a Federal Consolidation Loan to an
eligible borrower at the request of the borrower if the lender holds an
outstanding Underlying Federal Loan of the borrower or the borrower certifies
that he or she has been unable to obtain a Federal Consolidation Loan from any
of the holders of the outstanding Underlying Federal Loans of the borrower. The
lender making any Federal Consolidation Loan will pay the amount thereof to the
various lenders of the respective Underlying Federal Loans and other loans being
consolidated thereby. The 1998 Reauthorization Bill allows lenders to make
Federal Consolidation Loans to borrowers with other or multiple holders even if
the lender does not own an underlying loan.
The Trust may be affected by Federal Consolidation Loans in two ways.
First, the Trust may own Underlying Federal Loans with respect to which an
institution other than the Seller (or the Seller if after the Funding Period,
either there are insufficient Available Loan Purchase Funds at the time of
origination of such Federal Consolidation Loan or the Loan Purchase Termination
Date has occurred), including the Department (under the Federal Direct Loan
Program) makes the Federal Consolidation Loan, in which case such Underlying
Federal Loans will be prepaid in full and such prepayment amount will be deemed
collections for the applicable Collection Period. See "Description of the
Transfer and Servicing Agreements -- Distributions." Second, the Seller may make
a Federal Consolidation Loan either during the Funding Period or prior to the
Loan Purchase Termination Date, in which case it will acquire the related
Underlying Federal Loans from the Eligible Lender Trustee, simultaneously
deposit the Purchase Amount thereof in the Escrow Account, and subsequently sell
the Federal Consolidation Loan back to the Eligible
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<PAGE> 52
Lender Trustee, to the extent that the conditions with respect to such Federal
Consolidation Loan are satisfied (including the cap on the aggregate dollar
amount of Consolidation Loans which can be purchased by the Eligible Lender
Trustee) and funds are available in the Escrow Account and, during the Funding
Period, the Pre-Funding Account or after the Funding Period until the Loan
Purchase Termination Date, in the Escrow Account and the Collection Account from
amounts which constitute Available Loan Purchase Funds, for the purchase
thereof. An amount equal to the excess of the outstanding principal balance of
such Federal Consolidation Loan will be withdrawn first from the Escrow Account
to the extent funds are then available and then, if during the Funding Period
from the Pre-Funding Account or after the Funding Period until the Loan Purchase
Termination Date, from the Collection Account from amounts which constitute
Available Loan Purchase Funds, and, in each case, paid to the Seller, and the
Pool Balance will increase accordingly. See "Description of the Transfer and
Servicing Agreements -- Additional Fundings."
The Federal Direct Consolidation Loan Program provides borrowers with the
opportunity to consolidate outstanding student loans at interest rates below,
and income-contingent repayment terms that some borrowers may find preferable
to, those that would be available from the Seller on a loan originated by the
Seller under the Federal Consolidation Loan Program. The lower rate applies only
to borrowers who apply before February 1, 1999. The availability of such
lower-rate, income-contingent loans may decrease the likelihood that the Seller
would be the originator of a Consolidation Loan with respect to borrowers with
Financed Federal Loans, as well as increase the likelihood that a Financed
Federal Loan in the Trust will be prepaid through the issuance of a Federal
Direct Consolidation Loan. The volume of existing loans that may be prepaid in
this fashion is not determinable at this time.
In accordance with the Higher Education Act, Federal Consolidation Loans
may bear interest, as negotiated between the individual borrower and lender, at
a rate per annum up to the weighted average of the interest rates on the
Underlying Federal Loans (rounded up to the nearest whole percent) or, for loans
made before July 1, 1994, 9%, whichever is greater. However, Federal
Consolidation Loans made on or after November 13, 1997 through September 30,
1998 will bear interest at the annual variable rate applicable to Stafford Loans
capped at 8.25%. Federal Consolidation Loans for which the application is
received on or after October 1, 1998 bear interest at a rate equal to the
weighted average interest rate of the loans consolidated, rounded up to the
nearest one-eighth of one percent and capped at 8.25%. Interest on Federal
Consolidation Loans accrues and, for applications received prior to January 1,
1993, is to be paid without Interest Subsidy Payments by the Department. For
Federal Consolidation Loans received on or after January 1, 1993, all interest
of the borrower is paid during all Deferral Periods. However, Federal
Consolidation Loan applications received on or after August 10, 1993 will only
be subsidized if all of the underlying loans being consolidated were Subsidized
Stafford Loans; provided that, in the case of Federal Consolidation Loans made
on or after November 13, 1997, that portion of the Federal Consolidation Loan
that is comprised of Subsidized Stafford Loans will retain its subsidy benefits
during Deferral Periods. In general, a borrower must repay each Federal
Consolidation Loan in scheduled monthly installments over a period of not more
than 10 to 30 years (excluding any Deferral Period and any Forbearance Period),
depending on the original principal amount of such Federal Consolidation Loan.
Borrowers may voluntarily prepay all or a portion of any Federal Consolidation
Loan without premium or penalty. Repayment of a Federal Consolidation Loan must
commence within 60 days after all holders of Underlying Federal Loans have
discharged the liability of the borrower thereon; provided, however, that such
repayment obligation is deferred for as long as the borrower remains an Eligible
Student and during any applicable Deferral Period and Forbearance Period. For
Federal Consolidation Loans entering repayment on or after October 1, 1995,
borrowers may choose among several repayment options, including the option to
make interest only payments for limited periods. Special Allowance Payments are
made on Federal Consolidation Loans whenever the rate charged the borrower is
limited by the 9%/8.25% cap. However, for applications received on or after
October 1, 1998, Special Allowance Payments are paid in order to afford the
lender a yield equal to the 91-day Treasury Bill Rate plus 3.1% whenever that
formula exceeds the borrower's interest rate.
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<PAGE> 53
The Omnibus Budget Reconciliation Act of 1993 made a number of changes to
the Federal Consolidation Loan Program, including (i) requiring holders of
Federal Consolidation Loans made on or after October 1, 1993, to pay to the
Department a monthly fee equal to 1.05% per annum on the outstanding balance of
such loans (the "Federal Consolidation Loan Rebate"), (ii) requiring lenders of
Federal Consolidation Loans made on or after July 1, 1994, to offer borrowers
income-sensitive repayment schedules, (iii) repealing the $7,500 minimum
indebtedness requirement, and (iv) removing the 9% interest rate floor for
Federal Consolidation Loans made on or after July 1, 1994. In addition, with
respect to any Federal Loan (including Federal Consolidation Loans) made on or
after October 1, 1993, the lender must pay to the Department an origination fee
equal to 0.50% on the initial principal balance of such loan (the "Federal
Origination Fee"). With respect to any Federal Consolidation Loan originated by
the Seller and purchased by the Eligible Lender Trustee on behalf of the Trust,
the Trust must pay to the Department the Federal Origination Fee, which fee will
be deducted by the Department out of Interest Subsidy Payments and Special
Allowance Payments. If sufficient Interest Subsidy Payments and Special
Allowance Payments are not due to the Trust to cover the amount of the Federal
Origination Fee, the balance of such Federal Origination Fee may be deferred by
the Department until sufficient Interest Subsidy Payments and Special Allowance
Payments accrue to cover such fee. If such amounts never accrue, the Trust would
be obligated to pay any remaining fee from other assets of the Trust prior to
making distributions to Noteholders or Certificateholders. The offset of
Interest Subsidy Payments and Special Allowance Payments, and the payment of any
remaining fee from other Trust assets, will further reduce the amount of
collections from which payments to Noteholders and Certificateholders may be
made. Furthermore, any offset of Interest Subsidy Payments and Special Allowance
Payments will further reduce the Student Loan Rate.
The 1998 Amendments and the 1998 Reauthorization Bill made additional
changes with regard to Federal Consolidation Loans. These changes include, among
other things, a reduction in the 1.05% per annum Federal Consolidation Loan
Rebate to .62% per annum on Student Loans for which applications are received
between October 1, 1998 and January 31, 1999.
PRIVATE LOANS UNDER THE PROGRAMS
General. In addition to the Federal Loans, the Programs also provide for
Private Loans, which provide financial assistance to help pay for the costs of
attending law, medical, dental, graduate business, or other graduate school, of
passing one or more state bar examinations upon graduation from law school, or
participating in one or more medical or dental residency programs upon
graduating from medical or dental school, to be issued to Eligible Students who
satisfy certain creditworthiness criteria. The Private Loans under the Programs
consist of loans associated with the above-mentioned fields of study (including
Bar Exam Loans and Residency Loans) and Private Consolidation Loans. Subject to
the satisfaction of the conditions imposed by the Programs and the applicable
Guarantee Agreement, all Financed Private Loans are fully guaranteed or insured
against nonpayment of principal and interest as a result of a borrower's
default, death, disability or bankruptcy by TERI or HICA. Holders of Private
Loans, however, are not entitled to receive any Federal Assistance with respect
thereto. See "The Financed Student Loan Pool -- Insurance of Student Loans;
Guarantors of Student Loans." In order to qualify for the guarantee or insurance
coverage from TERI or HICA, Private Loans may not be made to a single borrower
in excess of the annual and aggregate limits imposed by the Programs and may
only be made to borrowers who qualify pursuant to credit underwriting standards
established by the Seller and approved by TERI (in the case of Private Loans to
be guaranteed by TERI) and who otherwise satisfy the eligibility
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<PAGE> 54
requirements discussed above under "--The Graduate Loan Programs." The following
table summarizes the annual, aggregate and cumulative loan limits for each
Private Loan guaranteed by TERI:
<TABLE>
<CAPTION>
TYPE OF ANNUAL AGGREGATE CUMULATIVE
PROGRAM YEAR LOAN MAXIMUM MAXIMUM MAXIMUM(2)
------------ ------- ------- --------- ----------
<S> <C> <C> <C> <C>
1991-1992............ Law Loan $14,500 $43,500 $ 78,000
Bar Exam Loan $ 5,000 $ 5,000 $ 83,000
1992-1993............ Law Loan $15,000 $45,000 $ 79,500
Bar Exam Loan $ 5,000 $ 5,000 $ 84,500
1993-1994............ Law Loan $15,000 $45,000 $ 87,500
Bar Exam Loan $ 5,000 $ 5,000 $ 87,500
1994-1995............ Law Loan $15,000 $45,000 $ 92,000
Bar Exam Loan $ 5,000 $ 5,000 $ 92,000
1995-1996 through
1997-1998.......... Law Loan Up to the cost of attendance N/A $120,000
Business Loan Up to the cost of attendance(1) N/A $120,000
Dental Loan Up to the cost of attendance N/A $135,000
Graduate Loan Up to the cost of attendance N/A $120,000
Medical Loan Up to the cost of attendance N/A $165,000
Bar Exam Loan $ 5,000 $ 5,000
Residency Loan $ 8,000 $ 8,000
</TABLE>
- ---------------
(1) Students enrolled less than half-time can borrow a maximum annual amount of
the combined cost of tuition, fees, and a maximum of $500 for books and
supplies.
(2) Including graduate and undergraduate debt.
Payment Terms. Each Private Loan guaranteed by TERI earns interest at a
rate per annum, reset quarterly, equal to the 91-day Treasury Bill Rate plus a
margin, depending on the type of loan. The following table sets forth the
applicable interest rate for each type of Private Loan guaranteed by TERI:
<TABLE>
<CAPTION>
INTEREST MARGIN
OVER 91-DAY
TREASURY BILL RATE
----------------------------
INTERIM (1) REPAYMENT (2)
----------- -------------
<S> <C> <C>
Law...................................................... 3.25% 3.40%
Medical.................................................. 2.50 2.75
Dental................................................... 2.50 3.00
Business................................................. 3.25 3.40
Graduate................................................. 3.25 3.40
Bar Exam Loan............................................ 3.25 3.40
Residency Loan........................................... 2.50 2.75
</TABLE>
- ---------------
(1) "Interim" represents any period while the borrower is attending school or
during a specified grace period.
(2) "Repayment" represents the period after the specified grace period, in which
the borrower is required to make payments or enter into some type of
deferment or forbearance period.
Interest accrues on the outstanding principal amount of each Private Loan
from the date the lender makes such Private Loan and is payable monthly by each
borrower commencing approximately six months after such borrower ceases to be an
Eligible Student (or, with respect to each Private Loan made
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<PAGE> 55
since the commencement of the 1990-1991 Program Year, approximately nine months
after such borrower ceases to be an Eligible Student), subject to deferral or
forbearance as discussed below (the "Private Loan Repayment Commencement Date").
Subject to certain conditions, borrowers of Private Loans (other than Private
Consolidation Loans) may receive the benefits of certain deferral periods
(either prior to commencing repayment or thereafter) similar to those applicable
to Stafford Loans, during which borrowers are permitted to defer principal
payments and to capitalize the interest accruing on such Private Loans.
Borrowers who incur Residency Loans, subject to certain conditions, may defer
repayment of such loans until the required residency program is completed, not
to exceed 48 months. In addition, borrowers of Private Loans (other than Private
Consolidation Loans) may, subject to certain conditions, qualify, at the
discretion of the lender (in accordance with standards and guidelines approved
by TERI or HICA), for periods of forbearance because of temporary financial
hardship, during which borrowers may defer or make reduced principal payments on
such Private Loans. Interest on each Private Loan that accrues prior to the
Private Loan Repayment Commencement Date may, at the option of the borrower, be
paid currently or be capitalized and added to the principal amount outstanding
for such Private Loan on that date. Each student with outstanding Private Loans
(other than Private Consolidation Loans) is obligated to make scheduled payments
of principal at the same time that he or she makes interest payments in an
amount sufficient to repay such Private Loan in full over a period not to exceed
15 years (or, with respect to each Private Loan made since the commencement of
the 1990-1991 Program Year, 20 years) after the Private Loan Repayment
Commencement Date with respect to such Private Loan. Any student may at any time
voluntarily prepay all or any portion of his or her outstanding Private Loans
(including paying accrued interest prior to the Private Loan Repayment
Commencement Date quarterly in lieu of capitalizing such amounts) without
premium or penalty. The Programs presently require a minimum annual principal
and interest payment with respect to a Private Loan of $600 in the aggregate
(but in no event less than accrued interest), unless the borrower and the lender
agree to a lesser amount. For Private Loans entering repayment on or after
October 1, 1995, borrowers may choose among several repayment options, including
the option to make interest only payments for limited periods.
With respect to each Private Loan guaranteed by TERI (other than Private
Consolidation Loans) and made to a student since the commencement of the
1992-1993 Program Year, a fee equal to 2% of the original principal amount of
such Private Loan is charged to such student on the applicable Private Loan
Repayment Commencement Date. Commencing with the 1996-1997 Program Year, a fee
of 4% of the original principal amount of each such Law Loan and 3% of each such
Graduate School Loan and Bar Exam Loan is charged to such student on the
applicable Private Loan Repayment Commencement Date. The fee will remain at 2%
for Medical Loans, Dental Loans, Business Loans, and Residency Loans. At the
option of such student, the Seller will make an additional loan (a "Guarantee
Fee Advance") to such student in an amount equal to such fee, which will be
added to the principal balance of such Private Loan guaranteed by TERI and
repaid over the term thereof. See "Description of the Transfer and Servicing
Agreements -- Additional Fundings" for a discussion of the transfer of such
Guarantee Fee Advance to the Trust. With respect to each Private Loan guaranteed
by TERI, approximately 12% of each such fee is payable to TERI while the
remaining amount is held in trust for a specified period to secure TERI's
guarantee obligation with respect to all Private Loans guaranteed since the
commencement of the 1992-1993 Program Year. See "The Financed Student Loan
Pool -- Insurance of Student Loans; Guarantors of Student Loans -- Guarantors
for the Financed Private Loans," and "-- Segregated Reserves for Private Loans
Under the Programs."
ADEAL (Alternative Dental Education Assistance Loan) loans insured by HICA
are similar to the Dental Loans outlined above. ADEAL loans are made to
borrowers who are full-time dental or postdoctoral dental students attending or
accepted for attendance at a member institution of the American Association of
Dental Schools (AADS) and members of the American Student Dental Association
(ASDA). The borrower must meet minimum credit criteria and not have outstanding
education loans with an aggregate balance that exceeds $175,000. If the borrower
is in post-doctorate study, the aggregate is $200,000. Interest rates vary
quarterly based upon the 91-day Treasury Bill Rate plus 2.50% prior to repayment
and 3.00% at repayment. Interest is capitalized once when the loans enter
repayment. The
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<PAGE> 56
maximum loan term for ADEAL loans is 20 years and repayment begins twelve months
after the borrower ceases to be enrolled, twenty-four months after the borrower
graduates if the borrower provides verification that he or she is enrolled in a
residency program within the initial twelve month grace period, or six years
after the date of the first disbursement of any ADEAL loan.
Private Consolidation Loans. The Seller has established a private
consolidation loan program as part of the Programs, to facilitate the ability of
eligible borrowers of Private Loans ("Underlying Private Loans") to consolidate
such Private Loans into a single loan (a "Private Consolidation Loan"; together
with Federal Consolidation Loans, sometimes referred to herein collectively as
"Consolidation Loans"). The Private Consolidation Loan program commenced in
November, 1994. Subject to the satisfaction of certain conditions set forth
under the Programs, including limitations on the timing and payment of principal
and interest with respect to Private Consolidation Loans and a requirement that
the proceeds of a Private Consolidation Loan be used to repay the respective
Underlying Private Loans of any borrower, each holder of a Private Consolidation
Loan will be entitled to substantially the same guarantee or insurance
arrangements as are available on the Underlying Private Loans. Under this
program, an eligible borrower of Private Consolidation Loans such as those that
may be Additional Student Loans means a borrower (i) with outstanding Underlying
Private Loans of at least $7,500 and (ii) who has begun repaying and is not more
than 45 days delinquent in required payments on any Underlying Private Loan. A
borrower of a Private Consolidation Loan must consolidate all of his or her
eligible loans and in doing so will forgo all opportunities for deferment or
forbearance (except in certain limited circumstances).
Private Consolidation Loans will bear interest at the same rate as any Law
Loan made under the 1993-1994 Program Year for which the borrower has entered
repayment. Private Consolidation Loans will be repayable over a period of 25 to
30 years, depending on the original principal amount of such Private
Consolidation Loan. The Private Loan Repayment Commencement Date with respect to
a Private Consolidation Loan will occur immediately upon disbursement, with no
provision for deferment or forbearance. The borrower of a Private Consolidation
Loan will be offered income-sensitive repayment options and, for loans entering
repayment on or after October 1, 1995, additional repayment options (including
interest only payments for limited periods), each corresponding to the options
currently offered to borrowers of Federal Consolidation Loans. With respect to
each Private Consolidation Loan, a fee equal to 1% of the amount paid to
discharge the Underlying Private Loans will be charged to the borrower and
included in the original principal amount of such Private Consolidation Loan (a
"Private Consolidation Guarantee Fee").
The Trust may be affected by Private Consolidation Loans in two ways.
First, following the Loan Purchase Termination Date, the Seller may make Private
Consolidation Loans in which case the Underlying Private Loans will be prepaid
in full and such prepayment amount will be available for distribution to
Noteholders and Certificateholders for the applicable Collection Period. See
"Description of the Transfer and Servicing Agreements -- Distributions." Second,
the Seller may make a Private Consolidation Loan either during the Funding
Period or prior to the Loan Purchase Termination Date, in which case it will
acquire the related Underlying Private Loans from the Eligible Lender Trustee,
simultaneously deposit the Purchase Amount thereof in the Escrow Account, and
subsequently sell the Private Consolidation Loan back to the Eligible Lender
Trustee, to the extent that conditions with respect to such Private
Consolidation Loan are satisfied (including the cap on the aggregate dollar
amount of Consolidation Loans which can be purchased by the Eligible Lender
Trustee) and funds are available in Escrow Account and during the Funding
Period, the Pre-Funding Account or after the Funding Period until the Loan
Purchase Termination Date, from Available Loan Purchase Funds, for the purchase
thereof. An amount equal to the outstanding principal balance of such Private
Consolidation Loan will be withdrawn first from the Escrow Account to the extent
funds are then available and then, if during the Funding Period, from the
Pre-Funding Account or after the Funding Period until the Loan Purchase
Termination Date, from Available Loan Purchase Funds, and paid to the Seller,
and the Pool Balance will increase accordingly. See "Description of the Transfer
and Servicing Agreements -- Additional Fundings."
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<PAGE> 57
THE FINANCED STUDENT LOAN POOL
GENERAL
The pool of Financed Student Loans will include the Initial Financed
Student Loans purchased by the Eligible Lender Trustee on behalf of the Trust as
of the Statistical Cutoff Date and any Additional Student Loans purchased by the
Eligible Lender Trustee on behalf of the Trust from the Seller as of the
applicable Subsequent Cutoff Dates.
The Financed Student Loans will be selected from the Seller's portfolio of
Student Loans by several criteria, including, as of the Statistical Cutoff Date
or the applicable Subsequent Cutoff Date, as the case may be, the following:
each Financed Student Loan (i) was originated in the United States or its
territories or possessions under and in accordance with the Programs (including,
in the case of borrowers of Financed Federal Loans, a financial need analysis
and, in the case of borrowers of Financed Private Loans, a creditworthiness
evaluation) to a borrower who, with respect to the Initial Financed Student
Loans and Subsequent Pool Student Loans, has graduated or otherwise left
graduate school or is expected to graduate from or otherwise leave graduate
school by August 31, 1998, (ii) contains terms in accordance with those required
by the Programs, the Guarantee Agreements and other applicable requirements and
(iii) with respect to the Initial Financed Student Loans and Subsequent Pool
Student Loans, is not more than 180 days past due as of the Statistical Cutoff
Date or, with respect to the Other Subsequent Student Loans or Other Student
Loans not more than 90 days past due as of the applicable Subsequent Cutoff
Date, as the case may be. As of the Statistical Cutoff Date, no Initial Financed
Student Loan and no Subsequent Pool Student Loan had a borrower who was noted in
the related records of the Servicers as being currently involved in a bankruptcy
proceeding or deceased since the date the Trust was created. Although there can
be no assurance that a borrower of an Initial Financed Student Loan has not
become involved in a bankruptcy proceeding or deceased subsequent to such date,
each such Financed Student Loan is guaranteed as to principal and interest by a
Guarantor in the event of any such bankruptcy or death of a borrower. Any
Subsequent Pool Student Loan in respect of which a claim is made on a Guarantor
following the Statistical Cutoff Date and prior to the date such Student Loan is
to be transferred to the Trust will not be eligible for transfer to the Trust.
No Initial Financed Student Loan as of the Statistical Cutoff Date consists of,
and no Subsequent Pool Student Loan as of the date of its transfer to the Trust
will consist of, a Student Loan that was subject to the Seller's prior
obligation to sell such loan to a third party. No selection procedures believed
by the Seller to be adverse to the Securityholders were used or will be used in
selecting the Financed Student Loans. The Financed Student Loans will not
include any non-prime or sub-prime Student Loans. Non-prime or sub-prime Student
Loans are Student Loans originated to individuals who have previously defaulted
on their Student Loans. As of the Statistical Cutoff Date, none of the Initial
Financed Student Loans and none of the Subsequent Pool Student Loans are
non-performing Student Loans. Non-performing Student Loans are Student Loans
which are in default and the Seller expects to write-off as a loss.
Each of the Financed Student Loans provides or will provide for the
amortization of the outstanding principal balance of such Financed Student Loan
over a series of regular payments. Each regular payment consists of an
installment of interest which is calculated on the basis of the outstanding
principal balance of such Financed Student Loan multiplied by the applicable
interest rate and further multiplied by the period elapsed (as a fraction of a
calendar year) since the preceding payment of interest was made. As payments are
received in respect of such Financed Student Loan, the amount received is
applied first to interest accrued to the date of payment and the balance is
applied to reduce the unpaid principal balance. Accordingly, if a borrower pays
a regular installment before its scheduled due date, the portion of the payment
allocable to interest for the period since the preceding payment was made will
be less than it would have been had the payment been made as scheduled, and the
portion of the payment applied to reduce the unpaid principal balance will be
correspondingly greater. Conversely, if a borrower pays a monthly installment
after its scheduled due date, the portion of the payment allocable to interest
for the period since the preceding payment was made will be greater than it
would have been had the payment been made as scheduled, and the portion of the
payment applied to reduce the unpaid principal
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balance will be correspondingly less. In either case, subject to any applicable
Deferral Periods or Forbearance Periods, the borrower pays a regular installment
until the final scheduled payment date, at which time the amount of the final
installment is increased or decreased as necessary to repay the then outstanding
principal balance of and any accrued but unpaid interest on such Financed
Student Loan.
The Additional Student Loans to be conveyed to the Eligible Lender Trustee
on behalf of the Trust during the Funding Period are required to consist of
Subsequent Pool Student Loans, Other Subsequent Student Loans or Guarantee Fee
Advances, in each case originated by the Seller in accordance with the Programs
and other applicable requirements. Such Subsequent Pool Student Loans, Other
Subsequent Student Loans and Guarantee Fee Advances must be made to a borrower
who has, immediately prior to the date of any such conveyance, outstanding
Student Loans that are part of the pool of Financed Student Loans. Each such
Additional Student Loan is otherwise required to comply with the criteria set
forth above. See "Description of the Transfer and Servicing
Agreements -- Additional Fundings."
However, except for the criteria described in the preceding paragraphs,
there will be no required characteristics of the Additional Student Loans.
Therefore, following the transfer of the Subsequent Pool Student Loans and other
Additional Student Loans to the Eligible Lender Trustee on behalf of the Trust,
the aggregate characteristics of the entire pool of Financed Student Loans,
including the composition of the Financed Student Loans, the distribution by
weighted average interest rate and the distribution by principal amount
described in the following tables, may vary significantly from those of the
Initial Financed Student Loans and Subsequent Pool Student Loans as of the
Statistical Cutoff Date. In addition, the distribution by weighted average
interest rate applicable to the Financed Student Loans on any date following the
Statistical Cutoff Date may vary significantly from that set forth in the
following tables as a result of variations in the effective rates of interest
applicable to the Financed Student Loans. Moreover, the remaining term to
maturity of the Initial Financed Student Loans and Subsequent Pool Student Loans
as of the Statistical Cutoff Date may vary significantly from the actual term to
maturity of any of the Financed Student Loans as a result of the granting of
deferral and forbearance periods with respect thereto.
THE FINANCED STUDENT LOANS AND SUBSEQUENT POOL STUDENT LOANS
Set forth below in the following tables is a description of certain
additional characteristics of the Initial Financed Student Loans and the
Subsequent Pool Student Loans as of the Statistical Cutoff Date. Regularly
scheduled payments and prepayments of such Subsequent Pool Student Loans (which
are prepayable at any time) between the Statistical Cutoff Date and the date as
of which such Student Loans are transferred to the Eligible Lender Trustee on
behalf of the Trust will affect the balances and percentages set forth herein.
Moreover, such Subsequent Pool Student Loans may become delinquent (or more
delinquent) between the Statistical Cutoff Date and the date of transfer to the
Trust. While the statistical distribution of the final characteristics of the
Subsequent Pool Student Loans when transferred to the Trust will vary somewhat
from the statistical information presented below, the Seller does not believe
that the characteristics of such Subsequent Pool Student Loans will vary
materially.
56
<PAGE> 59
COMPOSITION AS OF THE STATISTICAL CUTOFF DATE
<TABLE>
<CAPTION>
KEYCORP SLT 1999-A INITIAL POOL SUBSEQUENT POOL TOTAL
------------------ --------------- --------------- ---------------
<S> <C> <C> <C>
Aggregate Outstanding Balance(1).... $767,111,823.09 $32,180,803.50 $799,292,626.59
Number of Borrowers................. 22,904 965 23,869
Average Outstanding Balance Per
Borrower.......................... $ 33,492.48 $ 33,347.98 $ 33,486.64
Number of Loans..................... 78,613 3,841 82,454
Average Outstanding Balance Per
Loan.............................. $ 9,758.08 $ 8,378.24 $ 9,693.80
Weighted Average Remaining Term to
Maturity(2)....................... 200.04 122.53 196.92
Weighted Average Annual Borrower
Interest Rate(3).................. 8.06% 8.24% 8.07%
</TABLE>
- ---------------
(1) Includes in each case net principal balance due from borrowers, plus accrued
interest thereon to be capitalized upon commencement of repayment, estimated
to be $32,098,853.82 with respect to the Initial Financed Student Loans and
$293.86, with respect to the Subsequent Pool Student Loans, in each case as
of the Statistical Cutoff Date.
(2) Determined from the date of origination or the Statistical Cutoff Date, as
the case may be, to the stated maturity date of the applicable Initial
Financed Student Loans or Subsequent Pool Student Loans, assuming repayment
commences promptly upon expiration of the typical grace period following the
expected graduation date and without giving effect to any deferral or
forbearance periods that may be granted in the future. See "The Student Loan
Financing Business."
(3) Determined using the borrower interest rates exclusive of Special Allowance
Payments applicable to the Initial Financed Student Loans and the Subsequent
Pool Student Loans as of the Statistical Cutoff Date. However, because all
the Initial Financed Student Loans and the Subsequent Pool Student Loans
effectively bear interest at a variable rate per annum, there can be no
assurance that the foregoing rate will remain applicable to the Initial
Financed Student Loans and the Subsequent Pool Student Loans at any time
after the Statistical Cutoff Date. See "The Student Loan Financing
Business." The weighted average spread, including Special Allowance
Payments, to the 91-day or 52-week Treasury Bill Rate, as applicable, was
3.12% as of the Statistical Cutoff Date and would have been 3.20% if all of
the Student Loans were in repayment as of the Statistical Cutoff Date with
respect to the Initial Financed Student Loans. The weighted average spread,
including Special Allowance Payments, to the 91-day or 52-week Treasury Bill
Rate, as applicable, was 3.10% as of the Statistical Cutoff Date and would
have been 3.10% if all of the Student Loans were in repayment as of the
Statistical Cutoff Date with respect to the Subsequent Pool Student Loans.
57
<PAGE> 60
DISTRIBUTION BY LOAN TYPE AS OF THE STATISTICAL CUTOFF DATE
<TABLE>
<CAPTION>
INITIAL POOL SUBSEQUENT POOL TOTAL
------------------------------------------ -------------------------------------------- ---------
AGGREGATE AGGREGATE
OUTSTANDING PERCENT OF OUTSTANDING PERCENT OF
NUMBER OF PRINCIPAL INITIAL POOL NUMBER OF PRINCIPAL SUBSEQUENT POOL NUMBER OF
LOANS BALANCE(1) BALANCE LOANS BALANCE(2) BALANCE LOANS
--------- --------------- ------------ --------- -------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Stafford Subsidized
Loans.............. 20,367 $159,199,954.40 20.75% 2,170 $15,518,826.84 48.22% 22,537
Stafford Unsubsidized
Loans.............. 19,879 192,490,183.34 25.09% 1,642 15,906,742.39 49.43% 21,521
Federal Consolidation
Loans.............. 3,877 122,240,260.94 15.94% 29 755,234.27 2.35% 3,906
SLS Loans............ 63 320,415.41 0.04% 63
Bar Examination
Loans.............. 4,512 21,412,421.76 2.79% 4,512
Business Loans....... 972 10,649,939.35 1.39% 972
Private Consolidation
Loans.............. 1,001 27,303,005.23 3.56% 1,001
Dental Loans......... 254 3,510,062.71 0.46% 254
Graduate Loans....... 1,848 15,330,517.35 2.00% 1,848
Law Loans............ 23,832 198,501,669.21 25.88% 23,832
Medical Loans........ 342 2,772,075.01 0.36% 342
Residency Loans...... 769 5,532,712.37 0.72% 769
ADEAL Loans.......... 897 7,848,606.01 1.02% 897
------ --------------- ------ ----- -------------- ------ ------
Total.......... 78,613 $767,111,823.09 100.00% 3,841 $32,180,803.50 100.00% 82,454
====== =============== ====== ===== ============== ====== ======
<CAPTION>
TOTAL
----------------------------
AGGREGATE
OUTSTANDING PERCENT OF
PRINCIPAL POOL
BALANCE BALANCE
--------------- ----------
<S> <C> <C>
Stafford Subsidized
Loans.............. $174,718,781.24 21.86%
Stafford Unsubsidized
Loans.............. 208,396,925.73 26.07%
Federal Consolidation
Loans.............. 122,995,495.21 15.39%
SLS Loans............ 320,415.41 0.04%
Bar Examination
Loans.............. 21,412,421.76 2.68%
Business Loans....... 10,649,939.35 1.33%
Private Consolidation
Loans.............. 27,303,005.23 3.42%
Dental Loans......... 3,510,062.71 0.44%
Graduate Loans....... 15,330,517.35 1.92%
Law Loans............ 198,501,669.21 24.83%
Medical Loans........ 2,772,075.01 0.35%
Residency Loans...... 5,532,712.37 0.69%
ADEAL Loans.......... 7,848,606.01 0.98%
--------------- ------
Total.......... $799,292,626.59 100.00%
=============== ======
</TABLE>
- ---------------
(1) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$32,098,853.82 as of the Statistical Cutoff Date.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$293.86 as of the Statistical Cutoff Date.
DISTRIBUTION BY BORROWER INTEREST RATE AS OF THE STATISTICAL CUTOFF DATE
<TABLE>
<CAPTION>
INITIAL POOL SUBSEQUENT POOL TOTAL
------------------------------------------ -------------------------------------------- ---------
AGGREGATE AGGREGATE
OUTSTANDING PERCENT OF OUTSTANDING PERCENT OF
NUMBER OF PRINCIPAL INITIAL POOL NUMBER OF PRINCIPAL SUBSEQUENT POOL NUMBER OF
LOANS BALANCE(2) BALANCE LOANS BALANCE(3) BALANCE LOANS
--------- --------------- ------------ --------- -------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Less than 7.50%(1)... 2,539 $ 22,920,087.98 2.99% 6 $ 32,049.27 0.10% 2,545
7.50% to 7.99%....... 37,397 318,361,065.95 41.50% 1 5,000.00 0.02% 37,398
8.00% to 8.49%....... 37,988 393,411,950.83 51.28% 3,834 32,143,754.23 99.88% 41,822
8.50% to 8.99%....... 106 2,519,195.79 0.33% 106
9.00% and above...... 583 29,899,522.54 3.90% 583
------ --------------- ------ ----- -------------- ------ ------
Total.......... 78,613 $767,111,823.09 100.00% 3,841 $32,180,803.50 100.00% 82,454
====== =============== ====== ===== ============== ====== ======
<CAPTION>
TOTAL
----------------------------
AGGREGATE
OUTSTANDING PERCENT OF
PRINCIPAL POOL
BALANCE BALANCE
--------------- ----------
<S> <C> <C>
Less than 7.50%(1)... $ 22,952,137.25 2.87%
7.50% to 7.99%....... 318,366,065.95 39.83%
8.00% to 8.49%....... 425,555,705.06 53.24%
8.50% to 8.99%....... 2,519,195.79 0.32%
9.00% and above...... 29,899,522.54 3.74%
--------------- ------
Total.......... $799,292,626.59 100.00%
=============== ======
</TABLE>
- ---------------
(1) Determined using the interest rates applicable to the Initial Financed
Student Loans and the Subsequent Pool Student Loans as of the Statistical
Cutoff Date. However, because all the Initial Financed Student Loans and the
Subsequent Pool Student Loans effectively bear interest at a variable rate
per annum, there can be no assurance that the foregoing information will
remain applicable to the Initial Financed Student Loans or the Subsequent
Pool Student Loans at any time after the Statistical Cutoff Date. See "The
Student Loan Financing Business."
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$32,098,853.82 as of the Statistical Cutoff Date.
(3) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$293.86 as of the Statistical Cutoff Date.
58
<PAGE> 61
DISTRIBUTION BY OUTSTANDING PRINCIPAL BALANCE AS OF THE STATISTICAL CUTOFF DATE
<TABLE>
<CAPTION>
INITIAL POOL SUBSEQUENT POOL TOTAL
--------------------------------------- ------------------------------------ ------------------------
AGGREGATE PERCENT OF AGGREGATE PERCENT OF AGGREGATE
NUMBER OUTSTANDING INITIAL NUMBER OUTSTANDING SUBSEQUENT NUMBER OUTSTANDING
OF PRINCIPAL POOL OF PRINCIPAL POOL OF PRINCIPAL
LOANS(1) BALANCE(2) BALANCE LOANS BALANCE(3) BALANCE LOANS BALANCE
-------- --------------- ---------- ------ -------------- ---------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Less than $1,000....... 1,215 $ 736,372.24 0.10% 75 $ 42,984.61 0.13% 1,290 $ 779,356.85
$1,000 to $1,999....... 2,756 4,213,398.04 0.55% 147 205,521.98 0.64% 2,903 4,418,920.02
$2,000 to $2,999....... 3,345 8,324,757.02 1.09% 220 555,793.36 1.73% 3,565 8,880,550.38
$3,000 to $3,999....... 3,649 12,759,145.07 1.66% 157 545,801.23 1.70% 3,806 13,304,946.30
$4,000 to $4,999....... 4,130 18,479,886.63 2.41% 120 530,374.94 1.65% 4,250 19,010,261.57
$5,000 to $5,999....... 7,100 38,430,607.44 5.01% 154 844,735.29 2.62% 7,254 39,275,342.73
$6,000 to $6,999....... 3,042 19,700,255.51 2.57% 100 646,409.75 2.01% 3,142 20,346,665.26
$7,000 to $7,999....... 3,199 24,017,490.82 3.13% 168 1,260,123.89 3.92% 3,367 25,277,614.71
$8,000 to $8,999....... 19,430 164,798,128.16 21.48% 1,515 12,837,861.34 39.89% 20,945 177,635,989.50
$9,000 to $9,999....... 3,258 31,082,402.74 4.05% 113 1,084,357.14 3.37% 3,371 32,166,759.88
$10,000 to $10,999..... 6,526 69,417,628.50 9.05% 253 2,659,435.92 8.26% 6,779 72,077,064.42
$11,000 to $11,999..... 5,877 67,665,511.25 8.82% 264 3,042,938.72 9.46% 6,141 70,708,449.97
$12,000 to $12,999..... 4,524 55,933,626.17 7.29% 368 4,641,712.64 14.42% 4,892 60,575,338.81
$13,000 to $13,999..... 1,273 17,067,339.06 2.22% 100 1,326,756.90 4.12% 1,373 18,394,095.96
$14,000 to $14,999..... 951 13,747,974.37 1.79% 5 73,425.41 0.23% 956 13,821,399.78
$15,000 to $15,999..... 773 11,971,776.44 1.56% 10 155,221.90 0.48% 783 12,126,998.34
$16,000 to $16,999..... 767 12,637,565.96 1.65% 6 99,687.01 0.31% 773 12,737,252.97
$17,000 to $17,999..... 767 13,446,067.12 1.75% 7 123,758.41 0.38% 774 13,569,825.53
$18,000 to $18,999..... 593 10,974,373.98 1.43% 8 148,231.91 0.46% 601 11,122,605.89
$19,000 to $19,999..... 615 11,975,938.26 1.56% 3 59,637.69 0.19% 618 12,035,575.95
$20,000 to $20,999..... 364 7,452,250.83 0.97% 6 124,078.46 0.39% 370 7,576,329.29
$21,000 to $21,999..... 398 8,544,886.00 1.11% 5 106,625.65 0.33% 403 8,651,511.65
$22,000 to $22,999..... 254 5,701,017.43 0.74% 4 90,771.12 0.28% 258 5,791,788.55
$23,000 to $23,999..... 236 5,551,999.45 0.72% 2 47,301.90 0.15% 238 5,599,301.35
$24,000 to $24,999..... 266 6,527,250.05 0.85% 6 146,531.50 0.46% 272 6,673,781.55
$25,000 to $25,999..... 287 7,321,913.13 0.95% 4 100,991.36 0.31% 291 7,422,904.49
$26,000 to $26,999..... 218 5,784,064.21 0.75% 2 52,335.41 0.16% 220 5,836,399.62
$27,000 to $27,999..... 222 6,098,782.01 0.80% 2 54,939.43 0.17% 224 6,153,721.44
$28,000 to $28,999..... 184 5,240,379.46 0.68% 0 0.00 0.00% 184 5,240,379.46
$29,000 to $29,999..... 132 3,892,923.50 0.51% 2 58,765.30 0.18% 134 3,951,688.80
$30,000 and above...... 2,262 97,616,112.24 12.73% 15 513,693.33 1.60% 2,277 98,129,805.57
------ --------------- ------ ----- -------------- ------ ------ ---------------
Total........... 78,613 $767,111,823.09 100.00% 3,841 $32,180,803.50 100.00% 82,454 $799,292,626.59
====== =============== ====== ===== ============== ====== ====== ===============
<CAPTION>
PERCENT
OF
POOL
BALANCE
-------
<S> <C>
Less than $1,000....... 0.10%
$1,000 to $1,999....... 0.55%
$2,000 to $2,999....... 1.11%
$3,000 to $3,999....... 1.66%
$4,000 to $4,999....... 2.38%
$5,000 to $5,999....... 4.91%
$6,000 to $6,999....... 2.55%
$7,000 to $7,999....... 3.16%
$8,000 to $8,999....... 22.22%
$9,000 to $9,999....... 4.02%
$10,000 to $10,999..... 9.02%
$11,000 to $11,999..... 8.85%
$12,000 to $12,999..... 7.58%
$13,000 to $13,999..... 2.30%
$14,000 to $14,999..... 1.73%
$15,000 to $15,999..... 1.52%
$16,000 to $16,999..... 1.59%
$17,000 to $17,999..... 1.70%
$18,000 to $18,999..... 1.39%
$19,000 to $19,999..... 1.51%
$20,000 to $20,999..... 0.95%
$21,000 to $21,999..... 1.08%
$22,000 to $22,999..... 0.72%
$23,000 to $23,999..... 0.70%
$24,000 to $24,999..... 0.83%
$25,000 to $25,999..... 0.93%
$26,000 to $26,999..... 0.73%
$27,000 to $27,999..... 0.77%
$28,000 to $28,999..... 0.66%
$29,000 to $29,999..... 0.49%
$30,000 and above...... 12.28%
------
Total........... 100.00%
======
</TABLE>
- ---------------
(1) Borrowers generally have more than one outstanding loan. The average
aggregate outstanding principal balance of loans per borrower is $33,492.48,
with respect to the Initial Financed Student Loans, and $33,347.98, with
respect to the Subsequent Pool Student Loans, in each case as of the
Statistical Cutoff Date. Some borrowers have both loans which are Initial
Financed Student Loans and loans which are Subsequent Pool Student Loans. If
both pools were combined, the number of borrowers would be 23,869 and the
average outstanding principal balance per borrower would be $33,486.64.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$32,098,853.82 as of the Statistical Cutoff Date.
(3) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$293.86 as of the Statistical Cutoff Date.
59
<PAGE> 62
DISTRIBUTION BY REMAINING TERM TO SCHEDULED MATURITY AS OF THE STATISTICAL
CUTOFF DATE
<TABLE>
<CAPTION>
INITIAL POOL SUBSEQUENT POOL TOTAL
------------------------------------------ -------------------------------------------- ---------
AGGREGATE AGGREGATE PERCENT OF
OUTSTANDING PERCENT OF OUTSTANDING SUBSEQUENT
NUMBER OF PRINCIPAL INITIAL POOL NUMBER OF PRINCIPAL POOL NUMBER OF
LOANS BALANCE(2) BALANCE LOANS BALANCE(3) BALANCE LOANS
--------- --------------- ------------ --------- -------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
12 and below(1)...... 156 $ 210,101.16 0.03% 9 $ 2,821.75 0.01% 165
13 to 24............. 186 194,184.63 0.03% 9 8,010.35 0.02% 195
25 to 48............. 404 744,526.80 0.10% 25 48,721.84 0.15% 429
49 to 60............. 262 739,182.31 0.10% 17 39,729.10 0.12% 279
61 to 72............. 230 730,051.22 0.10% 51 141,773.60 0.44% 281
73 to 84............. 252 987,559.03 0.13% 20 62,500.98 0.19% 272
85 to 96............. 303 1,256,488.32 0.16% 21 75,500.54 0.23% 324
97 to 108............ 1,035 7,027,112.34 0.92% 106 638,596.26 1.98% 1,141
109 to 120........... 27,460 240,579,897.91 31.36% 3,462 29,557,157.64 91.85% 30,922
121 to 180........... 14,851 127,151,739.81 16.58% 92 850,757.17 2.64% 14,943
181 to 240........... 3,864 39,296,723.83 5.12% 5 87,739.10 0.27% 3,869
241 and above........ 29,610 348,194,255.73 45.39% 24 667,495.17 2.07% 29,634
------ --------------- ------ ----- -------------- ------ ------
Total........ 78,613 $767,111,823.09 100.00% 3,841 $32,180,803.50 100.00% 82,454
====== =============== ====== ===== ============== ====== ======
<CAPTION>
TOTAL
----------------------------
AGGREGATE
OUTSTANDING PERCENT OF
PRINCIPAL POOL
BALANCE BALANCE
--------------- ----------
<S> <C> <C>
12 and below(1)...... $ 212,922.91 0.03%
13 to 24............. 202,194.98 0.03%
25 to 48............. 793,248.64 0.10%
49 to 60............. 778,911.41 0.10%
61 to 72............. 871,824.82 0.11%
73 to 84............. 1,050,060.01 0.13%
85 to 96............. 1,331,988.86 0.17%
97 to 108............ 7,665,708.60 0.96%
109 to 120........... 270,137,055.55 33.80%
121 to 180........... 128,002,496.98 16.01%
181 to 240........... 39,384,462.93 4.93%
241 and above........ 348,861,750.90 43.65%
--------------- ------
Total........ $799,292,626.59 100.00%
=============== ======
</TABLE>
- ---------------
(1) Determined from the Statistical Cutoff Date to the stated maturity date of
the applicable Initial Financed Student Loan or Subsequent Pool Student
Loan, assuming repayment commences promptly upon expiration of the typical
grace period following the expected graduation date and without giving
effect to any deferral or forbearance periods that may be granted in the
future. See "The Student Loan Financing Business."
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$32,098,853.82 as of the Statistical Cutoff Date.
(3) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$293.86 as of the Statistical Cutoff Date.
DISTRIBUTION BY BORROWER PAYMENT STATUS AS OF THE STATISTICAL CUTOFF DATE
<TABLE>
<CAPTION>
INITIAL POOL SUBSEQUENT POOL TOTAL
------------------------------------------ -------------------------------------------- ---------
AGGREGATE AGGREGATE PERCENT OF
OUTSTANDING PERCENT OF OUTSTANDING SUBSEQUENT
NUMBER OF PRINCIPAL INITIAL POOL NUMBER OF PRINCIPAL POOL NUMBER OF
LOANS BALANCE(2) BALANCE LOANS BALANCE(3) BALANCE LOANS
--------- --------------- ------------ --------- -------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
In School(1)......... 2,131 $ 18,360,760.78 2.39% 2,131
Grace................ 25,705 214,642,526.63 27.98% 25,705
Deferral............. 3,628 32,798,674.10 4.28% 3,628
Forbearance.......... 10,783 116,972,051.45 15.25% 3 $ 40,316.00 0.13% 10,786
Repayment
First year in
repayment.......... 30,613 320,694,904.71 41.81% 3,778 31,782,436.52 98.76% 34,391
Second year in
repayment.......... 3,393 50,674,867.16 6.61% 50 327,540.90 1.02% 3,443
More than two years
in repayment....... 2,360 12,968,038.26 1.69% 10 30,510.08 0.09% 2,370
------ --------------- ------- ----- -------------- ------- ------
Total........ 78,613 $767,111,823.09 100.00% 3,841 $32,180,803.50 100.00% 82,454
====== =============== ======= ===== ============== ======= ======
<CAPTION>
TOTAL
----------------------------
AGGREGATE
OUTSTANDING PERCENT OF
PRINCIPAL POOL
BALANCE BALANCE
--------------- ----------
<S> <C> <C>
In School(1)......... $ 18,360,760.78 2.30%
Grace................ 214,642,526.63 26.85%
Deferral............. 32,798,674.10 4.10%
Forbearance.......... 117,012,367.45 14.64%
Repayment
First year in
repayment.......... 352,477,341.23 44.10%
Second year in
repayment.......... 51,002,408.06 6.38%
More than two years
in repayment....... 12,998,548.34 1.63%
--------------- -------
Total........ $799,292,626.59 100.00%
=============== =======
</TABLE>
- ---------------
(1) Refers to the status of the borrower of each Initial Financed Student Loan
or Subsequent Pool Student Loan to be added, in each case, as of the
Statistical Cutoff Date: such borrower may still be attending law school,
medical school, dental school, graduate business school, or another type of
graduate school ("In-School"), may be in a grace period prior to repayment
commencing ("Grace"), may be repaying such loan ("Repay-
60
<PAGE> 63
ment") or may have temporarily ceased repaying such loan through a
deferral ("Deferral") or a forbearance ("Forbearance") period. See "The
Student Loan Financing Business."
(2) Includes net principal balance due from borrowers, plus accrued
interest thereon to be capitalized upon commencement of repayment,
estimated to be $32,098,853.82 as of the Statistical Cutoff Date.
(3) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$293.86 as of the Statistical Cutoff Date.
SCHEDULED WEIGHTED AVERAGE MONTHS REMAINING IN STATUS
BY CURRENT BORROWER PAYMENT STATUS AS OF THE
STATISTICAL CUTOFF DATE(1)
<TABLE>
<CAPTION>
INITIAL POOL SUBSEQUENT POOL
------------------------------------------------------ ----------------------------
IN-SCHOOL GRACE DEFERRAL FORBEARANCE REPAYMENT IN-SCHOOL GRACE DEFERRAL
--------- ----- -------- ----------- --------- --------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
In-School............ 11.26 7.55 171.05 --
Grace................ 2.43 233.66 --
Deferral............. 7.85 135.20 --
Forbearance.......... 6.62 184.42
Repayment............ 188.80
----- ---- ---- ---- ------ -- -- --
Total......... 11.26 2.83 7.85 6.62 197.97 -- -- --
===== ==== ==== ==== ====== == == ==
<CAPTION>
SUBSEQUENT POOL TOTAL
----------------------- ------------------------------------------------------
FORBEARANCE REPAYMENT IN-SCHOOL GRACE DEFERRAL FORBEARANCE REPAYMENT
----------- --------- --------- ----- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
In-School............ -- 11.26 7.55 -- -- 171.05
Grace................ -- -- 2.43 -- -- 233.66
Deferral............. -- -- -- 7.85 -- 135.20
Forbearance.......... 10.21 119.52 -- -- -- 6.62 184.40
Repayment............ 122.52 -- -- -- -- 183.69
----- ------ ----- ---- ---- ---- ------
Total......... 10.21 122.51 11.26 2.83 7.85 6.62 194.93
===== ====== ===== ==== ==== ==== ======
</TABLE>
- ------------------
(1) Determined without giving effect to any deferral or forbearance periods that
may be granted in the future.
GEOGRAPHIC DISTRIBUTION OF STATES REPRESENTING MORE THAN 4%
OF THE AGGREGATE POOL BALANCE AS OF THE STATISTICAL CUTOFF DATE(1)
<TABLE>
<CAPTION>
INITIAL POOL SUBSEQUENT POOL
------------------------------------------ --------------------------------------------
AGGREGATE AGGREGATE PERCENT OF
OUTSTANDING PERCENT OF OUTSTANDING SUBSEQUENT
NUMBER OF PRINCIPAL INITIAL POOL NUMBER OF PRINCIPAL POOL
LOANS BALANCE(2) BALANCE LOANS BALANCE(3) BALANCE
--------- --------------- ------------ --------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
New York........ 13,732 $141,297,353.91 18.42% California...... 698 $ 6,259,716.16 19.45%
California...... 12,020 117,363,028.86 15.30% Massachusetts... 429 3,865,666.39 12.01%
Virginia........ 3,777 37,683,807.74 4.91% New York........ 319 2,701,433.17 8.39%
Texas........... 3,933 35,022,948.84 4.57% New Jersey...... 238 1,820,186.96 5.66%
Pennsylvania.... 3,649 34,563,412.06 4.51% Virginia........ 196 1,543,555.35 4.80%
Florida......... 3,446 33,999,956.30 4.43%
Massachusetts... 3,349 33,574,399.72 4.38%
New Jersey...... 3,046 30,734,173.96 4.01%
All Other All Other
States (4)..... 31,661 302,872,741.70 39.48% States (4)..... 1,961 15,990,245.47 49.69%
------ --------------- ------- ----- -------------- -------
Total..... 78,613 $767,111,823.09 100.00% Total..... 3,841 $32,180,803.50 100.00%
====== =============== ======= ===== ============== =======
<CAPTION>
TOTAL
----------------------------------------
AGGREGATE
OUTSTANDING PERCENT OF
NUMBER OF PRINCIPAL POOL
LOANS BALANCE BALANCE
--------- --------------- ----------
<S> <C> <C> <C>
New York........ 14,051 $143,998,787.08 18.02%
California...... 12,718 123,622,745.02 15.47%
Virginia........ 3,973 39,227,363.09 4.91%
Texas........... 3,778 37,440,066.11 4.68%
Pennsylvania.... 4,008 35,705,847.83 4.47%
Florida......... 3,769 35,589,099.82 4.45%
Massachusetts... 3,545 34,858,518.40 4.36%
New Jersey...... 3,284 32,554,360.92 4.07%
All Other
States (4)..... 33,622 378,862,997.17 39.57%
------ --------------- -------
Total..... 82,454 $799,292,626.59 100.00%
====== =============== =======
</TABLE>
- ---------------
(1) Based on the permanent billing addresses of the borrowers of the Initial
Financed Student Loans and the Subsequent Pool Student Loans shown on the
Servicers' records as of the Statistical Cutoff Date.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon of $32,098,853.82 as of the Statistical Cut-Off Date to be
capitalized upon commencement of repayment.
(3) Includes net principal balance due from borrowers, plus accrued interest
thereon of $293.86 as of the Statistical Cut-Off Date to be capitalized upon
commencement of repayment.
(4) Includes all other states, none of which exceeds 4% of the Total Pool
Balance.
61
<PAGE> 64
DISTRIBUTION BY LOAN REPAYMENT TERM AS OF THE STATISTICAL CUTOFF DATE
<TABLE>
<CAPTION>
INITIAL POOL SUBSEQUENT POOL
------------------------------------------ --------------------------------------------
AGGREGATE PERCENT OF AGGREGATE PERCENT OF
NUMBER OUTSTANDING INITIAL NUMBER OUTSTANDING SUBSEQUENT
LOAN OF PRINCIPAL POOL OF PRINCIPAL POOL
REPAYMENT TERMS LOANS BALANCE(1) BALANCE LOANS BALANCE(2) BALANCE
--------------- --------- --------------- ------------ --------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Level Payment................... 36,268 $350,637,788.31 45.71% 3,704 $30,839,004.42 95.83%
Interest Only (3)............... 8,522 111,982,567.17 14.60% 27 340,435.19 1.06%
Graduated Payment (4)........... 251 2,632,226.54 0.34% 16 156,528.02 0.49%
Other (5)....................... 33,572 301,859,241.07 39.35% 94 844,835.87 2.63%
------ --------------- ------ ----- -------------- ------
Total.................... 78,613 $767,111,823.09 100.00% 3,841 $32,180,803.50 100.00%
====== =============== ====== ===== ============== ======
<CAPTION>
TOTAL
----------------------------------------
AGGREGATE PERCENT
NUMBER OUTSTANDING OF
LOAN OF PRINCIPAL POOL
REPAYMENT TERMS LOANS BALANCE BALANCE
--------------- --------- --------------- ----------
<S> <C> <C> <C>
Level Payment................... 39,972 $381,476,792.73 47.73%
Interest Only (3)............... 8,549 112,323,002.36 14.05%
Graduated Payment (4)........... 267 2,788,754.56 0.35%
Other (5)....................... 33,666 302,704,076.94 37.87%
------ --------------- ------
Total.................... 82,454 $799,292,626.59 100.00%
====== =============== ======
</TABLE>
- ---------------
(1) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$32,098,853.82 as of the Statistical Cutoff Date.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$293.86 as of the Statistical Cutoff Date.
(3) Student Loans with interest only repayment terms require borrowers to make
payments of interest only for the first two years after entering repayment
and thereafter to make level payments which will amortize the then
outstanding principal balance of the loan over the then remaining term and
then to begin making payments of both interest and principal.
(4) Student Loans with graduated repayment terms require borrowers to make
payments of interest only for the first two years after entering repayment
which increase over the next three years to a level payment amount which
will amortize the then outstanding principal balance of the loan over the
then remaining term.
(5) Loan still not in repayment status.
DISTRIBUTION OF FINANCED FEDERAL LOANS BY DATE OF DISBURSEMENT
AS OF THE STATISTICAL CUTOFF DATE
<TABLE>
<CAPTION>
INITIAL POOL SUBSEQUENT POOL
------------------------------------------ --------------------------------------------
AGGREGATE PERCENT OF AGGREGATE PERCENT OF
NUMBER OUTSTANDING INITIAL NUMBER OUTSTANDING SUBSEQUENT
DATE OF OF PRINCIPAL POOL OF PRINCIPAL POOL
DISBURSEMENT(1) LOANS BALANCE(2) BALANCE LOANS BALANCE(3) BALANCE
--------------- --------- --------------- ------------ --------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Pre October 1, 1993............. 930 $ 4,949,835.64 0.65% 82 $ 539,299.43 1.68%
October 1, 1993 to Present...... 77,683 762,161,987.45 99.35% 3,759 31,641,504.07 98.32%
------ --------------- ------ ----- -------------- ------
Total.................... 78,613 $767,111,823.09 100.00% 3,841 $32,180,803.50 100.00%
====== =============== ====== ===== ============== ======
<CAPTION>
TOTAL
----------------------------------------
AGGREGATE PERCENT
NUMBER OUTSTANDING OF
DATE OF OF PRINCIPAL POOL
DISBURSEMENT(1) LOANS BALANCE BALANCE
--------------- --------- --------------- ----------
<S> <C> <C> <C>
Pre October 1, 1993............. 1,012 $ 5,489,135.07 0.69%
October 1, 1993 to Present...... 81,442 793,803,491.52 99.31%
------ --------------- ------
Total.................... 82,454 $799,292,626.59 100.00%
====== =============== ======
</TABLE>
- ---------------
(1) Federal Loans disbursed prior to October 1, 1993 are 100% guaranteed by the
applicable Federal Guarantor, and reinsured against default by the
Department up to 100% of the Guarantee Payments. Federal Loans disbursed on
or after October 1, 1993 (but before October 1, 1998) are 98% guaranteed by
the applicable Federal Guarantor, and reinsured against default by the
Department up to a maximum of 98% of the Guarantor Payments. Federal Loans
first disbursed on or after October 1, 1998 are 98% guaranteed by the
applicable Federal Guarantor, and reinsured against default by the
Department up to 95% of the Guarantee Payments. See "The Student Loan
Financing Business -- Federal Loans Under the Programs" and " -- Insurance
of Student Loans; Guarantors of Student Loans."
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$32,098,853.82 as of the Statistical Cutoff Date.
(3) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$293.86 as of the Statistical Cutoff Date.
62
<PAGE> 65
DISTRIBUTION OF FINANCED STUDENT LOANS BY
NUMBER OF DAYS OF DELINQUENCY AS OF THE STATISTICAL CUTOFF DATE
<TABLE>
<CAPTION>
INITIAL POOL SUBSEQUENT POOL TOTAL
--------------------------------------- ------------------------------------ ------------------------
AGGREGATE AGGREGATE PERCENT OF AGGREGATE
NUMBER OUTSTANDING PERCENT OF NUMBER OUTSTANDING SUBSEQUENT NUMBER OUTSTANDING
OF PRINCIPAL INITIAL POOL OF PRINCIPAL POOL OF PRINCIPAL
LOANS BALANCE(1) BALANCE LOANS BALANCE(2) BALANCE LOANS BALANCE
------ --------------- ------------ ------ -------------- ---------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Days Delinquent
0 - 30.............. 75,698 $737,082,634.88 96.09% 3,507 $29,295,835.50 91.04% 79,205 $766,378,470.38
31 - 60.............. 2,571 25,903,238.61 3.38% 317 2,748,065.04 8.54% 2,888 28,651,303.65
61 - 90.............. 344 4,125,949.60 0.54% 17 136,902.96 0.43% 361 4,262,852.56
------ --------------- ------ ----- -------------- ------ ------ ---------------
Total........ 78,613 $767,111,823.09 100.00% 3,841 $32,180,803.50 100.00% 82,454 $799,292,626.59
====== =============== ====== ===== ============== ====== ====== ===============
<CAPTION>
TOTAL
-------
PERCENT
OF
POOL
BALANCE
-------
<S> <C>
Days Delinquent
0 - 30.............. 95.88%
31 - 60.............. 3.58%
61 - 90.............. 0.53%
------
Total........ 100.00%
======
</TABLE>
- ---------------
(1) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$32,098,853.82 as of the Statistical Cutoff Date.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$293.86 as of the Statistical Cutoff Date.
MATURITY AND PREPAYMENT ASSUMPTIONS
The rate of payment of principal of the Notes and the Certificates and the
yield on the Notes and the Certificates will be affected by prepayments of the
Financed Student Loans that may occur as described below. All the Financed
Student Loans are prepayable in whole or in part by the borrowers at any time
(including by means of Federal Consolidation Loans or consolidation loans made
under the Federal Direct Student Loan Program as discussed below) or as a result
of a borrower's default, death, disability or bankruptcy and subsequent
liquidation or collection of Guarantee Payments with respect thereto. The rate
of such prepayments cannot be predicted and may be influenced by a variety of
economic, social and other factors, including those described below. In general,
the rate of prepayments may tend to increase to the extent that alternative
financing becomes available at prevailing interest rates which fall
significantly below the interest rates applicable to the Financed Student Loans.
However, because many of the Financed Student Loans bear interest at a rate that
either actually or effectively is floating, it is impossible to determine
whether changes in prevailing interest rates will be similar to or vary from
changes in the interest rates on the Financed Student Loans.
To the extent borrowers of Financed Student Loans elect to borrow
Consolidation Loans with respect to such Financed Student Loans from the Seller
(i) after the Loan Purchase Termination Date or (ii) from another lender at any
time, Noteholders (and after the Notes have been paid in full,
Certificateholders) will collectively receive as a prepayment of principal the
aggregate principal amount of such Financed Student Loans; provided, that if the
Seller makes any such Consolidation Loan during the Funding Period or prior to
the Loan Purchase Termination Date (in which event the Seller will then sell
that Consolidation Loan to the Eligible Lender Trustee, to the extent that funds
are available in the Escrow Account and during the Funding Period, the
Pre-Funding Account or following the Funding Period but prior to the Loan
Purchase Termination Date, the Collection Account from amounts which constitute
Available Loan Purchase Funds, for the purchase thereof), the aggregate
outstanding principal balance of Financed Student Loans (after giving effect to
the addition of such Consolidation Loans) will be at least equal to and in most
cases greater than such balance prior to such prepayment, although the portion
of the loan guaranteed will be 98% with respect to any Federal Consolidation
Loan disbursed on or after October 1, 1993 even if the Underlying Federal Loans
were 100% guaranteed. See "The Student Loan Financing Business-Federal Loans
Under the Programs -- Federal Consolidation Loans." There can be no assurance
that borrowers with Financed Student Loans will not seek to obtain Consolidation
Loans with respect to such Financed Student Loans on or after the Loan Purchase
Termination Date or by another lender at any time.
In addition, the Seller is obligated to repurchase any Financed Student
Loan pursuant to the Sale and Servicing Agreement as a result of a breach of any
of its representations and warranties, and the
63
<PAGE> 66
Servicers are obligated to purchase any Financed Student Loan pursuant to the
Sale and Servicing Agreement as a result of a breach of certain covenants with
respect to such Financed Student Loan, in each case where such breach materially
adversely affects the interests of the Certificateholders or the Noteholders in
that Financed Student Loan and is not cured within the applicable cure period
(it being understood that any such breach that does not affect any Guarantor's
obligation to guarantee payment of such Financed Student Loan will not be
considered to have a material adverse effect for this purpose). See "Description
of the Transfer and Servicing Agreements -- Sale of Financed Student Loans;
Representations and Warranties" and " -- Servicer Covenants." See also
"Description of the Transfer and Servicing Agreements -- Additional Fundings"
regarding the prepayment of principal to Noteholders and Certificateholders if
as of the Special Determination Date the Subsequent Pool Pre-Funded Amount has
not been reduced to zero and the prepayment of principal to Noteholders as a
result of excess funds remaining on deposit in the Pre-Funding Account at the
end of the Funding Period, " -- Insolvency Event" regarding the sale of the
Financed Student Loans if a Seller Insolvency Event occurs and " -- Termination"
regarding the Seller's option to purchase the Financed Student Loans when the
aggregate Pool Balance is less than or equal to 5% of the Initial Pool Balance
and the auction of the Financed Student Loans occurs on or after the March 2009
Distribution Date. In addition, in the event a TERI Trigger Event occurs, the
holders of Notes and Certificates may receive accelerated payments of principal.
Any reinvestment risk from such accelerated payment of principal will be borne
by the holders of Notes and Certificates receiving such prepayment.
On the other hand, scheduled payments with respect to, and maturities of,
the Financed Student Loans may be extended, including pursuant to Grace Periods,
Deferral Periods and, under certain circumstances, Forbearance Periods or as a
result of the conveyance of Serial Loans to the Eligible Lender Trustee on
behalf of the Trust prior to the Loan Purchase Termination Date or of
refinancings through Consolidation Loans to the extent such Consolidation Loans
are sold to the Eligible Lender Trustee on behalf of the Trust as described
above. In that event, the fact that such Consolidation Loans will likely have
longer maturities than the Financed Student Loans they are replacing may
lengthen the remaining term of the Financed Student Loans and the average life
of the Notes and the Certificates. The rate of payment of principal of the Notes
and the Certificates and the yield on the Notes and the Certificates may also be
affected by the rate of defaults resulting in losses on defaulted Student Loans
which have been liquidated, by the severity of those losses and by the timing of
those losses, which may affect the ability of the Guarantors to make Guarantee
Payments with respect thereto. In addition, the maturity of many of the Financed
Student Loans will extend well beyond the Final Maturity Dates of the Notes and
the Certificates.
The rate of prepayment on the Financed Student Loans cannot be predicted,
and any reinvestment risks resulting from a faster or slower incidence of
prepayment of Financed Student Loans will be borne entirely by the
Securityholders. Such reinvestment risks may include the risk that interest
rates and the relevant spreads above particular interest rate bases are lower at
the time Securityholders receive payments from the Trust than such interest
rates and such spreads would otherwise have been had such prepayments not been
made or had such prepayments been made at a different time.
INSURANCE OF STUDENT LOANS; GUARANTORS OF STUDENT LOANS
General. Each Financed Federal Loan will be required to be guaranteed as
to principal and interest by PHEAA, ASA, NSLP, or ECMC and reinsured by the
Department under the Higher Education Act and must be eligible for Special
Allowance Payments and, with respect to each Financed Federal Loan that is a
Stafford Loan (excluding any Unsubsidized Stafford Loan) or Consolidation Loan
where none of the Underlying Loans were Unsubsidized Stafford Loans, must be
eligible for Interest Subsidy Payments paid by the Department. Each Financed
Private Loan will be required to be guaranteed or insured as to principal and
interest by TERI or HICA.
64
<PAGE> 67
The following tables provide information with respect to the portion of the
Financed Student Loans guaranteed by each Guarantor:
DISTRIBUTION BY GUARANTORS AS OF THE STATISTICAL CUTOFF DATE
<TABLE>
<CAPTION>
INITIAL POOL SUBSEQUENT POOL TOTAL
--------------------------------------- ------------------------------------ ------------------------
AGGREGATE AGGREGATE PERCENT OF AGGREGATE
NUMBER OUTSTANDING PERCENT OF NUMBER OUTSTANDING SUBSEQUENT NUMBER OUTSTANDING
NAME OF OF PRINCIPAL INITIAL POOL OF PRINCIPAL POOL OF PRINCIPAL
GUARANTEE AGENCY LOANS BALANCE(1) BALANCE LOANS BALANCE(2) BALANCE LOANS BALANCE(2)
---------------- ------ --------------- ------------ ------ -------------- ---------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASA.................. 18,345 $193,496,960.19 25.22% 17 $ 147,040.12 0.46% 18,362 $193,644,000.31
PHEAA................ 25,841 280,753,853.90 36.60% 29 506,107.75 1.57% 25,870 281,259,961.65
TERI................. 33,530 285,012,402.99 37.15% 0 0.00 0.00% 33,530 285,012,402.99
HICA................. 897 7,848,606.01 1.02% 0 0.00 0.00% 897 7,848,606.01
NSLP................. 0 0.00 0.00% 3,720 30,882,480.31 95.97% 3,720 30,882,480.31
ECMC................. 0 0.00 0.00% 75 645,175.32 2.00% 75 645,175.32
------ --------------- ------ ----- -------------- ------ ------ ---------------
Total........ 78,613 $767,111,823.09 100.00% 3,841 $32,180,803.50 100.00% 82,454 $799,292,626.59
====== =============== ====== ===== ============== ====== ====== ===============
<CAPTION>
TOTAL
-------
PERCENT
OF
NAME OF POOL
GUARANTEE AGENCY BALANCE
---------------- -------
<S> <C>
ASA.................. 24.23%
PHEAA................ 35.19%
TERI................. 35.66%
HICA................. 0.98%
NSLP................. 3.86%
ECMC................. 0.08%
------
Total........ 100.00%
======
</TABLE>
- ---------------
(1) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$32,098,853.82 as of the Statistical Cutoff Date.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$293.86 as of the Statistical Cutoff Date.
Federal Reinsurance. Under the Higher Education Act, each Federal
Guarantor is reimbursed by the Department pursuant to certain agreements between
the Department and such Federal Guarantor for amounts paid under its Guarantee
Agreement. The amount of reimbursement by the Department for Federal Loans for
each fiscal year commencing October 1 varies for each Federal Guarantor
depending on the annual claims rate for that Federal Guarantor (i.e., the dollar
amount of reimbursement claims filed by that Federal Guarantor during that
fiscal year as a percentage of the outstanding aggregate principal amount of
those Federal Loans it guarantees whose borrowers were repaying such Federal
Loans at the end of the preceding fiscal year) and the date on which the loan is
made as follows:
<TABLE>
<CAPTION>
REIMBURSEMENT BY THE
CLAIMS RATE OF FEDERAL GUARANTORS DEPARTMENT OF EDUCATION (1)
--------------------------------- ---------------------------
<S> <C>
0% to and including 5%....................... 98%
Greater than 5% to and including 9%.......... 98% of claims to and including 5%; 88% of
claims greater than 5%
Greater than 9%.............................. 98% of claims to and including 5%; 88% of
claims greater than 5% to and including 9%;
and 78% of claims greater than 9%
</TABLE>
- ---------------
(1) Each of the reimbursement percentages listed above is increased by two
percentage points for a loan made prior to October 1, 1993 and decreased by
three percentage points for a loan made on or after October 1, 1998.
The claims experience for any Federal Guarantor is not accumulated from
year to year for purposes of this test but is determined solely on the basis of
claims filed in any one federal fiscal year. The Higher Education Act provides
that, subject to compliance with the Higher Education Act, Federal Guarantors
are deemed to have a contractual right against the United States to receive
reinsurance in accordance with its provisions.
On August 10, 1993 President Clinton signed the Omnibus Budget
Reconciliation Act of 1993, which made a number of changes that may adversely
affect the financial condition of the Federal Guarantors, including reducing to
98% the maximum percentage of Guarantee Payments the Department will
65
<PAGE> 68
reimburse for loans first disbursed on or after October 1, 1993, reducing
substantially the premiums and default collections that Federal Guarantors are
entitled to receive and/or retain and giving the Department broad powers over
Federal Guarantors and their reserves. These powers include the authority to
require a Federal Guarantor to return all reserve funds to the Department if the
Department determines such action is necessary to serve the best interests of
the student loan programs or to ensure the proper maintenance of such Federal
Guarantor's funds or assets. The Department is also now authorized to direct a
Federal Guarantor to return a portion of its reserve funds which the Department
determines is unnecessary to pay the program expenses and contingent liabilities
of the Federal Guarantor and/or to cease any activities involving the use of the
Federal Guarantor's reserve funds or assets which the Department determines is a
misapplication or otherwise improper. The Department may also terminate a
Federal Guarantor's reinsurance agreement if the Department determines that such
action is necessary to protect the federal fiscal interest. These various
changes create a significant risk that the resources available to the Federal
Guarantors to meet their guarantee obligations will be significantly reduced.
Such changes could result in a reduction of the Trust's ability to pay principal
and interest on the Notes, as a result of a reduction in the ability of the
Federal Guarantors to make Guarantee Payments to the Eligible Lender Trustee
with respect to the Financed Student Loans. In addition, this legislation sought
to greatly expand the Federal Direct Student Loan Program volume to a target of
approximately 60% of student loan demand in academic year 1998-1999, although
only about 35% of such loan demand is currently being met by the direct lending
program. The expansion of this program in the future could result in increasing
reductions in the volume of loans made under the Federal Programs. Such changes
could have an adverse effect on the financial condition of the Federal
Guarantors and on the ability of a Federal Guarantor to satisfy its obligations
under its Guarantee Agreement with respect to the Financed Federal Loans. See
"Risk Factors -- Changes in Legislation May Adversely Affect Financed Student
Loans and Guarantors." The 1998 Reauthorization Bill created additional risks
that the resources available to the Federal Guarantors to meet their guarantee
obligations will be further reduced in the future, by mandating additional
recall of guarantor reserves and reducing reinsurance to guarantors from 98% to
95% and thereby increasing guarantor risk sharing from 2% to 5%.
In issuing guarantees with respect to Student Loans, each Federal Guarantor
is required by the Higher Education Act to review loan applications to verify
the completion of required information and to make a determination that the
applicant has not borrowed amounts in excess of any applicable annual and
aggregate limits imposed by the Higher Education Act.
Pursuant to the 1992 Amendments and additional changes made in 1997 and
1998, each Federal Guarantor is required to maintain a current minimum reserve
level of at least .25% of the aggregate principal amount of all outstanding
Federal Loans guaranteed by such Federal Guarantor. Annually, the Department
will collect information from each Federal Guarantor to determine the amount of
such Federal Guarantor's reserves and other information regarding its solvency.
If a Federal Guarantor's current reserve level falls below the required minimum
for any two consecutive years, that Federal Guarantor's annual claims rate
exceeds 5% or the Department determines that a Federal Guarantor's
administrative or financial condition jeopardizes that Federal Guarantor's
continued ability to perform its responsibilities, then that Federal Guarantor
must submit and implement a management plan acceptable to the Department. The
1992 Amendments also provide that under certain circumstances the Department is
authorized, on terms and conditions satisfactory to the Department, but is not
obligated, to terminate its reimbursement agreement with any Federal Guarantor.
In that event, however, the Department is required to assume the functions of
such Federal Guarantor and in connection therewith is authorized to do one or
more of the following: to assume the guarantee obligations of, to assign to
other guarantors the guarantee obligations of, or to make advances to, a Federal
Guarantor in order to assist such Federal Guarantor in meeting its immediate
cash needs and to ensure uninterrupted payment of default claims to lenders or
to take any other action the Department deems necessary to ensure the continued
availability of student loans and the full honoring of guarantee claims
thereunder. In addition, the 1992 Amendments provide that if the Department
determines that a Federal Guarantor is unable to meet its guarantee obligations,
holders of Federal Loans covered thereby may submit guarantee claims directly to
the Department until such time as such guarantee obligations are transferred to
a new guarantor capable of
66
<PAGE> 69
meeting such obligations or until a successor guarantor assumes such
obligations. There can be no assurance that the Department would under any given
circumstances assume such obligation to ensure satisfaction of a guarantee
obligation by exercising its right to terminate a reimbursement agreement with a
Federal Guarantor or by making a determination that such Federal Guarantor is
unable to meet its guarantee obligations.
Guarantors for the Financed Federal Loans. The Higher Education Act
requires every state to designate a guarantee agency, either by establishing its
own or by designating another guarantee agency. A Guarantor who has been
designated by a particular state is obligated to guarantee loans for students
who reside or attend school in such state and must agree to provide loans to any
such students who are otherwise unable to obtain a loan from any other lender.
Guarantee agencies may guarantee a loan made to any eligible borrower and are
not limited to guaranteeing loans for students attending institutions in their
particular state or region or for their residents attending schools in another
state or region. The Eligible Lender Trustee has entered into a Guarantee
Agreement with each of PHEAA, ASA, NSLP and ECMC by which each of PHEAA, ASA,
NSLP and ECMC has agreed to serve as Guarantor for certain Financed Federal
Loans. PHEAA is the designated Student Loan guarantor for Pennsylvania, West
Virginia and Delaware, and has an established operating center in Harrisburg,
Pennsylvania. For more information concerning PHEAA, see "The Seller, the
Administrator and the Servicers -- the Servicers -- PHEAA." ASA is the
designated Student Loan guarantor for Massachusetts and the District of Columbia
and has an established operating center in Boston, Massachusetts. NSLP is the
designated Student Loan guarantor for the state of Nebraska. As of the
Statistical Cutoff Date, approximately 36.60%, 25.22%, 0.00% and 0.00% of the
aggregate outstanding principal balance of the Initial Financed Student Loans
which are Financed Federal Loans and approximately 1.57%, 0.46%, 95.97% and
2.00% of the Subsequent Pool Student Loans which are Financed Federal Loans were
guaranteed by PHEAA, ASA, NSLP and ECMC, respectively. Neither NSLP nor ECMC
guarantee any of the Initial Financed Student Loans.
Pursuant to its respective Guarantee Agreement, each of PHEAA, ASA, NSLP
and ECMC guarantees payment of 100% of the principal (including any interest
capitalized from time to time) and accrued interest for each Financed Federal
Loan guaranteed by it as to which any one of the following events has occurred:
(a) failure by the borrower thereof to make monthly principal or
interest payments on such Financed Federal Loan when due, provided such
failure continues for a period of 180 days (except that such guarantee
against such failures will be 98% of principal and accrued interest for
loans first disbursed on or after October 1, 1993);
(b) any filing by or against the borrower thereof of a petition in
bankruptcy pursuant to any chapter of the Federal bankruptcy code, as
amended;
(c) the closure of, or false certification of borrower eligibility by,
the School;
(d) the death of the borrower thereof;
(e) the total and permanent disability of the borrower thereof to work
and earn money or attend school, as certified by a qualified physician; or
(f) the failure of the borrower's school to pay a refund owed to the
borrower, to the extent of the amount of the refund that is allocable to
the loan.
When these conditions are satisfied, the Higher Education Act requires the
Guarantor generally to pay the claim within 90 days of its submission by the
lender. The obligations of PHEAA, ASA, NSLP and ECMC pursuant to their
respective Guarantee Agreements are obligations solely of PHEAA, ASA, NSLP and
ECMC respectively, and are not supported by the full faith and credit of any
state government.
Each of the Federal Guarantors' guarantee obligations with respect to any
Financed Federal Loan are conditioned upon the satisfaction of all the
conditions set forth in the applicable Guarantee Agreement. These conditions
include, but are not limited to, the following: (i) the origination and
servicing of such Financed Federal Loan being performed in accordance with the
Programs, the Higher
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<PAGE> 70
Education Act and other applicable requirements, (ii) the timely payment to
PHEAA, ASA, NSLP or ECMC, as the case may be, of the guarantee fee payable with
respect to such Financed Federal Loan, (iii) the timely submission to PHEAA,
ASA, NSLP or ECMC, as the case may be, of all required pre-claim delinquency
status notifications and of the claim with respect to such Financed Federal Loan
and (iv) the transfer and endorsement of the promissory note evidencing such
Financed Federal Loan to PHEAA, ASA, NSLP or ECMC, as the case may be, upon and
in connection with making a claim to receive Guarantee Payments thereon. Failure
to comply with any of the applicable conditions, including the foregoing, may
result in the refusal of PHEAA, ASA, NSLP or ECMC, as the case may be, to honor
their Guarantee Agreements with respect to such Financed Federal Loan, in the
denial of guarantee coverage with respect to certain accrued interest amounts
with respect thereto or in the loss of certain Interest Subsidy Payments and
Special Allowance Payments with respect thereto. Under the Sale and Servicing
Agreement, such failure to comply would constitute a breach of the applicable
Servicer's covenants or the Seller's representations and warranties, as the case
may be, and would create an obligation of the Seller or the applicable Servicer,
as the case may be, to repurchase or purchase such Financed Federal Loan or to
reimburse the Trust for such non-guaranteed interest amounts or such lost
Interest Subsidy Payments and Special Allowance Payments with respect thereto.
See "Description of the Transfer and Servicing Agreements -- Sale of Financed
Student Loans; Representations and Warranties" and "-- Servicer Covenants."
Set forth below is certain current and historical information with respect
to each of the Federal Guarantors (excluding ECMC) in its capacity as a
Guarantor of all education loans guaranteed by each of them. No such information
is provided with respect to ECMC because the aggregate principal amount of
Financed Student Loans guaranteed by ECMC is approximately .08% of the Initial
Pool Balance.
Guaranty Volume. The following table sets forth the approximate aggregate
principal amount of federally reinsured education loans (including loans under
the Parent Loans to Undergraduate Students (PLUS) program but excluding Federal
Consolidation Loans) that have first become guaranteed by each Federal Guarantor
(excluding ECMC) and by all federal guarantors in each of the last five federal
fiscal years:*
<TABLE>
<CAPTION>
STAFFORD, SLS AND PLUS LOANS GUARANTEED
---------------------------------------
(DOLLARS IN MILLIONS)
FEDERAL FISCAL ---------------------------------------
YEAR PHEAA ASA NSLP ALL GUARANTORS
- -------------- ------ ------ ---- --------------
<S> <C> <C> <C> <C>
1994 $1,747 $1,100 $378 $23,053
1995 1,808 906 351 20,951
1996 1,794 716 316 19,728
1997 1,869 682 397 --
1998 1,784 667 629 --
</TABLE>
- ---------------
* The information set forth in the table above for all guarantors has been
obtained from the Department of Education's Federal Student Loan Programs
Data Books (each, a "DOE Data Book"). Information for PHEAA, ASA and NSLP was
obtained from PHEAA, ASA and NSLP, respectively.
Reserve Ratio. Each Federal Guarantor's reserve ratio is determined by
dividing its cumulative cash reserves by the original principal amount of the
outstanding loans it has agreed to guarantee. The term "cumulative cash
reserves" refers to cash reserves plus (i) sources of funds (including insurance
premiums, state appropriations, federal advances, federal reinsurance payments,
administrative cost allowances, collections on claims paid and investment
earnings) minus (ii) uses of funds (including claims paid to lenders, operating
expenses, lender fees, the Department's share of collections on claims paid,
returned advances and reinsurance fees). The "original principal amount of
outstanding loans" consists of the original principal amount of loans guaranteed
by such Federal Guarantor minus (i) the original principal amount of loans
canceled, claims paid, loans paid in full and loan guarantees transferred
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<PAGE> 71
from such Federal Guarantor to other guarantors, plus (ii) the original
principal amount of loan guarantees transferred to such Federal Guarantor from
other guarantors. ECMC has advised the Seller that ECMC's Agreements with the
Department require that on an annual basis, ECMC calculate the amount of reserve
funds and the amount of its expenses during the fiscal year in accordance with
directions of the Secretary. Unless the Secretary directs otherwise, if the
amount of ECMC's reserve funds exceeds 60 percent of the expenses, ECMC shall
return the excess reserves to the Secretary at the time of submitting the annual
report. The following tables set forth for each of PHEAA, ASA and NSLP, their
respective cumulative cash reserves and corresponding reserve ratios and the
national average reserve ratio for all federal guarantors for the last five
federal fiscal years:*
<TABLE>
<CAPTION>
PHEAA ASA NSLP
-------------------- --------------------- --------------------
FEDERAL CUMULATIVE CUMULATIVE CUMULATIVE
FISCAL CASH RESERVE CASH RESERVE CASH RESERVE NATIONAL
YEAR RESERVES RATIO RESERVES RATIO RESERVES RATIO AVERAGE
- ------- ---------- ------- ---------- ------- ---------- ------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
1994 $133.63 1.3 $38.16 0.7 $16.44 1.3 1.4
1995 166.31 1.5 43.06 0.8 18.53 1.3 1.6
1996 214.74 1.6 51.08 0.9 21.17 1.3 --
1997 189.35 1.4 39.29 0.7 24.07 1.2 --
1998 190.65 1.3 39.02 0.6 30.99 1.3 --
</TABLE>
- ---------------
* The information set forth in the tables above with respect to PHEAA, ASA and
NSLP has been obtained from PHEAA, ASA and NSLP, respectively, and the
information with respect to the national average has been obtained from the
DOE Data Books.
Recovery Rates. A Federal Guarantor's recovery rate, which provides a
measure of the effectiveness of the collection efforts against defaulting
borrowers after the guarantee claim has been satisfied, is determined by
dividing the amount recovered from borrowers by the Federal Guarantor by the
aggregate amount of default claims paid by the Federal Guarantor during the
applicable federal fiscal year with respect to borrowers. The table below sets
forth the recovery rates for each of PHEAA, ASA and NSLP for the last five
federal fiscal years:*
<TABLE>
<CAPTION>
FEDERAL RECOVERY RATE
FISCAL -----------------------------
YEAR PHEAA ASA NSLP
- ------- ----- ---- ----
<S> <C> <C> <C>
1994 52.9 43.3 19.8
1995 53.3 43.4 21.3
1996 55.0 41.3 26.6
1997 54.8 42.7 31.5
1998 59.2 49.0 38.0
</TABLE>
- ---------------
* Information for PHEAA, ASA and NSLP was provided by each entity,
respectively.
Loan Loss Reserve. In the event that a Federal Guarantor receives less
than full reimbursement of its guarantee obligations from the Department (see
" -- Federal Reinsurance" above), such Federal Guarantor would be forced to look
to its existing assets to satisfy any such guarantee obligations not so
reimbursed. Because Federal Guarantors are no longer reinsured by the Department
at 100% (98% for loans disbursed between October 1, 1993 and October 1, 1998 and
95% for loans disbursed on and after October 1, 1998), many Federal Guarantors
have begun to maintain reserves for the 2% to 5% "risk-sharing" associated with
these guarantees. In general, the Federal Guarantors use historical default and
recovery rates to attempt to predict the reserves that should be maintained for
this purpose. As of September 30, 1998, PHEAA has a loan loss reserve in the
amount of $190.7 million. ASA has a loan loss reserve in the amount of $6.3
million and NSLP maintains a reserve of $3.96 million.
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<PAGE> 72
Claims Rate. For the past five federal fiscal years, none of PHEAA's, ASA's
or NSLP's claims rate has exceeded 5%, and as a result, all claims of PHEAA, ASA
and NSLP have been reimbursed by the Department at the maximum reinsurance rate
permitted by the Higher Education Act. See " -- Federal Reinsurance" above.
Nevertheless, there can be no assurance that any Federal Guarantor will continue
to receive such maximum reimbursement for such claims. The following table sets
forth the claims rates of each Federal Guarantor (excluding ECMC) for each of
the last five federal fiscal years:*
<TABLE>
<CAPTION>
FEDERAL CLAIMS RATE
FISCAL ----------------------------
YEAR PHEAA ASA NSLP
- ------- ----- --- ----
<S> <C> <C> <C>
1994 2.2 3.5 3.0
1995 2.0 3.5 4.1
1996 1.6 3.1 3.1
1997 1.9 3.5 3.2
1998 2.0 2.8 3.2
</TABLE>
- ---------------
* Information for PHEAA, ASA and NSLP was provided by each entity,
respectively.
Guarantors for the Financed Private Loans. The Eligible Lender Trustee
will enter into a Guarantee Agreement with TERI and the Seller will assign to
the Eligible Lender Trustee, on behalf of the Trust its rights under surety
bonds issued by HICA applicable to the Financed Student Loans insured by HICA.
As a result TERI and HICA, respectively, will agree to guarantee or insure
certain Financed Private Loans.
Pursuant to its respective Guarantee Agreement, each of TERI and HICA
guarantees or insures payment of 100% of the principal (including any interest
or fees capitalized from time to time) and accrued interest for each Financed
Private Loan guaranteed or insured by it as to which any one of the following
events has occurred:
(a) failure by the borrower thereof to make monthly principal or
interest payments on such Financed Private Loan when due, provided such
failure continues for a period of 120 days (150 days for HICA);
(b) any filing by or against the borrower thereof of a petition in
bankruptcy pursuant to any chapter of the Federal bankruptcy code, as
amended, (with respect to the Private Loans insured by HICA, subject to the
restrictions contained in the HICA Surety Bonds);
(c) the death of the borrower thereof; or
(d) the total and permanent disability of the borrower thereof to be
employed on a full-time basis, as certified by two qualified physicians,
(with respect to the Private Loans insured by HICA, subject to the
restrictions contained in the HICA Surety Bonds).
TERI's and HICA's guarantee/insurance obligation with respect to any
Financed Private Loan is conditioned upon the satisfaction of all the conditions
set forth in the applicable Guarantee Agreement between TERI or HICA and the
Eligible Lender Trustee. These conditions include, but are not limited to, the
following: (i) the origination and servicing of such Financed Private Loan being
performed in accordance with the Programs and other applicable requirements,
(ii) the timely payment to TERI or HICA, as the case may be, of all guarantee
fees or premiums payable with respect to such Financed Private Loan, (iii) the
timely submission to TERI or HICA, as the case may be, of all required pre-claim
delinquency status notifications and of the claim with respect to such Financed
Private Loan and (iv) the transfer and endorsement of the promissory note
evidencing such Financed Private Loan to TERI or HICA, as the case may be, upon
and in connection with making a claim to receive Guarantee Payments thereon.
Failure to comply with any of the applicable conditions, including the
foregoing, may result in the refusal of TERI or HICA, as the case may be, to
honor its Guarantee Agreement with respect to such Financed Private Loan. In
addition, in the event that any Financed Private Loan is determined to be
unenforceable
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<PAGE> 73
because the terms of such Financed Private Loan or the forms of the application
or promissory note related thereto violate any provisions of applicable state
law, TERI's guarantee obligation is reduced to 50% and HICA's is reduced to 0%
of principal (including capitalized interest and fees) and accrued interest with
respect to such Financed Private Loan. Under the Sale and Servicing Agreement,
such failure to comply or such unenforceability would constitute a breach of the
applicable Servicer's covenants or the Seller's representations and warranties,
as the case may be, and would create an obligation of the Seller to repurchase
such Financed Private Loan or of the applicable Servicer to purchase such
Financed Private Loan. See "Description of the Transfer and Servicing
Agreements -- Sale of Financed Student Loans; Representations and Warranties"
and "-- Servicer Covenants."
TERI and HICA, as Guarantors of Private Loans, are not entitled to any
federal reinsurance or assistance from the Department or any other governmental
entity. Although each Private Guarantor maintains a loan loss reserve intended
to absorb losses arising from its guarantee/insurance commitments, there can be
no assurance that the amount of such reserve will be sufficient to cover the
obligations of TERI or HICA over the term of the Financed Private Loans. Based
upon the Rating Agencies' assessment of the financial position, reserves and
potential claims against TERI and HICA, respectively, the Seller has structured
the Trust and the Securities assuming that neither TERI nor HICA will have the
financial resources to satisfy all its obligations under its respective
Guarantee Agreement with respect to the Financed Private Loans throughout the
term of such loans.
Certain organizational and summary financial information with respect to
each of TERI and HICA in its capacity as a Guarantor is set forth below; such
information is not guaranteed as to accuracy or completeness and is not to be
construed as a representation by the Seller or any of the Underwriters:
TERI
TERI was incorporated in 1985 to guarantee Student Loans. TERI is a
Massachusetts non-profit corporation headquartered in Boston, Massachusetts and
employs approximately 170 people, as of September 30, 1998.
Guaranty Volume. The following table sets forth the non-federally
reinsured education loans that have first become guaranteed by TERI in each of
the five calendar years and the nine-month period referred to below; such
information is not guaranteed as to accuracy or completeness and is not to be
construed as a representation by the Seller or any of the Underwriters:
<TABLE>
<CAPTION>
PRIVATE LOANS
CALENDAR YEAR GUARANTEED BY YEAR
------------- ------------------
(DOLLARS IN MILLIONS)
<S> <C>
1993........................................................ $342.9
1994........................................................ 292.2
1995........................................................ 303.4
1996........................................................ 339.7
1997........................................................ 332.6
1998*....................................................... 267.9
======
</TABLE>
- ---------------
* For the nine-month period ending September 30, 1998.
Proprietary School Loans. Default rates for Student Loans made to students
attending proprietary or vocational schools are significantly higher than those
made to students attending other 2-year and 4-year institutions. Except for a
few selected, accredited proprietary schools which grant degrees, TERI does not
guarantee student loans made to students attending proprietary or vocational
schools.
Reserve Ratio. Unlike the Federal Guarantors, TERI computes its reserve
ratio by dividing the "Total Amounts Available To Meet Guarantee Commitments" by
the "total loans outstanding." TERI defines "Total Amounts Available to Meet
Guarantee Commitments" as the sum of the amounts set forth below under the
caption "Amounts Available To Meet Guarantee Commitments" (which amounts include
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<PAGE> 74
for this purpose the segregated reserves described below under the caption
"Segregated Reserves for Private Loans Under the Programs"). TERI defines "total
loans outstanding" as the total outstanding principal amount of all loans it has
agreed to guarantee as of December 31 of each year. Consequently, the reserve
ratio information provided above for the Federal Guarantors is not comparable to
that provided for TERI below. The following table sets forth TERI's reserve
ratio as of December 31 for the five calendar years and the nine-month period
referred to below; such information is not guaranteed as to accuracy or
completeness and is not to be construed as a representation by the Seller or any
of the Underwriters:
<TABLE>
<CAPTION>
AMOUNTS AVAILABLE
TO MEET
GUARANTEE RESERVE
CALENDAR YEAR COMMITMENTS RATIO
------------- ----------------- -----------
(DOLLARS IN (UNAUDITED)
THOUSANDS)
(UNAUDITED)
<S> <C> <C>
1993.............................................. $ 75,974 7.0%
1994.............................................. 73,624 6.1%
1995.............................................. 83,937 5.7%
1996.............................................. 96,362 5.7%
1997.............................................. 102,201 5.4%
1998*............................................. 103,223 5.1%
</TABLE>
- ---------------
* For the nine-month period ending September 30, 1998.
Amounts Available To Meet Guarantee Commitments. As part of guarantee
agreements with lending institutions, with certain such agreements being revised
in 1997, TERI has agreed to hold as security for its guarantees a percentage of
the amount of unpaid principal on outstanding loans which ranges from 2.0% to
4.5% in total TERI funds available as security for the performance of TERI
obligations. For a more detailed discussion of such amendments and the related
risks, see "Risk Factors -- Dependence on Guarantors as Security for Financed
Student Loans." At December 31, 1997, the balance of loans outstanding
guaranteed directly and indirectly by TERI amounted to approximately $1.9
billion and $0.25 billion, respectively. At December 31, 1997, TERI was required
to have approximately $84.7 million in reserves (consisting of loan loss
reserves, deferred revenue and unrestricted and/or temporarily unrestricted net
assets) available as security for TERI's performance as guarantor. The
unrestricted and/or temporarily unrestricted net assets consist of amounts in
the Designated Purposes Fund, the Guarantee Reserve Fund and the Operating Fund
set forth below.
As of the end of each of the five calendar years and the nine-month period
referred to below, TERI had available the following funds and reserves to meet
its loan guarantee commitments; such information is not guaranteed as to
accuracy or completeness and is not to be construed as a representation by the
Seller or any of the Underwriters:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------ SEPTEMBER 30,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- -------- -------------
(AS RESTATED)
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Deferred Guarantee Fees........ $ 5,564 $ 5,269 $ 5,234 $ 5,140 $ 5,032 $ 4,526
Loan Loss Reserve.............. 38,269 29,629 29,092 57,006 56,999 54,667
Unrestricted -- Board
Designated................... 22,876 33,151 46,063 31,169 33,951 33,944
Unrestricted -- Undesignated... 9,264 5,579 3,548 3,047 6,219 10,086
------- ------- ------- ------- -------- --------
Total Amounts Available To Meet
Guarantee Commitments........ $75,974 $73,624 $83,937 $96,362 $102,201 $103,223
======= ======= ======= ======= ======== ========
</TABLE>
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<PAGE> 75
Subject to the minimum restrictions imposed by lending institutions and the
segregated reserves discussed below under "Segregated Reserves for Private Loans
Under the Programs," TERI establishes its loan loss reserve based on its
management's estimates of probable losses arising from its guarantee
commitments, based on the historical experience of TERI and those of other
lending institutions and programs, and based on the results of a semi-annual
actuarial study provided by an independent third party. TERI has significantly
increased its total amounts available to meet guarantee commitments over the
last two years in conjunction with an increase in the outstanding principal
amount of loans guaranteed by TERI over such period. TERI has advised the Seller
that it is currently in compliance with all operating reserves requirements
contained in guarantee agreements TERI has in place with other student loan
lenders and other trustees under prior securitizations of student loans.
However, there can be no assurance that such compliance will continue.
Recovery Rate. Unlike the Federal Guarantors' calculation of recovery rates
discussed above, which consists of an annual measure of recoveries as compared
to default claims, the recovery rate for TERI is determined by dividing the
cumulative amount recovered from borrowers by the cumulative amount of default
claims paid by TERI as a guarantor for the year when the loan defaulted.
Consequently, the recovery rate information provided above for the Federal
Guarantors is not comparable to that provided for TERI below. TERI's recovery
rates as of September 30, 1998, with respect to loans defaulting in each of the
five calendar years and the nine-month period referred to below are as follows;
such information is not guaranteed as to accuracy or completeness and is not to
be construed as a representation by the Seller or any of the Underwriters:
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD OF CASH RECOVERY RATE
DEFAULT (UNAUDITED)
--------- ------------------
<S> <C> <C>
1993.......................................... 52% (January 1, 1993--September 30, 1998)
1994.......................................... 44% (January 1, 1994--September 30, 1998)
1995.......................................... 38% (January 1, 1995--September 30, 1998)
1996.......................................... 26% (January 1, 1996--September 30, 1998)
1997.......................................... 21% (January 1, 1997--September 30, 1998)
1998*......................................... 7% (January 1, 1998--September 30, 1998)
</TABLE>
- ---------------
* For the nine-month period ending September 30, 1998.
The appearance of a declining trend in the foregoing recovery rates can
largely be attributed to the fact that each succeeding default year listed above
includes one fewer year in which to obtain recoveries for the amounts paid out
on guarantee claims in the default year.
Claims Rate. Unlike the Federal Guarantors' calculation of claims rates
discussed above, which consists of an annual measure of claims made to
outstanding loan balances guaranteed at the start of that year, the claims rate
for TERI set forth below is based on the aggregate amount of claims, whenever
paid, on loans guaranteed by TERI in a particular year or period. The "Cohort
Default Rate" refers to the total principal amount of defaulted loans for which
guarantee payments were made by TERI (exclusive of any subsequent recoveries by
TERI) for the cohort year (or period) as a percentage of the aggregate principal
amount of loans guaranteed by TERI for the cohort year (or period). As a result,
the claims rate information provided above for the Federal Guarantors is not
comparable to that provided for TERI below. The following table sets forth the
total loans guaranteed, total defaults paid and the cohort default rate as of
September 30 for each of the five calendar years and the nine-month period
referred to below; such
73
<PAGE> 76
information is not guaranteed as to accuracy or completeness and is not to be
construed as a representation by the Seller or any of the Underwriters:
<TABLE>
<CAPTION>
TOTAL $ LOANS TOTAL DEFAULTS PAID FOR
GUARANTEED LOANS GUARANTEED IN COHORT
COHORT YEAR IN COHORT YEAR COHORT YEAR DEFAULT RATE
----------- -------------- ----------------------- ------------
(DOLLARS IN (UNAUDITED)
THOUSANDS) (DOLLARS IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
1993.......................................... $342,938 $22,446 6.55%
1994.......................................... 292,289 13,009 4.45%
1995.......................................... 303,369 10,177 3.35%
1996.......................................... 339,675 4,362 1.28%
1997.......................................... 332,530 1,201 0.36%
1998*......................................... 267,920 96 0.04%
</TABLE>
- ---------------
* For the nine-month period ending September 30, 1998.
The declining trend reflected above in the claims rates experienced by TERI
can largely be attributed to the fact that in each succeeding cohort year fewer
loans guaranteed by TERI were in repayment. As the number of loans entering
repayment increases, the percentage of loans becoming delinquent and
subsequently defaulting also tends to increase. There can be no assurance that
the claims rate experience of TERI for any future year will be similar to the
historical claims rate experience set forth above.
Segregated Reserves for Private Loans Under the Programs Guaranteed by
TERI. A portion of the reserves described above that are maintained by TERI have
been segregated solely to support its guarantee obligations under the Programs.
These segregated reserves, which are not available to cover TERI-guaranteed
loans outside of the Programs, are equally available to all holders of TERI
guaranteed Private Loans made since 1990-1991, which include both the Seller and
third-party purchasers of the Seller's TERI guaranteed Private Loans under the
Programs, including but not limited to the Eligible Lender Trustee on behalf of
the Trust. Draws on such segregated reserves will be paid in the order received,
to the extent of amounts remaining in the segregated reserve account.
Consequently, there may be one or more owners of such Private Loans for which a
claim could, in the event of a default by a student borrower, be filed against
such segregated reserves. As a result, there can be no assurance that amounts in
these segregated reserves will be available to support Guarantee Payments by
TERI owing in respect of the Financed Private Loans made under the
aforementioned Programs, or that such amounts, if available, will be sufficient
to satisfy all existing Guarantee Payments due with respect to such Financed
Private Loans. The Seller will assign the portion of its rights under the
agreement implementing these segregated reserves that is attributable to such
Financed Private Loans to the Trust.
TERI has agreed that it will provide a copy of its most recent audited
financial statements to Securityholders upon receipt of a written request
directed to its Chief Financial Officer, 330 Stuart Street, Suite 500, Boston,
Massachusetts 02116.
HICA
The Eligible Lender Trustee will take an assignment of Surety Bonds by
which HICA has insured Financed Private Loans. HICA was incorporated in 1986 to
provide insurance coverage to lenders against credit losses on
education-related, non-federally insured loans to students attending
post-secondary educational institutions. HICA is a licensed, regulated insurance
company incorporated in South Dakota and headquartered in Sioux Falls, and
employs approximately 30 people as of September 30, 1998. HICA is an indirect
subsidiary of SLM Holding Corporation.
Insurance Volume. The following table sets forth the amount of loans that
have first become insured by HICA in each of the six calendar years referred to
below; such information is not guaranteed as to
74
<PAGE> 77
accuracy or completeness and is not to be construed as a representation by the
Seller or any of the Underwriters:
<TABLE>
<CAPTION>
PRIVATE LOANS INSURED
CALENDAR YEAR BY YEAR
------------- ---------------------
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
1993........................................................ $135
1994........................................................ 161
1995........................................................ 173
1996........................................................ 256
1997........................................................ 286
1998........................................................ 267
</TABLE>
HICA has agreed that it will provide a copy of its most recent audited
financial statements to Securityholders upon receipt of a written request
directed to Mr. Bruce Olson, Treasurer, 7633 Mount Carmel Drive, Orlando,
Florida 32835.
POOL FACTORS AND TRADING INFORMATION
Each of the "Class A-1 Note Pool Factor," the "Class A-2 Note Pool Factor"
and the "Certificate Pool Factor" (each, a "Pool Factor") is a seven-digit
decimal which the Administrator will compute for each Distribution Date
indicating the remaining outstanding principal balance of each class of Notes or
the Certificate Balance of each class of Certificates, respectively, as of that
Distribution Date (after giving effect to distributions on such Distribution
Date), as a fraction of the initial outstanding principal balance of each class
of Notes or each class of Certificates, respectively. Each Pool Factor will be
1.0000000 as of the Closing Date, and thereafter will decline to reflect
reductions in the outstanding principal balance of each class of Notes or the
Certificate Balance, as applicable. A Securityholder's portion of the aggregate
outstanding principal balance of each class of Notes or the Certificate Balance,
as applicable, is the product of (i) the original denomination of that
Securityholder's Note or Certificate and (ii) the applicable Pool Factor.
Pursuant to the Indenture and the Trust Agreement, the Securityholders will
receive quarterly reports concerning the payments received on the Financed
Student Loans, the reduction of the Pre-Funded Amount resulting from Additional
Fundings, the Pool Balance, the Pool Factor and various other items of
information. Securityholders of record during any calendar year will be
furnished information for tax reporting purposes not later than the latest date
permitted by law. See "Description of the Securities -- Reports to
Securityholders."
DESCRIPTION OF THE SECURITIES
Terms used in this section and not previously defined and not defined
herein are defined under "Description of the Transfer and Servicing Agreements
-- Distributions."
GENERAL
The Notes will be issued pursuant to the terms of the Indenture and the
Certificates will be issued pursuant to the terms of the Trust Agreement. The
following summary describes certain terms of the Notes, the Certificates, the
Indenture and the Trust Agreement. The summary does not purport to be complete
and is qualified in its entirety by reference to the provisions of the Notes,
the Certificates, the Indenture and the Trust Agreement.
Each class of Securities will initially be represented by one or more Notes
and Certificates, respectively, in each case registered in the name of the
nominee of DTC (together with any successor depository selected by the
Administrator, the "Depository"), except as set forth below. The Securities will
be available for purchase in denominations of $1,000 and integral multiples of
$1,000 in excess
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<PAGE> 78
thereof in book-entry form only. The Trust has been informed by DTC that DTC's
nominee will be Cede. Accordingly, Cede is expected to be the holder of record
of the Securities. Unless and until Definitive Notes or Definitive Certificates
are issued under the limited circumstances described herein, no Noteholder or
Certificateholder will be entitled to receive a physical certificate
representing a Note or Certificate. All references herein to actions by
Noteholders or Certificateholders refer to actions taken by DTC upon
instructions from its participating organizations (the "Participants") and all
references herein to distributions, notices, reports and statements to
Noteholders or Certificateholders refer to distributions, notices, reports and
statements to DTC or Cede, as the registered holder of the Notes or the
Certificates, as the case may be, for distribution to Noteholders or
Certificateholders in accordance with DTC's procedures with respect thereto. See
" -- Book-Entry Registration" and " -- Definitive Securities."
THE NOTES
Distributions of Interest. Interest will accrue on the principal balance of
each class of Notes at a rate per annum equal to the lesser of the Formula Rate
for such Notes and the Student Loan Rate (each such interest rate being a "Note
Interest Rate"). Interest will accrue from and including the Closing Date or
from the most recent Distribution Date on which interest has been paid to but
excluding the current Distribution Date (each, an "Interest Period") and will be
payable to the Noteholders on each Distribution Date. Interest accrued as of any
Distribution Date but not paid on such Distribution Date will be due on the next
Distribution Date together with an amount equal to interest on such amount at
the applicable Note Interest Rate. Interest payments on the Notes for any
Distribution Date will generally be funded from Available Funds and amounts on
deposit in the Reserve Account and, under certain limited circumstances, the
Pre-Funding Account remaining after the distribution of the Servicing Fee for
each of the two immediately preceding Monthly Servicing Payment Dates and of the
Servicing Fee, and the Administration Fee for each Distribution Date. See
"Description of the Transfer and Servicing Agreements -- Distributions" and
" -- Credit Enhancement." If such sources are insufficient to pay the
Noteholders' Interest Distribution Amount for such Distribution Date, such
shortfall will be allocated pro rata to the Noteholders (based upon the total
amount of interest then due on each class of Notes).
"Formula Rate" means for any class of Securities, the applicable Investor
Index plus the applicable Margin.
"Investor Index" means (x) in the case of the T-Bill Indexed Securities,
the daily weighted average of the T-Bill Rates within such Interest Period
(determined as described under "--Determination of the T-Bill Rate") or (y) in
the case of the LIBOR Indexed Securities, Three Month LIBOR (determined as
described under "--Determination of LIBOR").
In the case of any LIBOR Indexed Securities and the initial Interest
Period, interest will accrue for the period from the Closing Date to but
excluding March 29, 1999 based on Three Month LIBOR as determined on the initial
LIBOR Determination Date and for the period from March 29, 1999 to but excluding
June 28, 1999 based on Three Month LIBOR as determined on the LIBOR
Determination Date in March 1999. See "-- Determination of LIBOR."
The "Margin" for each class of Securities is as set forth under "Summary of
Terms -- Transaction Overview -- Interest."
The "Student Loan Rate" for any class of Securities for any Interest Period
will equal the product of (a) the quotient obtained by dividing (i) 365 (or 366
in a leap year) by (ii) the actual number of days elapsed in such Interest
Period and (b) the percentage equivalent of a fraction, (i) the numerator of
which is equal to Expected Interest Collections for the Collection Period
relating to such Interest Period less the Servicing Fees and the Administration
Fee and payable on the related Distribution Date and any Servicing Fees paid on
the two preceding Monthly Servicing Payment Dates during the related Collection
Period and (ii) the denominator of which is the outstanding principal balance of
the Securities as of the first day of such Interest Period.
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<PAGE> 79
"Expected Interest Collections" means, with respect to any Collection
Period, the sum of (i) the amount of interest accrued, net of amounts required
by the Higher Education Act to be paid to the Department or to be repaid to
borrowers, with respect to the Financed Student Loans for such Collection Period
(whether or not such interest is actually paid), (ii) all Interest Subsidy
Payments and Special Allowance Payments expected to be received by the Eligible
Lender Trustee for such Collection Period (whether or not actually received)
with respect to the Financed Federal Loans and (iii) Investment Earnings for
such Collection Period.
Any Noteholders' Interest Index Carryover due on the Notes that may exist
on any Distribution Date will be payable to holders of the Notes on that
Distribution Date on a pro rata basis, based on the amount of the Noteholders'
Interest Index Carryover then owing on the Notes, and on any succeeding
Distribution Dates, solely out of the amount of Available Funds remaining in the
Collection Account on any such Distribution Date after distribution of the
amounts set forth in "Description of the Transfer and Servicing
Agreements -- Distributions." No amounts on deposit in the Reserve Account or
the Pre-Funding Account will be available to pay any Noteholders' Interest Index
Carryover. Any amount of Noteholders' Interest Index Carryover due on the Notes
remaining after distribution of all Available Funds on the applicable Note Final
Maturity Date will never become due and payable and will be discharged on such
date.
Distributions of Principal. Principal payments will be made to the holders
of the Notes on each Distribution Date in an amount generally equal to the
Principal Distribution Amount for such Distribution Date, until the principal
balance of the Notes is reduced to zero. Principal payments on the Notes will
generally be derived from Available Funds remaining after the distribution of
the amounts set forth in "Description of the Transfer and Servicing
Agreements -- Distributions," provided, that, on any Distribution Date that the
principal balance of the Notes exceeds the Note Collateralization Amount, an
amount equal to the Noteholders' Priority Principal Distribution Amount will be
distributed to Noteholders prior to any payments to Certificateholders. If such
remaining amount of Available Funds is insufficient to pay the Noteholders'
Priority Principal Distribution Amount, for any Distribution Date, such
shortfall will be distributable to the Noteholders on subsequent Distribution
Dates and (except with respect to the Final Maturity Date for such classes of
Notes), such shortfall will not constitute an Event of Default. In addition, in
the event the Financed Student Loans are not sold pursuant to the auction
process described under "Description of the Transfer and Servicing
Agreements -- Termination," with respect to any Distribution Date occurring on
or after the March 2009 Distribution Date, the Specified Collateral Balance
shall be reduced to zero and all amounts on deposit in the Collection Account
(after distribution of the Servicing Fee for each of the two immediately
preceding Monthly Servicing Payment Dates and the Servicing Fee, the
Administrative Fee, the Noteholders' Interest Distribution Amount, any
Noteholders' Priority Principal Distribution Amount, the Certificateholders'
Interest Distribution Amount and any amounts necessary to reinstate the balance
of the Reserve Account to the Specified Reserve Account Balance on such
Distribution Date) will be distributed to the Noteholders and then to the
Certificateholders as principal until the outstanding principal balance of the
Notes and Certificates has been reduced to zero. See "Description of the
Transfer and Servicing Agreements -- Termination."
Principal payments on the Notes will be applied on each Distribution Date,
first, to the principal balance of the Class A-1 Notes until such principal
balance is reduced to zero and then to the principal balance of the Class A-2
Notes until such principal balance is reduced to zero. The aggregate outstanding
principal amount of each class of Notes will be payable in full on the
respective Final Maturity Dates for each such class of Notes. The dates on which
the Final Maturity Dates occur for each class of Notes are set forth in "Summary
of Terms -- Transaction Overview -- Maturity Dates." On the Final Maturity Date,
for each class of Notes, amounts on deposit in the Reserve Account, if any, will
be available, if necessary, to be applied to reduce the principal balance of
such class of Notes to zero. Although the maturity of many of the Financed
Student Loans will extend well beyond such final maturity dates, the actual date
on which the aggregate outstanding principal and accrued interest of any class
of Notes are paid may be earlier than the Final Maturity Date for such class of
Notes, based on a variety of factors, including those described above under
"Risk Factors -- Prepayment Risk from Pre-Funded
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<PAGE> 80
Amount," "-- Prepayment, Maturity and Yield Risks," "-- Prepayment Risks Differ
Between the Notes and the Certificates" and "The Financed Student Loan
Pool -- Maturity and Prepayment Assumptions."
Mandatory Redemption. If, as of the Special Determination Date, the
Subsequent Pool Pre-Funded Amount has not been reduced to zero, then the
remaining Subsequent Pool Pre-Funded Amount, if greater than $10,000,000, will
be distributed on the first Distribution Date thereafter to redeem each class of
Notes and prepay the Certificates on a pro rata basis, based on the initial
principal amount of each class of Notes and the initial Certificate Balance of
the Certificates; if such amount is $10,000,000 or less, it will be distributed
on the first Distribution Date thereafter only to holders of the Class A-1
Notes.
THE CERTIFICATES
Distributions of Interest. Interest will accrue on the Certificate Balance
at a rate per annum equal to the lesser of the Formula Rate for the Certificates
and the Student Loan Rate (such interest rate being the "Certificate Rate").
Such amount will be distributable quarterly on each Distribution Date. Interest
distributions due for any Distribution Date but not distributed on such
Distribution Date will be due on the next Distribution Date, increased by an
amount equal to interest on such amount at the Certificate Rate. Interest
distributions with respect to the Certificates for such Distribution Date will
generally be funded from the portion of the Available Funds and the amounts on
deposit in the Reserve Account and, under certain limited circumstances, the
Pre-Funding Account remaining after distribution of the amounts set forth in
"Description of the Transfer and Servicing Agreements -- Distributions" for such
Distribution Date. See "Description of the Transfer and Servicing
Agreements -- Distributions," "-- Credit Enhancement -- Reserve Account" and
"-- Additional Fundings."
Any Certificateholders' Interest Index Carryover due on the Certificates
that may exist on any Distribution Date will be payable on that Distribution
Date on a pro rata basis and any succeeding Distribution Dates solely out of the
amount of Available Funds remaining in the Collection Account on any such
Distribution Date after distribution of the amounts set forth in "Description of
the Transfer and Servicing Agreements -- Distributions." No amounts on deposit
in the Reserve Account or Pre-Funding Account will be available to pay any
Certificateholders' Interest Index Carryover. Any amount of Certificateholders'
Interest Index Carryover due on the Certificates remaining after distribution of
all Available Funds on the Final Maturity Date for the Certificates will never
become due and payable and will be discharged on such date.
Distributions of Principal. The Certificates will be entitled to
distributions on each Distribution Date on and after which the Notes are paid in
full in an amount generally equal to the Principal Distribution Amount for such
Distribution Date. Distributions with respect to principal payments on the
Certificates for such Distribution Date will generally be funded from the
portion of Available Funds remaining after distribution of the amounts set forth
in "Description of the Transfer and Servicing Agreements -- Distributions". See
"Description of the Transfer and Servicing Agreements -- Distributions" and
"-- Credit Enhancement -- Reserve Account."
The outstanding Certificate Balance will be payable in full on the Final
Maturity Date for the Certificates. The Final Maturity Date for the Certificates
is set forth in "Summary of Terms -- Transaction Overview -- Maturity Dates." On
the Final Maturity Date for the Certificates, amounts on deposit in the Reserve
Account, if any, will be available, if necessary, to be applied to reduce the
Certificate Balance to zero. The actual date on which the aggregate outstanding
Certificate Balance and accrued interest of the Certificates will be paid may be
earlier than the Final Maturity Date for the Certificates, however, based on a
variety of factors, including those described above under "Risk
Factors -- Prepayment Risk from Pre-Funded Amount," "-- Prepayment, Maturity and
Yield Risks," "-- Prepayment Risks Differ Between the Notes and the
Certificates" and "The Financed Student Loan Pool -- Maturity and Prepayment
Assumptions."
Subordination of the Certificates. The rights of the holders of the
Certificates to receive payments of interest are subordinated to the rights of
the holders of the Notes to receive payments of interest (and in certain
circumstances, principal) and the rights of the holders of the Certificates to
receive payments of
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principal are subordinated to the rights of the holders of the Notes to receive
payments of interest and principal. Consequently, amounts on deposit in the
Collection Account and to the extent necessary, the Reserve Account and, during
the Funding Period, the Other Additional Pre-Funding Subaccount, will be applied
to the payment of interest on the Notes before payment of interest on the
Certificates. Moreover, the holders of the Certificates will not be entitled to
any payments of principal until the Notes are paid in full. In addition, if (i)
an Event of Default occurs and is continuing under the Indenture or (ii) an
Insolvency Event occurs and the Financed Student Loans are liquidated, all
amounts due on the Notes will be payable before any amounts are payable on the
Certificates. Additionally, if on any Distribution Date the outstanding
principal balance of the Notes (prior to giving effect to distributions on such
Distribution Date) is in excess of the Note Collateralization Amount, principal
will be payable to the holders of the Notes in the amount of such excess to the
extent of funds available before any amounts are payable to the holders of the
Certificates. If amounts otherwise allocable to the Certificates are used to
fund payments of interest or principal on the Notes, distributions with respect
to the Certificates may be delayed or reduced.
DETERMINATION OF THE T-BILL RATE
"T-Bill Rate" means, on any day, the weighted average per annum discount
rate (expressed on a bond equivalent basis and applied on a daily basis) for
91-day Treasury bills sold at the most recent 91-day Treasury bill auction prior
to such date, as reported by the U.S. Department of the Treasury. In the event
that the results of the auctions of 91-day Treasury bills cease to be reported
as provided above, or that no such auction is held in a particular week, then
the T-Bill Rate in effect as a result of the last such publication or report
will remain in effect until such time, if any, as the results of auctions of
91-day Treasury bills shall again be reported or such an auction is held, as the
case may be. The T-Bill Rate will be subject to a Lock-In Period of six Business
Days.
"Lock-In Period" means the number of days preceding any Distribution Date
during which the Note Interest Rate or Certificate Rate, as applicable, in
effect on the first day of such period will remain in effect until the end of
the Accrual Period related to such Distribution Date.
Accrued interest on any class of Notes (and the Certificates) which are
T-Bill Indexed Securities from and including the Closing Date or the preceding
Distribution Date, as applicable, to but excluding the current Distribution Date
is calculated by multiplying the principal amount of the Notes (or the
Certificate Balance) by an "accrued interest factor." This factor is calculated
by adding the interest rates applicable to each day on which each Note has been
outstanding since the Closing Date or the preceding Distribution Date, as
applicable, and dividing the sum by 365 (or by 366 in the case of accrued
interest which is payable on a Distribution Date in a leap year) and rounding
the resulting number to nine decimal places.
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<PAGE> 82
The following table sets forth the accrued interest factors that would have
been applicable to any Notes which are T-Bill Indexed Securities bearing
interest at the indicated rates, assuming a 365-day year:
<TABLE>
<CAPTION>
ASSUMED INTEREST
-----------------------
SETTLEMENT DAYS RATE ON INTEREST
DATE OUTSTANDING THE NOTES FACTOR
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
1st ..................................... 5.00000% 0.000000000
2nd ..................................... 1 5.00000 0.000136986
3rd ..................................... 2 5.00000 0.000273973
4th ..................................... 3 5.00000 0.000410959
5th* ..................................... 4 5.15000 0.000547945
6th ..................................... 5 5.15000 0.000689041
7th ..................................... 6 5.15000 0.000830137
8th ..................................... 7 5.15000 0.000971233
9th ..................................... 8 5.15000 0.001112329
10th ..................................... 9 5.15000 0.001253425
</TABLE>
- ---------------
* First interest rate adjustment (91-day Treasury bills are generally auctioned
weekly).
The numbers in this table are examples given for information purposes only
and are in no way a prediction of interest rates on any Notes which are T-Bill
Indexed Securities. A similar factor calculated in the same manner is applicable
to the return on Certificates which are T-Bill Indexed Securities.
The Administrator makes information concerning the current 91-day Treasury
Bill Rate and the accrued interest factor available through Bloomberg L.P.
DETERMINATION OF LIBOR
Pursuant to the Transfer and Servicing Agreement, the Administrator will
determine Three-Month LIBOR for purposes of calculating the interest due on the
Notes and Certificates which are LIBOR Indexed Securities and the Noteholders'
Interest Index Carryover and the Certificateholders' Interest Index Carryover,
in each case, for each given Interest Period on (x) the second Business Day
prior to the commencement of each Interest Period and (y) with respect to the
initial Interest Period, as determined pursuant to clause (x) for the period
from the Closing Date to but excluding March 29, 1999 and as determined on the
second Business Day prior to March 29, 1999 for the period from March 29, 1999
to but excluding June 28, 1999 (each, a "LIBOR Determination Date"). For
purposes of calculating Three-Month LIBOR, a Business Day is any day on which
banks in London and New York City are open for the transaction of business.
Interest due for any Interest Period will be determined based on the actual
number of days in such Interest Period over a 360-day year.
"Three-Month LIBOR" means the London interbank offered rate for deposits in
U.S. dollars having a maturity of three months commencing on the related LIBOR
Determination Date (the "Index Maturity") which appears on Telerate Page 3750 as
of 11:00 a.m., London time, on such LIBOR Determination Date. If such rate does
not appear on Telerate Page 3750, the rate for that day will be determined on
the basis of the rates at which deposits in U.S. dollars, having the Index
Maturity and in a principal amount of not less than U.S. $1,000,000, are offered
at approximately 11:00 a.m., London time, on such LIBOR Determination Date to
prime banks in the London interbank market by the Reference Banks. The
Administrator will request the principal London office of each of such Reference
Banks to provide a quotation of its rate. If at least two such quotations are
provided, the rate for that day will be the arithmetic mean of the quotations.
If fewer than two quotations are provided, the rate for that day will be the
arithmetic mean of the rates quoted by major banks in New York City, selected by
the Administrator,
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at approximately 11:00 a.m., New York City time, on such LIBOR Determination
Date for loans in U.S. dollars to leading European banks having the Index
Maturity and in a principal amount equal to an amount of not less than U.S.
$1,000,000; provided that if the banks selected as aforesaid are not quoting as
mentioned in this sentence, Three-Month LIBOR in effect for the applicable LIBOR
Reset Period will be Three-Month LIBOR in effect for the previous LIBOR Reset
Period.
"Telerate Page 3750" means the display page so designated on the Dow Jones
Telerate Service (or such other page as may replace that page on that service
for the purpose of displaying comparable rates or prices).
"Reference Bank" means a leading bank (i) engaged in transactions in
Eurodollar deposits in the international Eurocurrency market, (ii) not
controlling, controlled by or under common control with the Administrator and
(iii) having an established place of business in London.
THE INDENTURE
Modification of Indenture. With the consent of the holders of a majority of
the outstanding Notes, the Indenture Trustee and the Trust may execute a
supplemental indenture to add provisions to, or change in any manner or
eliminate any provisions of, the Indenture with respect to the Notes, or to
modify (except as provided below) in any manner the rights of the Noteholders.
Without the consent of the holder of each outstanding Note affected
thereby, however, no supplemental indenture will (i) change the due date of any
installment of principal of or interest on any Note or reduce the principal
amount thereof, the interest rate specified thereon or the redemption price with
respect thereto or change any place of payment where or the coin or currency in
which any Note or any interest thereon is payable, (ii) impair the right to
institute suit for the enforcement of certain provisions of the Indenture
regarding payment, (iii) reduce the percentage of the aggregate amount of the
outstanding Notes the consent of the holders of which is required for any such
supplemental indenture or the consent of the holders of which is required for
any waiver of compliance with certain provisions of the Indenture or of certain
defaults thereunder and their consequences as provided for in the Indenture,
(iv) modify or alter the provisions of the Indenture regarding the voting of
Notes held by the Trust, the Seller, an affiliate of either of them or any
obligor on the Notes, (v) reduce the percentage of the aggregate outstanding
amount of the Notes the consent of the holders of which is required to direct
the Eligible Lender Trustee on behalf of the Trust to sell or liquidate the
Financed Student Loans if the proceeds of such sale would be insufficient to pay
the principal amount and accrued but unpaid interest on the outstanding Notes,
(vi) decrease the percentage of the aggregate principal amount of the Notes
required to amend the sections of the Indenture which specify the applicable
percentage of aggregate principal amount of the Notes necessary to amend the
Indenture or certain other related agreements or (vii) permit the creation of
any lien ranking prior to or on a parity with the lien of the Indenture with
respect to any of the collateral for the Notes or, except as otherwise permitted
or contemplated in the Indenture, terminate the lien of the Indenture on any
such collateral or deprive the holder of any Note of the security afforded by
the lien of the Indenture.
The Trust and the Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of Noteholders for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or of modifying in any manner the rights of
Noteholders so long as such action will not, in the opinion of counsel
satisfactory to the Indenture Trustee, materially and adversely affect the
interest of any Noteholder.
Events of Default; Rights Upon Event of Default. An "Event of Default" with
respect to the Notes is defined in the Indenture as consisting of the following
(except as described in the remaining sentences of this paragraph): (i) a
default for five days or more in the payment of any interest on any Note after
the same becomes due and payable; (ii) a default in the payment of the principal
of or any installment of the principal of any Note when the same becomes due and
payable; (iii) a default in the observance or performance of any covenant or
agreement of the Trust made in the Indenture and the continuation of any such
default for a period of thirty days after notice thereof is given to the Trust
by the Indenture Trustee or
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to the Trust and the Indenture Trustee by the holders of at least 25% in
principal amount of the Notes then outstanding; (iv) any representation or
warranty made by the Trust in the Indenture or in any certificate delivered
pursuant thereto or in connection therewith having been incorrect in a material
respect as of the time made, and such breach not having been cured within thirty
days after notice thereof is given to the Trust by the Indenture Trustee or to
the Trust and the Indenture Trustee by the holders of at least 25% in principal
amount of the Notes then outstanding or (v) certain events of bankruptcy,
insolvency, receivership or liquidation of the Trust. However, the amount of
principal required to be distributed to Noteholders on any Distribution Date is
limited to the amount of Available Funds on such date after payment of the
Servicing Fee, the Administration Fee and the Noteholders' Interest Distribution
Amount, up to an amount necessary to reduce the aggregate principal balance of
the Notes and the Certificate Balance to the Specified Collateral Balance.
Consequently, the failure to pay the entire unpaid principal amount of any class
of Notes on the applicable Final Maturity Date will result in an Event of
Default. The failure to pay the Noteholders' Principal Distribution Amount on
any class of Notes on any Distribution Date shall not result in the occurrence
of an Event of Default until the Final Maturity Date for such class of Notes. In
addition, the failure to pay the Noteholders' Interest Index Carryover or the
Certificateholders' Interest Index Carryover as a result of insufficient
Available Funds will not result in the occurrence of an Event of Default.
If an Event of Default should occur and be continuing with respect to the
Notes, the Indenture Trustee or holders of a majority in principal amount of the
Notes then outstanding may declare the principal of the Notes to be immediately
due and payable. Such declaration may be rescinded by the holders of a majority
in principal amount of the Notes then outstanding at any time prior to the entry
of judgment for the payment of such amount if (i) the Trust has paid to the
Indenture Trustee a sum equal to all amounts then due with respect to the Notes
(without giving effect to such acceleration) and (ii) all Events of Default
(other than nonpayment of amounts due solely as a result of such acceleration)
have been cured or waived.
If the Notes have been declared to be due and payable following an Event of
Default with respect thereto, the Indenture Trustee may, in its discretion,
either require the Eligible Lender Trustee to sell the Financed Student Loans,
subject to compliance with the rights of first offer held by PHEAA, or elect to
have the Eligible Lender Trustee maintain possession of the Financed Student
Loans and continue to apply collections with respect to such Financed Student
Loans as if there had been no declaration of acceleration. In addition, the
Indenture Trustee is prohibited from directing the Eligible Lender Trustee to
sell the Financed Student Loans following an Event of Default, other than a
default in the payment of principal on a Final Maturity Date for a class of
Notes or a default for five days or more in the payment of any interest on any
Note, unless (i) the holders of all outstanding Notes consent to such sale, (ii)
the proceeds of such sale are sufficient to pay in full the principal of and the
accrued interest on the outstanding Notes at the date of such sale or (iii) the
Indenture Trustee determines that the collections on the Financed Student Loans
would not be sufficient on an ongoing basis to make all payments on the Notes as
such payments would have become due if such obligations had not been declared
due and payable, and the Indenture Trustee obtains the consent of the holders of
66 2/3% of the aggregate principal amount of the Notes then outstanding;
provided, further that the Indenture Trustee may not sell or otherwise liquidate
the Financed Student Loans following an Event of Default, other than a default
in the payment of any principal on the Final Maturity Date for a class of Notes
or a default of five days or more on the payment of any interest on any Note,
unless (iv) the proceeds of the sale or liquidation of the Financed Student
Loans distributable to the Certificateholders are sufficient to pay to the
Certificateholders the outstanding Certificate Balance plus accrued and unpaid
interest thereon or (v) after receipt of notice from the Eligible Lender Trustee
that the proceeds of such sale or liquidation distributable to the
Certificateholders would not be sufficient to pay to the Certificateholders the
outstanding Certificate Balance plus accrued and unpaid interest thereon, the
Certificateholders of at least a majority of the outstanding Certificate Balance
consent thereto; provided, further that the Indenture Trustee may not sell or
otherwise liquidate the Financed Student Loans following an Event of Default,
other than a default in the payment of any principal on the Final Maturity Date
for a class of Notes or a default of five days or more on the payment of any
interest on any Note unless (vi) proceeds of the sale or liquidation of the
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Financed Student Loans distributable from such sale are sufficient (a) to pay to
Noteholders, the outstanding principal balance of the Notes (other than the
Noteholders' Interest Index Carryover) and (b) to pay to Certificateholders, the
outstanding Certificate Balance plus accrued and unpaid interest thereon (other
than the Certificateholders' Interest Index Carryover) or (vii) after receipt of
notice from the Eligible Lender Trustee that the proceeds of such sale or
liquidation would not be sufficient (a) to pay to Noteholders, the outstanding
principal balance of the Notes (other than the Noteholders' Interest Index
Carryover) and (b) to pay to Certificateholders the outstanding Certificate
Balance plus accrued and unpaid interest thereon (other than the
Certificateholders' Interest Index Carryover). If the proceeds of any such sale
are insufficient to pay the then outstanding principal amount of the Notes and
any accrued interest, such proceeds shall be distributed to the holders of Notes
on a pro rata basis, based on the amount then owing on each class of Notes.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default should occur and be continuing with
respect to the Notes, the Indenture Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the holders of Notes, if the Indenture Trustee reasonably
believes it will not be adequately indemnified against the costs, expenses and
liabilities which might be incurred by it in complying with such request.
Subject to such provisions for indemnification and certain limitations contained
in the Indenture, the holders of a majority in principal amount of the
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding or any remedy available to the Indenture Trustee and
the holders of a majority in principal amount of the Notes then outstanding may,
in certain cases, waive any default with respect thereto, except a default in
the payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all the holders of the outstanding Notes.
No holder of any Note will have the right to institute any proceeding with
respect to the Indenture, unless (i) such holder previously has given to the
Indenture Trustee written notice of a continuing Event of Default, (ii) the
holders of not less than 25% in principal amount of the outstanding Notes have
requested in writing that the Indenture Trustee institute such proceeding in its
own name as Indenture Trustee, (iii) such holder or holders have offered the
Indenture Trustee reasonable indemnity, (iv) the Indenture Trustee has for 60
days failed to institute such proceeding and (v) no direction inconsistent with
such written request has been given to the Indenture Trustee during such 60-day
period by the holders of a majority in principal amount of the outstanding
Notes.
In addition, the Indenture Trustee and the Noteholders will covenant that
they will not at any time institute against the Trust any bankruptcy,
reorganization or other proceeding under any Federal or state bankruptcy or
similar law.
None of the Indenture Trustee, the Seller, the Administrator, the Servicers
or the Eligible Lender Trustee in its individual capacity, nor any holder of a
Certificate representing an ownership interest in the Trust, nor any of their
respective owners, beneficiaries, agents, officers, directors, employees,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or interest
on the Notes or for the agreements of the Trust contained in the Indenture.
Certain Covenants. The Trust may not consolidate with or merge into any
other entity, unless (i) the entity formed by or surviving such consolidation or
merger is organized under the laws of the United States, any state or the
District of Columbia, (ii) such entity expressly assumes the Trust's obligation
to make due and punctual payments upon the Notes and the performance or
observance of every agreement and covenant of the Trust under the Indenture,
(iii) no Event of Default has occurred and is continuing immediately after such
merger or consolidation, (iv) the Trust has been advised that the rating of the
Notes and the Certificates would not be reduced or withdrawn by the nationally
recognized rating agencies rating the Securities as a result of such merger or
consolidation and (v) the Trust has received an opinion of counsel to the effect
that such consolidation or merger would have no material
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adverse federal or Pennsylvania state tax consequence to the Trust or to any
Certificateholder or Noteholder.
The Trust will not, among other things, (i) except as expressly permitted
by the Indenture, the Transfer and Servicing Agreements or certain related
documents (collectively, the "Related Documents"), sell, transfer, exchange or
otherwise dispose of any of the assets of the Trust, (ii) claim any credit on or
make any deduction from the principal and interest payable in respect of the
Notes (other than amounts withheld under the Code or applicable state law) or
assert any claim against any present or former holder of Notes because of the
payment of taxes levied or assessed upon the Trust, (iii) except as contemplated
by the Related Documents, dissolve or liquidate in whole or in part, (iv) permit
the validity or effectiveness of the Indenture to be impaired or permit any
person to be released from any covenants or obligations with respect to the
Notes under the Indenture except as may be expressly permitted thereby or (v)
permit any lien, charge, excise, claim, security interest, mortgage or other
encumbrance to be created on or extend to or otherwise arise upon or burden the
assets of the Trust or any part thereof, or any interest therein or the proceeds
thereof, except as expressly permitted by the Related Documents.
The Trust may not engage in any activity other than financing, purchasing,
owning, selling and managing the Financed Student Loans and the other assets of
the Trust and making Additional Fundings, in each case in the manner
contemplated by the Related Documents and activities incidental thereto.
The Trust will not incur, assume or guarantee any indebtedness other than
indebtedness incurred pursuant to the Notes and the Indenture or otherwise in
accordance with the Related Documents.
Annual Compliance Statement. The Trust will be required to file annually
with the Indenture Trustee a written statement as to the fulfillment of its
obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee will be required
to mail each year to all Noteholders a brief report relating to, among other
things, its eligibility and qualification to continue as the Indenture Trustee
under the Indenture, any amounts advanced by it under the Indenture, the amount,
interest rate and maturity date of certain indebtedness owing by the Trust to
the Indenture Trustee in its individual capacity, the property and funds
physically held by the Indenture Trustee as such and any action taken by it that
materially affects the Notes and that has not been previously reported.
Satisfaction and Discharge of Indenture. The Indenture will be discharged
with respect to the collateral securing the Notes upon the delivery to the
Indenture Trustee for cancellation of all the Notes or, with certain
limitations, upon deposit with the Indenture Trustee of funds sufficient for the
payment in full of all the Notes.
The Indenture Trustee. Bankers Trust Company, a New York banking
corporation, will be the Indenture Trustee under the Indenture. The Seller
maintains normal commercial banking relations with the Indenture Trustee.
BOOK-ENTRY REGISTRATION
Persons acquiring beneficial ownership interests in the Notes may hold
their interests through The Depository Trust Company ("DTC") in the United
States or Cedel or Euroclear in Europe and persons acquiring beneficial
ownership interests in the Certificates may hold their interests through DTC.
Securities will be registered in the name of Cede & Co. ("Cede") as nominee for
DTC. Cedel and Euroclear will hold omnibus positions with respect to the Notes
on behalf of Cedel Participants and the Euroclear Participants, respectively,
through customers' securities accounts in Cedel's and Euroclear's name on the
books of their respective depositaries (collectively, the "Depositaries") which
in turn will hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations ("Participants") and to
facilitate the clearance and
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settlement of securities transactions between Participants through electronic
book-entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations. Indirect access to the DTC system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants").
DTC management is aware that some computer applications, systems, and the
like for processing dates ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relates to the timely payment of distributions
(including principal and income payments) to securityholders, book-entry
deliveries, and settlement of trades within DTC ("DTC Services"), continue to
function appropriately. This program includes a technical assessment and a
remediation plan, each of which is complete. Additionally, DTC's plan includes a
testing phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to Issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to: (i)
impress upon them the importance of such services being Year 2000 compliant; and
(ii) determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services. In addition, DTC is in the process of
developing such contingency plans as it deems appropriate.
According to DTC, the information set forth in the preceding two paragraphs
about DTC has been provided to the Industry by DTC for informational purposes
only and is not intended to serve as a representation, warranty or contract
modification of any kind.
Securityholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, the Securities may do so only through Participants and Indirect
Participants. In addition, Securityholders will receive all distributions of
principal and interest from the Indenture Trustee or the Eligible Lender
Trustee, as applicable (the "Applicable Trustee"), through Participants and
Indirect Participants. Under a book-entry format, Securityholders may experience
some delay in their receipt of payments, since such payments will be forwarded
by the Applicable Trustee to Cede, as nominee for DTC. DTC will forward such
payments to its Participants, which thereafter will forward them to Indirect
Participants or Securityholders. It is anticipated that the only
"Securityholder," "Certificateholder" and "Noteholder" will be Cede, as nominee
for DTC. Securityholders will not be recognized by the Applicable Trustee as
Noteholders or Certificateholders, as such terms are used in the Indenture and
the Trust Agreement, respectively, and Securityholders will be permitted to
exercise the rights of Securityholders only indirectly through DTC and its
Participants.
Transfers between DTC participants will occur in the ordinary way in
accordance with DTC Rules. Transfers between Cedel Participants and Euroclear
Participants will occur in the ordinary way in accordance with their applicable
rules and operating procedures.
Because of time-zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a DTC Participant will be made
during subsequent securities settlement processing and dated the Business Day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such Business Day. Cash received in Cedel or
Euroclear as a result of sales of securities by or through a Cedel Participant
or a Euroclear Participant to a DTC Participant will be received with value on
the DTC settlement date but will be available in the relevant Cedel or Euroclear
cash account only as of the Business Day following settlement in DTC.
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Cross-market transfers between persons holding Notes directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC Rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Securities among Participants on whose behalf it acts with respect to the
Securities and to receive and transmit distributions of principal of, and
interest on, the Securities. Participants and Indirect Participants with which
Securityholders have accounts with respect to the Securities similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Securityholders. Accordingly, although
Securityholders will not possess Securities, the Rules provide a mechanism by
which Participants will receive payments and will be able to transfer their
interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 32
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include any underwriters, agents or dealers with respect
to the Notes offered hereby. Indirect access to Cedel is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Cedel Participant, either directly
or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may be settled in any of 32
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear Clearance Systems, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial
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intermediaries and may include any underwriters, agents or dealers with respect
to the Notes offered hereby. Indirect access to the Euroclear System is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawals of
securities and cash from the Euroclear System and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Notes held through Cedel or Euroclear will be
credited to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depositary. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a beneficial holder of Notes under the Indenture on behalf of a
Cedel Participant or Euroclear Participant only in accordance with its relevant
rules and procedures and subject to its Depositary's ability to effect such
actions on its behalf through DTC.
DTC has advised the Administrator that it will take any action permitted to
be taken by a Securityholder under the Indenture or the Trust Agreement, as the
case may be, only at the direction of one or more Participants to whose accounts
with DTC the Securities are credited. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of interests in the Notes among Participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
NONE OF THE TRUST, THE SELLER, THE SERVICERS, THE ADMINISTRATOR, THE
ELIGIBLE LENDER TRUSTEE, THE INDENTURE TRUSTEE NOR THE UNDERWRITERS WILL HAVE
ANY RESPONSIBILITY OR OBLIGATION TO ANY PARTICIPANTS, CEDEL PARTICIPANTS OR
EUROCLEAR PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT
TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, CEDEL OR EUROCLEAR OR ANY
PARTICIPANT, (2) THE PAYMENT BY DTC, CEDEL OR EUROCLEAR OR ANY PARTICIPANT OF
ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OF OR
INTEREST ON THE SECURITIES, (3) THE DELIVERY BY ANY PARTICIPANT, CEDEL
PARTICIPANT OR EUROCLEAR PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH
IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE INDENTURE OR THE TRUST AGREEMENT
TO BE GIVEN TO SECURITYHOLDERS OR (4) ANY OTHER ACTION TAKEN BY DTC AS THE
SECURITYHOLDER.
DEFINITIVE SECURITIES
The Notes and the Certificates will initially be issued in book-entry form.
The Notes and the Certificates will be issued in fully registered, certificated
form ("Definitive Notes" and "Definitive Certificates", respectively, and
collectively referred to herein as "Definitive Securities") to Noteholders or
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Certificateholders or their respective nominees, rather than to DTC or its
nominee, only if (i) the Administrator advises the Applicable Trustee in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as depository with respect to the Securities and the Administrator is unable to
locate a qualified successor, (ii) the Administrator, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of an
Event of Default, a Servicer Default or an Administrator Default,
Securityholders representing at least a majority of the outstanding principal
amount of the Notes or the Certificates, as the case may be, advise the
Applicable Trustee through DTC in writing that the continuation of a book-entry
system through DTC (or a successor thereto) with respect to such Notes or
Certificates is no longer in the best interest of the holders of such
Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee will be required to notify all applicable
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive security representing the
corresponding Securities and receipt of instructions for re-registration, the
Applicable Trustee will reissue such Securities as Definitive Securities to such
Securityholders.
Distributions of principal of, and interest on, such Definitive Securities
will thereafter be made by the Applicable Trustee in accordance with the
procedures set forth in the Indenture or the Trust Agreement, as the case may
be, directly to holders of Definitive Securities in whose names the Definitive
Securities were registered at the close of business on the Record Date. Such
distributions will be made by check mailed to the address of such holder as it
appears on the register maintained by the Applicable Trustee. The final payment
on any such Definitive Security, however, will be made only upon presentation
and surrender of such Definitive Security at the office or agency specified in
the notice of final distribution to Securityholders.
Definitive Securities will be transferable and exchangeable at the offices
of the Applicable Trustee or of a registrar named in a notice delivered to
holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the Applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
LIST OF SECURITYHOLDERS
Three or more holders of Notes or one or more holders of Notes evidencing
not less than 25% of the aggregate outstanding principal balance of the Notes
may, by written request to the Indenture Trustee, obtain access to the list of
all Noteholders maintained by the Indenture Trustee for the purpose of
communicating with other Noteholders with respect to their rights under the
Indenture or the Notes. The Indenture Trustee may elect not to afford the
requesting Noteholders access to the list of Noteholders if it agrees to mail
the desired communication or proxy, on behalf and at the expense of the
requesting Noteholders, to all Noteholders.
Three or more Certificateholders or one or more holders of Certificates
evidencing not less than 25% of the Certificate Balance may, by written request
to the Eligible Lender Trustee, obtain access to the list of all
Certificateholders for the purpose of communicating with other
Certificateholders with respect to their rights under the Trust Agreement or the
Certificates.
REPORTS TO SECURITYHOLDERS
On each Distribution Date, the Applicable Trustee will provide to
Securityholders of record as of the related Record Date a statement setting
forth substantially the same information as is required to be provided on the
related quarterly report provided to the Indenture Trustee and the Trust
described under "Description of the Transfer and Servicing Agreements --
Statements to Indenture Trustee and Trust."
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Indenture or the Trust
Agreement, as the case may be, the Applicable Trustee will mail to each person
who at any time during such calendar year was a Securityholder and received any
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payment thereon, a statement containing certain information for the purposes of
such Securityholder's preparation of federal income tax returns. See "Income Tax
Consequences."
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
GENERAL
The following is a summary of certain terms of the Sale and Servicing
Agreement, pursuant to which the Eligible Lender Trustee on behalf of the Trust
will purchase, the Servicers will service and the Administrator will perform
certain administrative functions with respect to the Financed Student Loans; the
Administration Agreement, pursuant to which the Administrator will undertake
certain other administrative duties with respect to the Trust and the Financed
Student Loans; and the Trust Agreement, pursuant to which the Trust will be
created and the Certificates will be issued (collectively, the "Transfer and
Servicing Agreements"). However, the summary does not purport to be complete and
is qualified in its entirety by reference to the provisions of such Transfer and
Servicing Agreements.
SALE OF FINANCED STUDENT LOANS; REPRESENTATIONS AND WARRANTIES
On or prior to the Closing Date, the Seller will sell and assign to the
Eligible Lender Trustee on behalf of the Trust, without recourse, its entire
interest in the Initial Financed Student Loans, all collections received and to
be received with respect thereto for the period on and after January 1, 1999 and
all the Assigned Rights pursuant to the Sale and Servicing Agreement. Each
Initial Financed Student Loan will be identified in schedules appearing as an
exhibit to the Sale and Servicing Agreement. The Eligible Lender Trustee will,
concurrently with such sale and assignment, execute, authenticate and deliver
the Notes. The net proceeds received from the sale of the Notes and the
Certificates will be applied to the purchase of the Financed Student Loans and
the Assigned Rights and to the deposit of the Pre-Funded Amount in the
Pre-Funding Account. See "--Additional Fundings" for a description of the
application of funds on deposit in the Pre-Funding Account during the Funding
Period.
In the Sale and Servicing Agreement, the Seller will make certain
representations and warranties with respect to the Financed Student Loans to the
Trust for the benefit of the Certificateholders and the Noteholders, including,
among other things, that (i) each Financed Student Loan, on the date on which
transferred to the Trust, is free and clear of all security interests, liens,
charges and encumbrances and no offsets, defenses or counterclaims have been
asserted or threatened; (ii) the information provided with respect to the
Initial Financed Student Loans is true and correct as of the Statistical Cutoff
Date and, in some cases, the Closing Date (iii) the information provided with
respect to the Subsequent Pool Student Loans is true and correct as of the
Statistical Cutoff Date and, as of the related Subsequent Cutoff Date, no claim
has been made to a Guarantor with respect to such Student Loans, and (iv) each
Financed Student Loan, at the time it was originated, complied and, at the
Closing Date or Transfer Date (as defined below), as applicable, complies in all
material respects with applicable federal and state laws (including, without
limitation, the Higher Education Act, consumer credit, truth in lending, equal
credit opportunity and disclosure laws) and applicable restrictions imposed by
the Programs or under any Guarantee Agreement.
Following the discovery by or notice to the Seller of a breach of any such
representation or warranty with respect to any Financed Student Loan that
materially and adversely affects the interests of the Certificateholders or the
Noteholders in such Financed Student Loan (it being understood that any such
breach that does not affect any Guarantor's obligation to guarantee or insure
payment of such Financed Student Loan will not be considered to have such a
material adverse effect), the Seller will, unless such breach is cured within 60
days, repurchase such Financed Student Loan from the Eligible Lender Trustee, as
of the first day following the end of such 60-day period that is the last day of
a Collection Period, at the related Purchase Price as of the day of repurchase
plus accrued interest thereon to the day of repurchase (the "Purchase Amount").
In addition, the Seller will reimburse the Trust with respect to a Financed
Federal Loan for any accrued interest amounts that a Federal Guarantor refuses
to pay
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pursuant to its Guarantee Agreement due to, or for any Interest Subsidy Payments
and Special Allowance Payments that are lost or that must be repaid to the
Department as a result of, a breach of any such representation or warranty by
the Seller. The repurchase and reimbursement obligations of the Seller will
constitute the sole remedy available to or on behalf of the Trust, the
Certificateholders or the Noteholders for any such uncured breach. The Seller's
repurchase and reimbursement obligations are contractual obligations pursuant to
the Sale and Servicing Agreement that may be enforced against the Seller, but
the breach of which will not constitute an Event of Default.
To assure uniform quality in servicing and to reduce administrative costs,
each Servicer will be appointed custodian of the promissory notes representing
the Financed Student Loans which such Servicer is servicing by the Eligible
Lender Trustee on behalf of the Trust. The Seller's and the Servicers'
accounting and other records will reflect the sale and assignment of the
Financed Student Loans to the Eligible Lender Trustee on behalf of the Trust,
and Uniform Commercial Code financing statements reflecting such sale and
assignment will be filed.
ACCOUNTS
The Administrator will establish and maintain the Collection Account, the
Pre-Funding Account, the Escrow Account, and the Reserve Account, in the name of
the Indenture Trustee on behalf of the Noteholders and the Certificateholders.
Funds in the Collection Account, the Pre-Funding Account, the Escrow
Account and the Reserve Account (collectively, the "Trust Accounts") will be
invested as provided in the Sale and Servicing Agreement in Eligible
Investments. "Eligible Investments" are generally limited to short-term U.S.
government backed securities, certain highly rated commercial paper and money
market funds and other investments acceptable to the Rating Agencies as being
consistent with the rating of the Notes. Subject to certain conditions, Eligible
Investments may include securities or other obligations issued by the Seller or
its affiliates, or trusts originated by the Seller or its affiliates, or shares
of investment companies for which the Seller or its affiliates may serve as the
investment advisor. Eligible Investments are limited to obligations or
securities that mature not later than the Business Day immediately preceding the
next Distribution Date. Investment earnings on funds deposited in the Trust
Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), will be deposited in the Collection Account on each Distribution
Date and will be treated as collections of interest on the Financed Student
Loans.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
Any such accounts may be maintained with the Seller or any of its affiliates, if
such accounts meet the requirements described in clause (a) of the preceding
sentence. "Eligible Institution" means a depository institution (which may be,
without limitation, the Seller or an affiliate thereof, the Eligible Lender
Trustee, or an affiliate thereof, or the Indenture Trustee or an affiliate
thereof) organized under the laws of the United States of America or any one of
the states thereof or the District of Columbia (or any domestic branch of a
foreign bank), (i) which has a long-term unsecured debt rating and/or a
short-term unsecured debt rating acceptable to the two nationally recognized
rating agencies rating the Securities; and (ii) whose deposits are insured by
the FDIC.
ADDITIONAL FUNDINGS
The Trust may make expenditures, (each, an "Additional Funding") from the
Pre-Funding Account and the Escrow Account on Transfer Dates during the Funding
Period and from the Escrow Account and Available Loan Purchase Funds on Transfer
Dates during the period which begins on the day following
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the end of the Funding Period and ends on the Loan Purchase Termination Date, in
each case consisting of amounts paid to the Seller to acquire Additional Student
Loans as of the applicable Subsequent Cutoff Dates, to pay capitalized interest
on the Financed Student Loans and to pay Guarantee Fee Advances as provided in
the Sale and Servicing Agreement.
On the Closing Date, for administrative convenience, a portion of the
Pre-Funded Amount equal to the Subsequent Pool Pre-Funded Amount will be
allocated to an administrative subaccount of the Pre-Funding Account (the
"Subsequent Pool Pre-Funding Subaccount"). The remaining portion of the
Pre-Funded Amount equal to $30,000,000 (the "Other Additional Pre-Funded
Amount") will be allocated to an administrative subaccount of the Pre-Funding
Account (the "Other Additional Pre-Funding Subaccount"). The Subsequent Pool
Pre-Funded Amount may only be used by the Trust on or prior to the Special
Determination Date to purchase from the Seller Subsequent Pool Student Loans.
The Subsequent Pool Pre-Funded Amount will be reduced on each date Subsequent
Pool Student Loans are transferred to the Trust by the aggregate Purchase Price
of such Subsequent Pool Student Loans transferred on such date.
The Trust intends to use funds on deposit in the Subsequent Pool
Pre-Funding Subaccount on or prior to the Special Determination Date to acquire
the Subsequent Pool Student Loans. In the event that the Subsequent Pool
Pre-Funded Amount is insufficient to pay the Purchase Price of the Subsequent
Pool Student Loans, as the case may be, then the amount of such deficiency may
be withdrawn from the Other Additional Pre-Funding Subaccount. Pursuant to the
Sale and Servicing Agreement, the Seller is obligated to sell, and the Eligible
Lender Trustee on behalf of the Trust is obligated to purchase during the
Funding Period, Other Subsequent Student Loans having an aggregate principal
balance (net of the aggregate principal balance of the Financed Student Loans
repaid by any Other Subsequent Student Loans that are Consolidation Loans) of
not less than $30,000,000, (less the amount thereof, if any, used by the Trust
to fund shortfalls in the payment of interest on the Securities as described
herein) to the extent that such Other Subsequent Student Loans are available.
Funds on deposit in the Other Additional Pre-Funding Subaccount will be used
from time to time during the Funding Period, subject to certain limitations
described below, together with any amounts on deposit in the Escrow Account, to
purchase from the Seller, for an amount equal to 100% of the aggregate principal
balance thereof plus accrued interest (to the extent capitalized or to be
capitalized), Other Subsequent Student Loans, made by the Seller to those
eligible borrowers who have Student Loans that are part of the pool of Initial
Financed Student Loans as of the Statistical Cutoff Date or Subsequent Pool
Student Loans as of the related Subsequent Cutoff Date, to pay capitalized
interest on any Financed Student Loan and to pay Guarantee Fee Advances. See
"The Student Loan Financing Business -- Federal Loans Under the Programs --
Federal Consolidation Loans" and "--Private Loans Under the Programs -- Private
Consolidation Loans." "Serial Loans" constitute Student Loans which are made to
a borrower who is also a borrower under at least one outstanding Initial
Financed Student Loan or Subsequent Pool Student Loan but do not include
Stafford Loans made after July 1, 1998 without each of the rating agencies
confirming the then current rating of the Securities. The Seller expects that
the total amount of Additional Fundings from the Pre-Funding Account will
approximate 100% of the Pre-Funded Amount by the last day of the Collection
Period preceding the March 2001 Distribution Date; however, there can be no
assurance that a sufficient amount of Additional Fundings will be made during
such time. If, on the Special Determination Date, the Subsequent Pool Pre-Funded
Amount has not been reduced to zero, then such amounts will be distributed to
Securityholders as described in "Description of the
Securities -- Notes -- Mandatory Redemption." If the Pre-Funded Amount has not
been reduced to zero by the end of the Funding Period, any amounts remaining in
the Pre-Funding Account will be deposited into the Collection Account for
distribution on the immediately following Distribution Date. Such reduction in
the Pre-Funded Amount will result in a corresponding increase in the amount of
principal distributable to the Securities on such Distribution Date.
The Other Additional Pre-Funded Amount will also be available on each
Monthly Servicing Payment Date to cover any shortfalls in payments of the
Servicing Fee and on each Distribution Date to cover any shortfalls in payments
of the Servicing Fee, the Administration Fee, interest amounts payable in
respect
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of the Notes and the Certificates (other than the Noteholders' Interest Index
Carryover and the Certificateholders' Interest Index Carryover) for such
Distribution Date for which funds otherwise available therefor for such
Distribution Date are insufficient to make such distributions and after giving
effect to the application of funds on deposit in the Reserve Account to cover
such shortfalls; provided, however, that the Other Additional Pre-Funded Amount
will only be available to cover shortfalls in interest payments on the
Certificates to the extent that the Note Collateralization Amount (after giving
effect to such reductions in the Other Additional Pre-Funded Amount) would not
be less than the outstanding principal balance of the Notes. Amounts withdrawn
from the Pre-Funding Account for such purposes will not be replenished with
future available funds.
The obligation to purchase any Additional Student Loan (including a
Subsequent Pool Student Loan) by the Eligible Lender Trustee on behalf of the
Trust is subject to the following conditions, among others: (i) such Additional
Student Loan must satisfy all applicable origination requirements and all other
requirements specified in the Sale and Servicing Agreement or elsewhere, (ii)
the Seller will not select such Additional Student Loan in a manner that it
believes is adverse to the interests of the Securityholders and (iii) the Seller
will deliver certain opinions of counsel to the Indenture Trustee and the Rating
Agencies with respect to the validity of the conveyance of such Additional
Student Loan. In addition, (a) no Consolidation Loan will be transferred to the
Trust unless at least one underlying Student Loan was held by the Eligible
Lender Trustee on behalf of the Trust at the time of consolidation and (b) no
Serial Loan will be transferred to the Trust unless the borrower of such loan is
the borrower for one or more Financed Student Loans already owned by the Trust.
On the fifteenth day (or, if such day is not a Business Day, the next succeeding
Business Day) of each month or on certain other dates designated by the Seller
during the Funding Period and during the period which begins following the end
of the Funding Period and ends on the Loan Purchase Termination Date (each, a
"Transfer Date"), the Seller will sell and assign, without recourse, to the
Eligible Lender Trustee on behalf of the Trust, its entire interest in the Other
Subsequent Student Loans or Other Student Loans, as applicable, made or, with
respect to Subsequent Pool Student Loans, owned during the period preceding the
applicable Transfer Date, in each case as of the date specified in the
applicable Transfer Agreement to be delivered on such Transfer Date (each, a
"Subsequent Cutoff Date"). Subject to the satisfaction of the foregoing
conditions, the Seller will convey the Additional Student Loans to the Eligible
Lender Trustee on behalf of the Trust on each such Transfer Date pursuant to the
Sale and Servicing Agreement and the applicable Transfer Agreement (a "Transfer
Agreement") executed by the Seller, the applicable Servicer, the Eligible Lender
Trustee and the Administrator on such Transfer Date. Each such Transfer
Agreement will include as an exhibit a schedule identifying each Additional
Student Loan transferred on such Transfer Date. Upon such conveyance of
Additional Student Loans to the Eligible Lender Trustee on behalf of the Trust,
the Pool Balance will increase in an amount equal to the aggregate principal
balances of such Additional Student Loans (less any existing Financed Student
Loans being repaid pursuant to any Consolidation Loans included within such
Additional Student Loans) and an amount equal to the Purchase Price of such
Additional Student Loans will be withdrawn first from the Escrow Account to the
extent amounts are available therein and then (i) with respect to Subsequent
Pool Student Loans and Other Subsequent Student Loans, during the Funding
Period, from the Pre-Funding Account and (ii) with respect to Other Student
Loans, during the period following the end of the Funding Period until the Loan
Purchase Termination Date, from Available Loan Purchase Funds on deposit in the
Collection Account, in each case on such date and transferred to the Seller.
Amounts in the Escrow Account will not be available to purchase any Subsequent
Pool Student Loan. The Trust will not purchase an aggregate amount of Other
Subsequent Student Loans and Other Student Loans which exceeds 25% of the
Initial Pool Balance. Notwithstanding the foregoing, because the Loan Purchase
Termination Date is defined as the last day of the Funding Period, the Trust
will not apply any Available Loan Purchase Funds to purchase Other Student
Loans.
With respect to any Consolidation Loan to be made by the Seller to a given
borrower, the Eligible Lender Trustee on behalf of the Trust will convey to the
Seller all Underlying Federal Loans and Underlying Private Loans, as applicable,
held by it with respect to that borrower, as specified in a notice delivered by
or on behalf of the Seller. In exchange for and simultaneously with such
conveyance, the
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Seller will deposit into the Escrow Account an amount of cash equal to the
principal balances of all such Underlying Federal Loans and Underlying Private
Loans, plus accrued interest thereon to the date of such conveyance. Each
purchase of a Serial Loan will be funded by means of a transfer from (a) during
the Funding Period, the Pre-Funding Account and (b) after the end of the Funding
Period until the Loan Purchase Termination Date, from Available Loan Purchase
Funds on deposit in the Collection Account, in each case, of an amount equal to
the Purchase Price of such Serial Loan.
Amounts on deposit in the Escrow Account will be invested in Eligible
Investments (see " -- Accounts") and will be used on the succeeding Transfer
Date, as described above, to purchase Additional Student Loans from the Seller.
Any of such amounts remaining in the Escrow Account on the Transfer Date after
giving effect to the conveyance of all such Additional Student Loans on such
Transfer Date will be deposited into the Collection Account and distributed as
Available Funds on the Distribution Date immediately following such Transfer
Date.
SERVICING PROCEDURES
Pursuant to the Sale and Servicing Agreement, PHEAA and EFS have each
agreed as Servicers to service, and perform all other related tasks with respect
to, the Financed Student Loans acquired from time to time. So long as no claim
is being made against a Guarantor for any Financed Student Loan, a Servicer will
hold on behalf of the Trust the notes evidencing, and other documents relating
to, that Financed Student Loan. With respect to the Financed Student Loans it is
servicing, each Servicer is required pursuant to the Sale and Servicing
Agreement to perform all services and duties customary to the servicing of
Student Loans (including all collection practices), and to do so in the same
manner as such Servicer has serviced student loans on behalf of the Seller and
in compliance with all standards and procedures provided for in the Higher
Education Act, the Guarantee Agreements and all other applicable federal and
state laws.
Without limiting the foregoing, the duties of each Servicer under the Sale
and Servicing Agreement include, but are not limited to, the following:
collecting and depositing into the Collection Account (or, in the event that
daily deposits into the Collection Account are not required, paying to the
Administrator) all payments with respect to the Financed Student Loans such
Servicer is servicing, including claiming and obtaining any Guarantee Payments
(subject to the TERI Maximum Payments Amount) with respect thereto but excluding
such tasks with respect to Interest Subsidy Payments and Special Allowance
Payments (as to which the Administrator and the Eligible Lender Trustee have
agreed to perform, see " -- Administrator"), responding to inquiries from
borrowers on such Financed Student Loans, investigating delinquencies and
sending out statements, payment coupons and tax reporting information to
borrowers. In addition, each Servicer will keep ongoing records with respect to
such Financed Student Loans and collections thereon and will furnish quarterly
and annual statements to the Administrator with respect to such information, in
accordance with the Servicer's customary practices with respect to the Seller
and as otherwise required in the Sale and Servicing Agreement. In its capacity
as Servicer, PHEAA will from time to time be required on behalf of the Trust to
file claims against, and pursue the receipt of Guarantee Payments from, itself
as a Federal Guarantor.
PAYMENTS ON FINANCED STUDENT LOANS
Except as provided below, each Servicer will deposit all payments on
Financed Student Loans (from whatever source), and all proceeds of Financed
Student Loans collected by it during each Collection Period into the Collection
Account within two Business Days of receipt thereof. Except as provided below,
the Eligible Lender Trustee will deposit all Interest Subsidy Payments and all
Special Allowance Payments with respect to the Financed Student Loans received
by it during each Collection Period into the Collection Account within two
Business Days of receipt thereof.
However, in the event that Key Bank USA, National Association satisfies
certain requirements for quarterly remittances and the rating agencies affirm
their ratings of the Notes and the Certificates at the initial level, then so
long as Key Bank USA, National Association is the Administrator and provided
that
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(i) there exists no Administrator Default (as described below) and (ii) each
other condition to making quarterly deposits as may be specified by the rating
agencies is satisfied, each Servicer and the Eligible Lender Trustee will pay
all the amounts referred to in the preceding paragraph that would otherwise be
deposited into the Collection Account to the Administrator, and the
Administrator will not be required to deposit such amounts into the Collection
Account until on or before the Business Day immediately preceding each Monthly
Servicing Payment Date (to the extent of the Servicing Fee payable on such date)
and on or before the Business Day immediately preceding each Distribution Date
(to the extent of the remainder of such amounts). In such event, the
Administrator will deposit the aggregate Purchase Amount of Financed Student
Loans repurchased by the Seller and purchased by a Servicer into the Collection
Account on or before the Business Day preceding each Distribution Date. Pending
deposit into the Collection Account, collections may be invested by the
Administrator at its own risk and for its own benefit, and will not be
segregated from funds of the Administrator.
SERVICER COVENANTS
In the Sale and Servicing Agreement, each Servicer covenants that: (a) it
will duly satisfy all obligations on its part to be fulfilled under or in
connection with the Financed Student Loans such Servicer is servicing, maintain
in effect all qualifications required in order to service such Financed Student
Loans and comply in all material respects with all requirements of law in
connection with servicing such Financed Student Loans, the failure to comply
with which would have a materially adverse effect on the Certificateholders or
the Noteholders; (b) it will not permit any rescission or cancellation of a
Financed Student Loan such Servicer is servicing except as ordered by a court of
competent jurisdiction or other government authority or as otherwise consented
to by the Eligible Lender Trustee and the Indenture Trustee; (c) it will do
nothing to impair the rights of the Certificateholders and the Noteholders in
such Financed Student Loans and (d) it will not reschedule, revise, defer or
otherwise compromise with respect to payments due on any such Financed Student
Loan except pursuant to any applicable deferral or forbearance periods or
otherwise in accordance with its guidelines for servicing student loans in
general and those of the Seller in particular and any applicable Programs
requirements.
Certain incentive programs currently or hereafter made available by the
Seller to borrowers may also be made available by each Servicer to borrowers
with Financed Student Loans. Any such incentive program that effectively reduces
borrower payments on Financed Student Loans and, with respect to Financed
Federal Loans, is not required by the Higher Education Act will be applicable to
the Financed Student Loans only if and to the extent that such Servicer receives
payment from the Seller in an amount sufficient to offset such effective yield
reductions.
Under the terms of the Sale and Servicing Agreement, if the Seller or a
Servicer discovers, or receives written notice, that any covenant of the
Servicers set forth above has not been complied with by such Servicer in all
material respects and such noncompliance has not been cured within 60 days
thereafter and has a materially adverse effect on the interest of the
Certificateholders or the Noteholders in any Financed Student Loan (it being
understood that any such breach that does not affect any Guarantor's obligation
to guarantee or insure payment of such Financed Student Loan will not be
considered to have such a material adverse effect), unless such breach is cured,
such Servicer will purchase such Financed Student Loan as of the first day
following the end of such 60-day period that is the last day of a Collection
Period. In that event, such Servicer will be obligated to deposit into the
Collection Account an amount equal to the Purchase Amount of such Financed
Student Loan and the Trust's interest in any such purchased Financed Student
Loan will be automatically assigned to such Servicer. In addition, a Servicer
will reimburse the Trust with respect to any Financed Federal Loan for any
accrued interest amounts that a Federal Guarantor refuses to pay pursuant to its
Guarantee Agreement due to, or for any Interest Subsidy Payments and Special
Allowance Payments that are lost or that must be repaid to the Department as a
result of, a breach of any such covenant of such Servicer.
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SERVICING COMPENSATION
The Servicers will be entitled to receive, subject to the limitations set
forth in the following paragraph, the Servicing Fee monthly in an amount equal
to the sum of (i) the Servicing Fee Percentage (as defined below) of the Pool
Balance as of the last day of the immediately preceding calendar month and (ii)
in the case of PHEAA certain one-time fixed fees for each Financed Student Loan
for which a forbearance period was granted or renewed or for which a guarantee
claim was filed, in each case subject to adjustment, together with other
administrative fees and similar charges, as compensation for performing the
functions as servicers for the Trust described above. The "Servicing Fee
Percentage" means, with respect to each Servicer, the per annum percentage
specified in a fee schedule for such Servicer delivered to the Eligible Lender
Trustee on the Closing Date. The Servicing Fee set forth in clause (i) above may
be subject to reasonable increase agreed to by the Administrator, the Eligible
Lender Trustee and the Servicers to the extent that a demonstrable and
significant increase occurs in the costs incurred by the Servicers in providing
the services to be provided under the Sale and Servicing Agreement, whether due
to changes in applicable governmental regulations, guarantor program
requirements or regulations, United States Postal Service postal rates or some
other identifiable cost increasing event. The Servicing Fee (together with any
portion of the Servicing Fee that remains unpaid from prior Distribution Dates)
will be payable on each Monthly Servicing Payment Date and will be paid solely
out of Available Funds and amounts on deposit in the Reserve Account on such
Monthly Servicing Payment Date.
Notwithstanding the foregoing, in the event that the aggregate fees payable
to the Servicers as defined above for any Monthly Servicing Payment Date would
exceed 0.50% per annum of the Pool Balance as of the last day of the preceding
calendar month (other than any deconversion fees) (the "Capped Amount"), then
the "Servicing Fee" for such Monthly Servicing Payment Date will instead be the
Capped Amount for such date plus any deconversion fees referred to below. The
remaining amount in excess of such Servicing Fee, together with any such excess
amounts from prior Monthly Servicing Payment Dates that remain unpaid (the
aggregate amounts being the "Excess Servicing Fee"), will be payable to the
Servicers on each succeeding Distribution Date out of Available Funds after
payment on such Distribution Date of the amounts set forth in "Description of
the Transfer and Servicing Agreements -- Distributions." The Servicers will only
be entitled to receive the Excess Servicing Fee if and to the extent that
Available Funds exist to make such payments after making all prior distributions
and deposits.
The Servicing Fee and the Excess Servicing Fee will compensate the
Servicers for performing the functions of third party servicers of student loans
as agents for their beneficial owner, including collecting and posting all
payments, responding to inquiries of borrowers on the Financed Student Loans,
investigating delinquencies, pursuing, filing and collecting any Guarantee
Payments, accounting for collections and furnishing monthly and annual
statements to the Administrator. The Servicing Fee and the Excess Servicing Fee
also will reimburse the Servicers for certain taxes, accounting fees, outside
auditor fees, data processing costs and other costs incurred in connection with
administering the Financed Student Loans.
In the event of (i) any sale of the Financed Student Loans on behalf of the
Trust to any person (other than the Seller, the Administrator, PHEAA or the
Servicers) in which the purchaser elects to deconvert the Financed Student Loans
and not retain PHEAA or EFS, as the case may be, as Servicer or (ii) any
termination by the Trust of PHEAA or EFS, as the case may be, as Servicer of the
Financed Student Loans, except for any termination for cause or as a result of
any Servicer Default by PHEAA or EFS, as the case may be, the Trust shall pay to
PHEAA or EFS, as the case may be, as a part of the Servicing Fee (not subject to
the Capped Amount) the following deconversion fee, per loan, based on the status
of the loan at the time of deconversion: (a) $115 for each in-school Stafford
Loan, in-school deferred SLS Loan, Law Loan, Medical Loan, Dental Loan, Business
Loan, Graduate Loan, Bar Exam Loan, and Residency Loan; and (b) $62.50 for each
loan of any other status or loan type.
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DISTRIBUTIONS
Deposits to Collection Account. On or about the third Business Day prior to
each Distribution Date (the "Determination Date"), the Administrator will
provide the Indenture Trustee with certain information with respect to the
distributions to be made on such Distribution Date.
On or before the Business Day preceding each Monthly Servicing Payment Date
that is not a Distribution Date, the Administrator will cause (or will cause the
Servicers and the Eligible Lender Trustee to cause) (i) any Guaranteed Payments
made by TERI in excess of the Maximum TERI Payments Amount and (ii) a portion of
the amount of the Available Funds equal to the Servicing Fee, payable on such
date to be deposited into the Collection Account for payment to the Seller in
the case of such excess Guarantee Payments and to the Servicer in the case of
the Servicing Fee. On or before the Business Day prior to each Distribution
Date, the Administrator will cause (or will cause the Servicers and the Eligible
Lender Trustee to cause) the amount of Available Funds to be deposited into the
Collection Account.
For purposes hereof, the term "Available Funds" means, with respect to a
Distribution Date or any Monthly Servicing Payment Date, the sum of the
following amounts received with respect to the related Collection Period (or, in
the case of a Monthly Servicing Payment Date, the applicable portion thereof) to
the extent not previously distributed:
(i) all collections received by the Servicers on the Financed Student
Loans (including any Guarantee Payments (subject to the Maximum TERI
Payments Amount) received with respect to such Financed Student Loans) but
net of (x) any Federal Origination Fee and Federal Consolidation Loan
Rebate payable to the Department on Federal Consolidation Loans disbursed
after October 1, 1993, and (y) any collections in respect of principal on
the Financed Student Loans applied by the Trust to repurchase guaranteed
loans from the Guarantors in accordance with the Guarantee Agreements;
(ii) any Interest Subsidy Payments and Special Allowance Payments
received by the Eligible Lender Trustee during the then elapsed portion of
such Collection Period with respect to the Financed Federal Loans;
(iii) all proceeds of the Financed Student Loans which were liquidated
("Liquidated Student Loans") during the then elapsed portion of such
Collection Period in accordance with the Servicers' respective customary
servicing procedures, net of expenses incurred by the Servicers in
connection with such liquidation and any amounts required by law to be
remitted to the borrower on such Liquidated Student Loans ("Liquidation
Proceeds"), and all recoveries in respect of Liquidated Student Loans which
were written off in prior Collection Periods or prior months of such
Collection Period;
(iv) the aggregate Purchase Amounts received for those Financed
Student Loans repurchased by the Seller or purchased by a Servicer under an
obligation which arose during the elapsed portion of such Collection
Period;
(v) the aggregate amounts, if any, received from the Seller or a
Servicer, as the case may be, as reimbursement of non-guaranteed interest
amounts, or lost Interest Subsidy Payments and Special Allowance Payments;
(vi) amounts deposited by the Seller into the Collection Account in
connection with the making of Consolidation Loans;
(vii) with respect to the first Distribution Date, the portion of the
Additional Interest Deposit transferred from the Subsequent Pool
Pre-Funding Subaccount to the Collection Account;
(viii) Investment Earnings for such Distribution Date;
(ix) amounts withdrawn from the Reserve Account in excess of the
Specified Reserve Account Balance and deposited into the Collection
Account;
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(x) amounts withdrawn from the Escrow Account and deposited into the
Collection Account; and
(xi) with respect to the Distribution Date on or immediately after the
end of the Funding Period, the amount transferred from the Pre-Funding
Account to the Collection Account;
provided that Available Funds will exclude (A) all payments and proceeds
(including Liquidation Proceeds) of any Financed Student Loans, the Purchase
Amount of which has been included in Available Funds for a prior Distribution
Date and (B) following the end of the Funding Period and prior to the Loan
Purchase Termination Date, amounts withdrawn from the Collection Account to
purchase Other Student Loans or pay Guarantee Fee Advances during the period
following the preceding Distribution Date and ending on or prior to such
Distribution Date; provided, further, that if on any Distribution Date there
would not be sufficient funds, after application of Available Funds amounts
available from the Reserve Account and the Pre-Funding Account (1) to pay any of
the items specified in clauses (i) through (iii), respectively, under
"--Distributions from the Collection Account," for such Distribution Date and
(2) if the principal balance of the Notes (after giving effect to any
distributions thereon on such Distribution Date) is less than or equal to the
Note Collateralization Amount, to pay the Certificateholders' Interest
Distribution Amount for such Distribution Date, then Available Funds for such
Distribution Date will include, in addition to the Available Funds on deposit in
the Collection Account on the Determination Date relating to such Distribution
Date which would have constituted Available Funds for the Distribution Date
succeeding such Distribution Date up to the amount necessary to pay, in the case
of clause (1) above such items specified in clauses (i) through (iii)
respectively and in the case of clause (2) above the Certificateholders'
Interest Distribution Amount and the Available Funds for such succeeding
Distribution Date will be adjusted accordingly.
Distributions from the Collection Account. On each Monthly Servicing
Payment Date that is not a Distribution Date, the Administrator will instruct
the Indenture Trustee to pay to (i) the Seller any amounts on deposit in the
Collection Account which consist of Guarantee Payments made by TERI in excess of
the Maximum TERI Payments Amount and (ii) the Servicers the Servicing Fee due
with respect to the period from and including the preceding Monthly Servicing
Payment Date from amounts on deposit in the Collection Account.
On each Distribution Date, the Administrator will instruct the Indenture
Trustee to make the following deposits and distributions, in the amounts and in
the order of priority specified below, to the extent of Available Funds for the
related Collection Period:
(i) to the Seller, any amounts on deposit in the Collection Account
which consist of Guarantee Payments made by TERI in excess of the Maximum
TERI Payments Amount;
(ii) to the Servicers, the Servicing Fee due on such Distribution Date
and all prior unpaid Servicing Fees;
(iii) to the Administrator, the Administration Fee and all unpaid
Administration Fees from prior Collection Periods;
(iv) to the holders of the Notes, the Noteholders' Interest
Distribution Amount;
(v) to the holders of the Certificates, the Certificateholders'
Interest Distribution Amount;
(vi) to the Reserve Account, an amount, up to the amount, if any,
necessary to reinstate the balance of the Reserve Account to the Specified
Reserve Account Balance;
(vii) to the holders of the Notes, the Noteholders' Principal
Distribution Amount;
(viii) on each Distribution Date on and after which the Notes have
been paid in full, to the holders of the Certificates, the
Certificateholders' Principal Distribution Amount;
(ix) to the Servicers, the aggregate unpaid amount, if any, of the
Excess Servicing Fee;
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(x) to the holders of the Notes on a pro rata basis, based on the
amount of the Noteholders' Interest Index Carryover owing on each class of
Notes, the aggregate unpaid amount of the Noteholders' Interest Index
Carryover, if any;
(xi) to the holders of the Certificates, the aggregate unpaid amount
of the Certificateholders' Interest Index Carryover, if any; and
(xii) to the Seller, any remaining amounts after application of
clauses (i) through (xi).
Additionally, if on any Distribution Date the outstanding principal balance
of the Notes (after giving effect to distributions on such Distribution Date) is
in excess of the Note Collateralization Amount, the principal will be payable to
the Noteholders in the amount of the Noteholders' Priority Principal
Distribution Amount to the extent of funds available before any amounts are
payable to the holders of the Certificates.
Upon any distribution to the Seller of any amounts included as Available
Funds, neither the Noteholders nor the Certificateholders will have any rights
in, or claims to, such amounts.
For purposes hereof, the following terms have the following meanings:
"Certificate Balance" equals $34,600,000 as of the Closing Date and
thereafter, equals the initial Certificate Balance, reduced by all amounts
allocable to principal subsequently distributed to the Certificateholders.
"Certificateholders' Distribution Amount" means, with respect to any
Distribution Date, the Certificateholders' Interest Distribution Amount for such
Distribution Date plus, for each Distribution Date on and after which the Notes
have been paid in full, the Certificateholders' Principal Distribution Amount
for such Distribution Date.
"Certificateholders' Interest Carryover Shortfall" means with respect to
any Distribution Date, the excess of (i) the sum of the Certificateholders'
Interest Distribution Amount on the preceding Distribution Date over (ii) the
amount of interest actually distributed to the holders of the Certificates on
such preceding Distribution Date, plus interest on the amount of such excess
interest due to the holders of the Certificates, to the extent permitted by law,
at the Certificate Rate from such preceding Distribution Date to the current
Distribution Date.
"Certificateholders' Interest Distribution Amount" means with respect to
any Distribution Date, the sum of (i) the amount of interest accrued at the
Certificate Rate for the related Interest Period on the outstanding Certificate
Balance on the immediately preceding Distribution Date, after giving effect to
all distributions of principal to holders of the Certificates on such
Distribution Date (or, in the case of the first Distribution Date, on the
Closing Date) and (ii) the Certificateholders' Interest Carryover Shortfall for
such Distribution Date; provided, that the Certificateholders' Interest
Distribution Amount will not include any Certificateholders' Interest Index
Carryover.
"Certificateholders' Principal Distribution Amount" means on each
Distribution Date on and after which the principal balance of the Notes has been
paid in full, the Principal Distribution Amount for such Distribution Date (or,
in the case of the Distribution Date on which the principal balance of the Notes
is paid in full, any remaining Principal Distribution Amount not otherwise
distributed to the holders of the Notes on such Distribution Date); provided
that the Certificateholders' Principal Distribution Amount will in no event
exceed the Certificate Balance. In addition, on the Final Maturity Date for the
Certificates, the principal required to be distributed to the holders of the
Certificates will include the amount required to reduce the outstanding
Certificate Balance to zero.
"Maximum TERI Payments Amount" means 19% of the Initial Pool Balance.
"Net Government Receivable" means, with respect to any Distribution Date,
the sum of the amount of Interest Subsidy Payments and Special Allowance
Payments due from the Department less the amount owed to the Department for
Federal Origination Fee and Federal Consolidation Loan Rebate as of the end of
the related Collection Period.
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"Note Collateralization Amount" means, with respect to any Distribution
Date, the sum of (i) the Pool Balance as of the end of the related Collection
Period, (ii) the Pre-Funded Amount, as of the end of the related Collection
Period, (iii) the amount on deposit in the Reserve Account after giving effect
to distributions on such Distribution Date, and (iv) the Net Government
Receivable.
"Noteholders' Distribution Amount" means, with respect to any Distribution
Date, the sum of the Noteholders' Interest Distribution Amount and the
Noteholders' Principal Distribution Amount for such Distribution Date.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of (i) the sum of the Noteholders' Interest
Distribution Amount on the preceding Distribution Date over (ii) the amount of
interest actually distributed to the holders of the Notes on such preceding
Distribution Date, plus interest on the amount of such excess interest due to
the holders of the Notes, to the extent permitted by law, at the weighted
average of the Note Interest Rates from such preceding Distribution Date to the
current Distribution Date.
"Noteholders' Interest Distribution Amount" means, with respect to any
Distribution Date, the sum of (i) the aggregate amount of interest accrued at
the respective Note Interest Rate for the related Interest Period on the
outstanding principal balance of each class of the Notes on the immediately
preceding Distribution Date after giving effect to all principal distributions
to Noteholders on such date (or, in the case of the first Distribution Date, on
the Closing Date) and (ii) the Noteholders' Interest Carryover Shortfall for
such Distribution Date; provided, that the Noteholders' Interest Distribution
Amount will not include any Noteholders' Interest Index Carryover.
"Noteholders' Principal Distribution Amount" means, with respect to any
Distribution Date, the Principal Distribution Amount for such Distribution Date;
provided, however, that the Noteholders' Principal Distribution Amount will not
exceed the outstanding principal balance of the Notes. In addition, (i) on the
Final Maturity Date for each class of Notes, the principal required to be
distributed to the class of Notes will include the amount required to reduce the
outstanding principal balance of such class of Notes to zero, and (ii) on the
related Distribution Date following a sale of the Financed Student Loans in the
manner described under "--Termination," the principal required to be distributed
to the holders of Class A-2 Notes will include the amount required to reduce the
outstanding principal balance of such Class A-2 Notes to zero. In the event that
the outstanding balance of the Notes is in excess of the Note Collateralization
Amount, the Noteholders' Principal Distribution Amount for the Notes will be
reduced by the amount of any Noteholders' Priority Principal Distribution
Amount.
"Noteholders' Priority Principal Distribution Amount" means, with respect
to any Distribution Date, the excess of (i) the aggregate outstanding principal
balance of such Notes (after giving effect to any distributions on such
Distribution Date) over (ii) the Note Collateralization Amount.
"Pool Balance" means, at any time, the aggregate principal balance of the
Financed Student Loans at the end of the preceding Collection Period (including
accrued interest thereon for such Collection Period to the extent such interest
will be capitalized upon commencement of repayment), after giving effect to the
following without duplication: (i) all payments received by the Trust related to
the Financed Student Loans during such Collection Period from or on behalf of
borrowers, Guarantors (except with respect to any guarantee payments made by
TERI in excess of the Maximum TERI Payments Amount) and, with respect to certain
payments on certain Financed Federal Loans, the Department (collectively,
"Obligors"), (ii) all Purchase Amounts received by the Trust related to the
Financed Student Loans for such Collection Period from the Seller or the
Servicers, (iii) all Additional Fundings made from the Escrow Account and the
Pre-Funding Account or the Available Loan Purchase Funds with respect to such
Collection Period and (iv) all losses realized on Financed Student Loans
liquidated during such Collection Period.
"Principal Distribution Amount" means, with respect to any Distribution
Date, the amount by which the sum of the outstanding principal balance of the
Notes and the Certificate Balance exceeds the Specified Collateral Balance for
such Distribution Date.
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"Specified Collateral Balance" means, with respect to any Distribution
Date, the sum of (a) the Pool Balance as of the last day of the related
Collection Period plus (b) the Pre-Funded Amount as of the last day of the
related Collection Period for such Distribution Date. In the event that the
Financed Student Loans are not sold pursuant to the auction process described
under "--Termination," with respect to any Distribution Date occurring on or
after the March 2009 Distribution Date, the Specified Collateral Balance will be
zero. Following a TERI Trigger Event, the Specified Collateral Balance will
equal zero.
A "TERI Trigger Event" shall occur when (i) the Cumulative TERI Claims
Ratio (as defined below) exceeds 20% and (ii) a claim has been made under the
TERI Guarantee Agreement and TERI has failed to fully satisfy such claim.
Notwithstanding the foregoing, no TERI Trigger Event will be deemed to occur if
each rating agency rating the Securities waives the TERI Trigger Event.
"Cumulative TERI Claims Ratio" means, with respect to any Distribution
Date, the fraction, expressed as a percentage, the numerator of which is equal
to the aggregate dollar amount of claims filed against TERI under its Guarantee
Agreement from the Closing Date through and including the last day of the
Collection Period preceding such Distribution Date and the denominator of which
is equal to the dollar amount of the Financed Private Loans guaranteed by TERI
as of the Closing Date.
CREDIT ENHANCEMENT
Reserve Account. Pursuant to the Sale and Servicing Agreement, the Reserve
Account will be created with an initial deposit by the Seller on the Closing
Date of cash or Eligible Investments in an amount equal to the Reserve Account
Initial Deposit. On the Closing Date, the Reserve Account Initial Deposit will
equal the Specified Reserve Account Balance as of the Closing Date. The amounts
on deposit in the Reserve Account to the extent used will be replenished up to
the Specified Reserve Account Balance on each Distribution Date by deposit
therein of the amount, if any, necessary to reinstate the balance of the Reserve
Account to the Specified Reserve Account Balance from the amount of Available
Funds remaining after payment of the amounts set forth under "Description of the
Transfer and Servicing Agreements -- Distributions," all for such Distribution
Date.
"The Specified Reserve Account Balance" with respect to any Distribution
Date will be equal to the greater of (i) 0.30% of the aggregate outstanding
principal amount of the Notes and the Certificate Balance on such Distribution
Date before giving effect to any distribution on such Distribution Date, and
(ii) $1,297,500; provided, however, that in no event will such balance exceed
the sum of the outstanding principal amount of the Notes and the outstanding
principal balance of the Certificates.
Funds will be withdrawn from the Reserve Account to the extent that the
amount of Available Funds is insufficient to pay the Servicing Fee on any
Monthly Servicing Payment Date and any of the items specified in clauses (i)
through (v) under " -- Distributions -- Distributions from Collection Account"
on any Distribution Date; provided that amounts on deposit in the Reserve
Account shall only be available to cover shortfalls in interest payments on the
Certificates to the extent that the Note Collateralization Amount (after giving
effect to such withdrawals from the Reserve Account) is not less than the
outstanding principal balance of the Notes. Such funds will be paid from the
Reserve Account to the Servicers on a Monthly Servicing Payment Date, and to the
persons and in the order of priority specified for distributions out of the
Collection Account in such clauses (i) through (v) on a Distribution Date. In
addition, on the Final Maturity Dates for the Securities, amounts on deposit in
the Reserve Account, if any, will be available, if necessary, to be applied to
reduce the principal balance of the Securities to zero. Amounts on deposit in
the Reserve Account will not be available to cover any reimbursement for unpaid
Excess Servicing Fees, Noteholders' Interest Index Carryover or
Certificateholders' Interest Index Carryover.
If the amount on deposit in the Reserve Account on any Distribution Date
(after giving effect to all deposits or withdrawals therefrom on such
Distribution Date) is greater than the Specified Reserve Account Balance for
such Distribution Date, subject to certain limitations, the Administrator will
instruct the Indenture Trustee to deposit the amount of the excess into the
Collection Account for distribution as Available Funds on such Distribution
Date. Upon any distribution to the Seller of any amounts included as
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Available Funds, neither the Noteholders nor the Certificateholders will have
any rights in, or claims to, such amounts. Subject to the limitation described
in the preceding sentence, amounts held from time to time in the Reserve Account
will continue to be held for the benefit of the Trust.
The Reserve Account is intended to enhance the likelihood of timely receipt
by the holders of Notes and the holders of Certificates of the full amount of
interest due them and to decrease the likelihood that such holders will
experience losses. In certain circumstances, however, the Reserve Account could
be depleted.
Subordination of the Certificates. The rights of the holders of
Certificates to receive payments of interest are subordinated to the rights of
the holders of Notes to receive payments of interest (and, in certain
circumstances, principal) and the rights of the holders of Certificates to
receive payments of principal are subordinated to the rights of the holders of
Notes to receive payments of interest and principal. Consequently, amounts on
deposit in the Collection Account, the Reserve Account and the Pre-Funding
Account will be applied to the payment of interest on the Notes before payment
of interest on the Certificates and will be applied to the payment of principal
on the Notes before payment of principal on the Certificates. In addition if (i)
an Event of Default should occur and be continuing under the Indenture or (ii)
an Insolvency Event should occur and the Financed Student Loans were liquidated,
all amounts due on the Notes will be payable before any amounts are payable on
the Certificates. Also if the outstanding principal balance of the Notes is in
excess of the Note Collateralization Amount, principal will be payable to
holders of Notes in the amount of such excess to the extent of funds available
before any amounts are payable to holders of Certificates. See "Description of
the Securities -- The Certificates -- Subordination of the Certificates" and
"Risk Factors -- Subordination of Certificates to Notes."
STATEMENTS TO INDENTURE TRUSTEE AND TRUST
Prior to each Distribution Date, the Administrator (based on the quarterly
statements and other information provided to it by the Servicers) will provide
to the Indenture Trustee and the Trust, as of the close of business on the last
day of the preceding Collection Period, a statement which will include the
following information with respect to such Distribution Date or the preceding
Collection Period as to the Notes and the Certificates, to the extent
applicable:
(i) the amount of the distribution allocable to principal of each
class of Securities;
(ii) the amount of the distribution allocable to interest on each
class of Securities, together with the interest rates applicable with
respect thereto (indicating whether such interest rates are based on the
Formula Rate or on the Student Loan Rate and specifying what each such
interest rate would have been if it had been calculated using the alternate
basis; provided that no such calculation of the Student Loan Rate will be
required to be made unless the Investor Index for such Interest Period is
100 basis points greater than the Investor Index of the preceding
Determination Date or, with respect to T-Bill Indexed Securities only, the
52 Week T-Bill Rate is 100 basis points less than the T-Bill Rate as of
such Determination Date);
(iii) the amount of the distribution, if any, allocable to any
Noteholders' Interest Index Carryover and any Certificateholders' Interest
Index Carryover, together with the outstanding amount, if any, of each
thereof after giving effect to any such distribution;
(iv) the Pool Balance as of the close of business on the last day of
the preceding Collection Period, after giving effect to payments allocated
to principal reported as described in clause (i) above;
(v) the aggregate outstanding principal balance of each Class of
Notes, the Certificate Balance and each Pool Factor as of such Distribution
Date, after giving effect to payments allocated to principal reported under
clause (i) above;
(vi) the amount of the Servicing Fee and any Excess Servicing Fee paid
to the Servicers and the amount of the Administration Fee paid to the
Administrator with respect to such Collection
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Period, and the amount, if any, of the Excess Servicing Fee remaining
unpaid after giving effect to any such payment;
(vii) the amount of the aggregate Realized Losses, if any, for such
Collection Period and the balance of Financed Student Loans that are
delinquent in each delinquency period as of the end of such Collection
Period;
(viii) the balance of the Reserve Account on such Distribution Date,
after giving effect to changes therein on such Distribution Date;
(ix) for Distribution Dates during the Funding Period, the remaining
Pre-Funded Amount on such Distribution Date, after giving effect to changes
therein during the related Collection Period;
(x) for the first Distribution Date, the amount, if any, of the
Subsequent Pool Pre-Funded Amount remaining in the Subsequent Pool
Pre-Funding Subaccount that has not been used to acquire Subsequent Pool
Student Loans and is being paid out to the Noteholders and
Certificateholders;
(xi) for the first Distribution Date on or following the end of the
Funding Period, the amount of any remaining Pre-Funded Amount that has not
been used to make Additional Fundings and is being paid out to the
Noteholders; and
(xii) the aggregate amount of TERI Guarantee Payments deposited into
the Collection Account expressed as a percentage of the Initial Pool
Balance.
"Realized Losses" means, the excess of the principal balance of the
Liquidated Student Loans over the Liquidation Proceeds to the extent allocable
to principal.
"52 Week T-Bill Rate" means, on any date of determination, the bond
equivalent rate of 52-week Treasury bills auctioned at the final auction held
prior to the preceding June 1.
EVIDENCE AS TO COMPLIANCE
The Sale and Servicing Agreement will provide that a firm of independent
public accountants will furnish to the Trust and the Indenture Trustee annually
a statement (based on a limited examination of certain documents and records and
on such accounting and auditing procedures considered appropriate under the
circumstances) as to compliance by the Servicers during the preceding calendar
year (or, in the case of the first such certificate, the period from the Closing
Date to December 31, 1999) with certain standards under the Sale and Servicing
Agreement relating to the servicing of the Financed Student Loans.
The Sale and Servicing Agreement will further provide that a firm of
independent public accountants (which may be the same firm referred to in the
immediately preceding paragraph) will furnish to the Trust and the Indenture
Trustee annually a statement (based on the examination of certain documents and
records and on such accounting and auditing procedures considered appropriate
under the circumstances) as to compliance by the Administrator during the
preceding calendar year (or, in the case of the first such certificate, the
period from the Closing Date to December 31, 1999) with all applicable standards
under the Sale and Servicing Agreement and the Administration Agreement relating
to the administration of the Trust and the Financed Student Loans.
The Sale and Servicing Agreement will also provide for delivery to the
Trust and the Indenture Trustee, concurrently with the delivery of each
statement of compliance referred to above, of a certificate signed by an officer
of each Servicer or the Administrator, as the case may be, stating that, to his
knowledge, such Servicer or the Administrator, as the case may be, has fulfilled
its obligations under the Sale and Servicing Agreement throughout the preceding
calendar year (or, in the case of the first such certificate, the period from
the Closing Date to December 31, 1999) or, if there has been a default in the
fulfillment of any such obligation, describing each such default. Each of the
Servicers and the Administrator has agreed to give the Indenture Trustee and the
Eligible Lender Trustee notice of certain Servicer Defaults and Administrator
Defaults, respectively, under the Sale and Servicing Agreement.
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Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Applicable Trustee.
CERTAIN MATTERS REGARDING THE SERVICERS
The Sale and Servicing Agreement will provide that neither PHEAA nor EFS
may resign from its obligations and duties as Servicers thereunder, except upon
determination that PHEAA's or EFS's, as the case may be, performance of such
duties is no longer permissible under applicable law. No such resignation will
become effective until the Indenture Trustee or a successor servicer has assumed
PHEAA's or EFS's, as the case may be, servicing obligations and duties under the
Sale and Servicing Agreement.
The Sale and Servicing Agreement will further provide that neither of the
Servicers nor any of their respective directors, officers, employees or agents
will be under any liability to the Trust, the Noteholders or the
Certificateholders for taking any action or for refraining from taking any
action pursuant to the Sale and Servicing Agreement, or for errors in judgment;
provided, that neither of the Servicers nor any such person will be protected
against any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of its duties thereunder
or by reason of reckless disregard of its obligations or duties thereunder. In
addition, the Sale and Servicing Agreement will provide that the Servicers are
under no obligation to appear in, prosecute, or defend any legal action that is
not incidental to its servicing responsibilities under the Sale and Servicing
Agreement and that, in its opinion, may cause it to incur any expense or
liability.
Under the circumstances specified in the Sale and Servicing Agreement, any
entity into which a Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which a Servicer is a party, or
any entity succeeding to the business of a Servicer, which corporation or other
entity in each of the foregoing cases assumes the obligations of a Servicer,
will be the successor of a Servicer under the Sale and Servicing Agreement.
SERVICER DEFAULT; ADMINISTRATOR DEFAULT
"Servicer Default" under the Sale and Servicing Agreement will consist of
(i) any failure by a Servicer to deliver to the Indenture Trustee for deposit in
any of the Trust Accounts (or, in the event that daily deposits into the
Collection Account are not required, to the Administrator) any collections,
Guarantee Payments or other amounts received with respect to the Financed
Student Loans, which failure continues unremedied for three Business Days after
written notice from the Indenture Trustee or the Eligible Lender Trustee is
received by such Servicer or after discovery by such Servicer; (ii) any failure
by a Servicer duly to observe or perform in any material respect any other
covenant or agreement in the Sale and Servicing Agreement which failure
materially and adversely affects the rights of Noteholders or Certificateholders
and which continues unremedied for 60 days after the giving of written notice of
such failure (1) to such Servicer by the Indenture Trustee, the Eligible Lender
Trustee, the other Servicer or the Administrator or (2) to such Servicer and to
the Indenture Trustee and the Eligible Lender Trustee by holders of Notes or
Certificates, as applicable, evidencing not less than 25% in principal amount of
the outstanding Notes or Certificates; (iii) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities, or similar
proceedings with respect to a Servicer and certain actions by a Servicer
indicating its insolvency, reorganization pursuant to bankruptcy proceedings or
inability to pay its obligations and (iv) failure by a Servicer to comply with
any requirements under the Higher Education Act resulting in a loss of its
eligibility as a third-party servicer.
"Administrator Default" under the Sale and Servicing Agreement or the
Administration Agreement will consist of (i)(A) in the event that daily deposits
into the Collection Account are not required, any failure by the Administrator
to deliver to the Indenture Trustee for deposit in any of the Trust Accounts any
required payment on or before the Business Day prior to any Monthly Servicing
Payment Date or Distribution Date, as applicable, or (B) any failure by the
Administrator to direct the Indenture Trustee to make any required distributions
from any of the Trust Accounts on any Monthly Servicing Payment Date or any
Distribution Date, which failure in case of either clause (A) or (B) continues
unremedied for three
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Business Days after written notice from the Indenture Trustee or the Eligible
Lender Trustee is received by the Administrator or after discovery by the
Administrator; (ii) any failure by the Administrator duly to observe or perform
in any material respect any other covenant or agreement in the Administration
Agreement or the Sale and Servicing Agreement which failure materially and
adversely affects the rights of Noteholders or Certificateholders and which
continues unremedied for 60 days after the giving of written notice of such
failure (1) to the Administrator by the Indenture Trustee or the Eligible Lender
Trustee or (2) to the Administrator and to the Indenture Trustee and the
Eligible Lender Trustee by holders of Notes or Certificates, as applicable,
evidencing not less than 25% in principal amount of the outstanding Notes or
Certificates; and (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities, or similar proceedings with respect to
the Administrator and certain actions by the Administrator indicating its
insolvency or inability to pay its obligations.
RIGHTS UPON SERVICER DEFAULT AND ADMINISTRATOR DEFAULT
As long as a Servicer Default under the Sale and Servicing Agreement or an
Administrator Default under the Sale and Servicing Agreement or the
Administration Agreement remains unremedied, the Indenture Trustee or holders of
Notes evidencing not less than 25% in principal amount of then outstanding Notes
may terminate all the rights and obligations of the applicable Servicer under
the Sale and Servicing Agreement, or the Administrator under the Sale and
Servicing Agreement and the Administration Agreement, as the case may be,
whereupon a successor servicer or administrator appointed by the Indenture
Trustee, or the Indenture Trustee, will succeed to all of the responsibilities,
duties and liabilities of the applicable Servicer under the Sale and Servicing
Agreement, or the Administrator under the Sale and Servicing Agreement and the
Administration Agreement, as the case may be, and will be entitled to similar
compensation arrangements. If, however, a bankruptcy trustee or similar official
has been appointed for a Servicer or the Administrator, and no Servicer Default
or Administrator Default other than such appointment has occurred, such trustee
or official may have the power to prevent the Indenture Trustee or the
Noteholders from effecting such a transfer. In the event that the Indenture
Trustee is unwilling or unable to so act, it may appoint, or petition a court of
competent jurisdiction for the appointment of, a successor servicer whose
regular business includes the servicing of student loans or a successor
administrator whose regular business includes administering trusts containing
pools of loans or receivables. The Indenture Trustee may make such arrangements
for compensation to be paid, which in no event may be greater than the
compensation to the Servicers under the Sale and Servicing Agreement or the
Administrator under the Sale and Servicing Agreement and the Administration
Agreement, as the case may be, unless such compensation arrangements will result
in a downgrading of the Notes and the Certificates by any Rating Agency. In the
event a Servicer Default or an Administrator Default occurs and is continuing,
the Indenture Trustee or the holders of Notes, as described above, may remove
the applicable Servicer or the Administrator, as the case may be, without the
consent of the Eligible Lender Trustee or any of the holders of Certificates.
Moreover, only the Indenture Trustee or the holders of Notes, and not the
Eligible Lender Trustee or the holders of Certificates, have the ability to
remove a Servicer or the Administrator, as the case may be, if a Servicer
Default or an Administrator Default occurs and is continuing.
WAIVER OF PAST DEFAULTS
The holders of Notes evidencing at least a majority in principal amount of
the then outstanding Notes (or the holders of Certificates evidencing not less
than a majority of the outstanding Certificate Balance, in the case of any
default which does not adversely affect the Indenture Trustee or the
Noteholders) may, on behalf of all Noteholders and Certificateholders, waive any
default by a Servicer in the performance of its obligations under the Sale and
Servicing Agreement, or any default by the Administrator of its obligations
under the Sale and Servicing Agreement and the Administration Agreement, as the
case may be, and their respective consequences, except a default in making any
required deposits to or payments from any of the Trust Accounts or giving
instructions regarding the same in accordance with the Sale and Servicing
Agreement. Therefore, the Noteholders have the ability, except as noted above,
to waive defaults by the Servicers and the Administrator which could materially
adversely affect the Certificate-
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holders. No such waiver will impair the Noteholders' or the Certificateholders'
rights with respect to subsequent defaults.
Unless and until Definitive Securities are issued, holders of Notes and
Certificates will not be recognized by the Indenture Trustee or the Eligible
Lender Trustee as "Noteholders" or "Certificateholders," as the case may be (as
such terms are used in the Indenture and the Trust Agreement, respectively).
Hence, until Definitive Securities are issued, holders of such Securities will
only be able to exercise the rights of Securityholders indirectly through DTC,
Cedel or Euroclear and their respective participating organizations.
AMENDMENT
The Transfer and Servicing Agreements may be amended by the parties
thereto, without the consent of the Noteholders or the Certificateholders, for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Transfer and Servicing Agreements or of modifying
in any manner the rights of Noteholders or Certificateholders; provided that
such action will not, in the opinion of counsel satisfactory to the Indenture
Trustee and the Eligible Lender Trustee, materially and adversely affect the
interest of any Noteholder or Certificateholder. The Transfer and Servicing
Agreements may also be amended by the Seller, the Administrator, the Servicers,
the Eligible Lender Trustee and the Indenture Trustee, as applicable, with the
consent of the holders of Notes evidencing at least a majority in principal
amount of the then outstanding Notes and the holders of Certificates evidencing
at least a majority of the Certificate Balance for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Transfer and Servicing Agreements or of modifying in any manner the rights
of the holders of Notes or the holders of Certificates; provided, that no such
amendment may (i) increase or reduce in any manner the amount of, or accelerate
or delay the timing of, collections of payments (including any Guarantee
Payments) with respect to the Financed Student Loans or distributions that are
required to be made for the benefit of the holders of Notes or the holders of
Certificates or (ii) reduce the aforesaid percentage of the Notes or
Certificates which are required to consent to any such amendment, without the
consent of the holders of all the outstanding Notes and Certificates.
INSOLVENCY EVENT
If any of certain events of insolvency or receivership, readjustment of
debt, marshalling of assets and liabilities, or similar proceedings with respect
to the Seller or certain actions by the Seller indicating its insolvency or
inability to pay its obligations (each, a "Seller Insolvency Event") occurs, the
Financed Student Loans will be liquidated and the Trust will be terminated 90
days after the date of such Seller Insolvency Event, unless, before the end of
such 90-day period, the Eligible Lender Trustee shall have received written
instructions from the holders of the Certificates (other than the Seller)
representing more than 50% of the aggregate unpaid principal amount of the
Certificates (not including the principal amount of Certificates held by the
Seller) to the effect that such group disapproves of the liquidation of the
Financed Student Loans and termination of the Trust. Promptly after the
occurrence of any Seller Insolvency Event, notice thereof is required to be
given to Noteholders and Certificateholders; provided that any failure to give
such required notice will not prevent or delay termination of the Trust. Upon
termination of the Trust, the Eligible Lender Trustee will direct the Indenture
Trustee promptly to sell the assets of the Trust (other than the Trust Accounts)
in a commercially reasonable manner and on commercially reasonable terms. Each
of PHEAA, TERI and certain other unrelated third parties will be given the
opportunity, upon 30 days' prior notice of any such proposed sale, to bid to
purchase the Financed Student Loans and, if any such entity is the highest
bidder, the Financed Student Loans must be sold to that entity. The proceeds
from any such sale, disposition or liquidation of the Financed Student Loans
will be treated as collections thereon and deposited in the Collection Account.
If the proceeds from the liquidation of the Financed Student Loans and any
amounts on deposit in the Reserve Account are not sufficient to pay the Notes in
full, the amount of principal returned to the holders of Notes will be delayed
and the holders of Notes will incur a loss. If such amounts are not sufficient
to pay the Notes and
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the Certificates in full, the amount of principal returned to the holders of
Certificates will be delayed and the holders of Certificates will incur a loss.
The Trust Agreement provides that the Eligible Lender Trustee does not have
the power to commence a voluntary proceeding in bankruptcy relating to the Trust
without the unanimous prior approval of all holders of Certificates and the
delivery to the Eligible Lender Trustee by each holder of Certificates of a
certificate certifying that such holder reasonably believes that the Trust is
insolvent.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes and the satisfaction and
discharge of the Indenture, the Eligible Lender Trustee will succeed to all the
rights of the Indenture Trustee, and the holders of Certificates will succeed to
all the rights of the holders of Notes under the Sale and Servicing Agreement,
except as otherwise provided therein.
SELLER LIABILITY
Under the Trust Agreement, the Seller will agree to be liable directly to
an injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a holder of Notes or a holder of
Certificates in the capacity of an investor) arising out of or based on the
arrangement created by the Trust Agreement as though such arrangement created a
partnership under the Delaware Revised Uniform Limited Partnership Act in which
the Seller was a general partner.
TERMINATION
The obligations of the Servicers, the Seller, the Administrator, the
Eligible Lender Trustee and the Indenture Trustee pursuant to the Transfer and
Servicing Agreements will terminate upon (i) the maturity or other liquidation
of the last Financed Student Loan and the disposition of any amount received
upon liquidation of any remaining Financed Student Loans and (ii) the payment to
the holders of Notes and the holders of Certificates of all amounts required to
be paid to them pursuant to the Transfer and Servicing Agreements. In order to
avoid excessive administrative expense, the Seller is permitted at its option to
repurchase from the Eligible Lender Trustee, as of the end of any Collection
Period immediately preceding a Distribution Date, if the then outstanding Pool
Balance is 5% or less than the Initial Pool Balance, all remaining Financed
Student Loans at a price sufficient to retire the Certificates concurrently
therewith. Upon termination of the Trust, all right, title and interest in the
Financed Student Loans and other funds of the Trust, after giving effect to any
final distributions to holders of Notes and holders of Certificates therefrom,
will be conveyed and transferred to the Seller.
Any Financed Student Loans remaining in the Trust as of the end of the
Collection Period immediately preceding the March 2009 Distribution Date will be
offered for sale by the Indenture Trustee. KeyCorp, its affiliates (other than
the Seller), PHEAA, TERI and unrelated third parties may offer bids to purchase
such Financed Student Loans on such Distribution Date. If at least two bids are
received, the Indenture Trustee will solicit and resolicit bids from all
participating bidders until only one bid remains or the remaining bidders
decline to resubmit bids. The Indenture Trustee will accept the highest of such
remaining bids if it is equal to or in excess of an amount (the "Minimum
Purchase Amount") equal to the greatest of (i) the Auction Purchase Amount, (ii)
the fair market value of such Financed Student Loans as of the end of the
Collection Period immediately preceding such Distribution Date and (iii) the
aggregate unpaid principal amount of the Notes and principal balance of the
Certificates plus, in each case, accrued and unpaid interest thereon payable on
such Distribution Date (other than any Noteholders' Interest Index Carryover and
Certificateholders' Interest Index Carryover). If at least two bids are not
received or the highest bid after the resolicitation process is completed is not
equal to or in excess of the Minimum Purchase Amount, the Indenture Trustee will
not consummate such sale. In connection with the determination of the Minimum
Purchase Amount, the Indenture Trustee may consult and, at the direction of the
Seller, shall consult, with a financial advisor, including the Underwriters or
the Administrator, to determine if the fair market value of the Financed Student
Loans has been offered. The net proceeds of
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any such sale will be used to redeem any outstanding Notes and to retire any
outstanding Certificates on such Distribution Date. If the sale is not
consummated in accordance with the foregoing, the Indenture Trustee may, but
shall not be under any obligation to, solicit bids to purchase the Financed
Student Loans on future Distribution Dates upon terms similar to those described
above. No assurance can be given as to whether the Indenture Trustee will be
successful in soliciting acceptable bids to purchase the Financed Student Loans
on either the March 2009 Distribution Date or any subsequent Distribution Date.
In the event the Financed Student Loans are not sold in accordance with the
foregoing, on each Distribution Date on and after the March 2009 Distribution
Date the Specified Collateral Balance shall be reduced to zero and all Available
Funds remaining after applying such amounts to pay the Servicing Fee, the
Administration Fee, the Noteholders' Interest Distribution Amount, the
Noteholders' Priority Principal Distribution Amount, if any, and the
Certificateholders' Interest Distribution Amount will be paid as principal to
the holders of Notes and then to the holders of Certificates until the
outstanding principal balance of the Notes and the Certificates has been reduced
to zero.
ADMINISTRATOR
The Seller, in its capacity as Administrator, will enter into the
Administration Agreement with the Trust and the Indenture Trustee and the Sale
and Servicing Agreement with the Trust, the Seller, the Servicers and the
Eligible Lender Trustee, pursuant to which the Administrator will agree, to the
extent provided therein, (i) in the event that daily deposits into the
Collection Account are not required, to deliver to the Indenture Trustee for
deposit in any of the Trust Accounts any required payment on or before the
Business Day prior to any Monthly Servicing Payment Date or any Distribution
Date, as applicable, (ii) to direct the Indenture Trustee to make the required
distributions from the Trust Accounts on each Monthly Servicing Payment Date and
each Distribution Date, (iii) to prepare and file with the Department all
appropriate claim forms and other documents and filings on behalf of the
Eligible Lender Trustee in order to claim any Interest Subsidy Payments and
Special Allowance Payments that may be payable in respect of each Collection
Period with respect to the Financed Federal Loans, (iv) to prepare (based on the
quarterly and annual reports received from the Servicers) and provide monthly,
quarterly and annual statements to the Eligible Lender Trustee and the Indenture
Trustee with respect to distributions to Noteholders and Certificateholders and
any related federal income tax reporting information and (v) to provide the
notices and to perform other administrative obligations required by the
Indenture, the Trust Agreement and the Sale and Servicing Agreement. As
compensation for the performance of the Administrator's obligations under the
Administration Agreement and the Sale and Servicing Agreement and as
reimbursement for its expenses related thereto, the Administrator will be
entitled to an administration fee in an amount equal to $3,000 per quarter (the
"Administration Fee").
CERTAIN LEGAL ASPECTS OF THE FINANCED STUDENT LOANS
TRANSFER OF FINANCED STUDENT LOANS
The Seller intends that the transfer of the Financed Student Loans by it to
the Eligible Lender Trustee on behalf of the Trust constitutes a valid sale and
assignment of such Financed Student Loans. In addition, the Seller has taken and
will take all actions that are required under applicable state law to perfect
the Eligible Lender Trustee's ownership interest in the Financed Student Loans
and the collections with respect thereto. Notwithstanding the foregoing, if the
transfer of the Financed Student Loans is deemed to be an assignment of
collateral as security for the benefit of the Trust, the Financed Student Loans
would be considered general intangibles for purposes of the applicable Uniform
Commercial Code (the "UCC"). If such transfer is deemed to create a security
interest, the UCC applies and filing an appropriate financing statement or
statements is also required in order to perfect the Eligible Lender Trustee's
security interest. A financing statement or statements covering the Financed
Student Loans will be filed under the UCC to protect the interest of the
Eligible Lender Trustee in the event the transfer by the Seller is deemed to be
subject to the UCC. If a transfer of general intangibles is deemed to
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be a sale, then the UCC is not applicable and no further action under the UCC is
required to protect the Eligible Lender Trustee's interest from third parties.
If the transfer of the Financed Student Loans is deemed to be an assignment
as security for the benefit of the Trust, there are certain limited
circumstances under the UCC in which prior or subsequent transferees of Financed
Student Loans coming into existence after the Closing Date could have an
interest in such Financed Student Loans with priority over the Eligible Lender
Trustee's interest. A tax or other government lien on property of the Seller
arising prior to the time a Financed Student Loan comes into existence may also
have priority over the interest of the Eligible Lender Trustee in such Financed
Student Loan. Furthermore, if the FDIC were appointed as a receiver or
conservator of the Seller, the FDIC's administrative expenses may also have
priority over the interest of the Eligible Lender Trustee in such Financed
Student Loans. Under the Sale and Servicing Agreement, however, the Seller will
warrant that it has transferred the Financed Student Loans to the Eligible
Lender Trustee on behalf of the Trust free and clear of the lien of any third
party. In addition, the Seller will covenant that it will not sell, pledge,
assign, transfer or grant any lien on any Financed Student Loan (or any interest
therein) other than to the Eligible Lender Trustee on behalf of the Trust,
except as provided below.
Pursuant to the Sale and Servicing Agreement, the Servicers as custodians
on behalf of the Trust will have custody of the promissory notes evidencing the
Financed Student Loans such Servicers are servicing following the sale of the
Financed Student Loans to the Eligible Lender Trustee. Although the accounts of
the Seller will be marked to indicate the sale and although the Seller will
cause UCC financing statements to be filed with the appropriate authorities, the
Financed Student Loans will not be physically segregated, stamped or otherwise
marked to indicate that such Financed Student Loans have been sold to the
Eligible Lender Trustee. If, through inadvertence or otherwise, any of the
Financed Student Loans were sold to another party, or a security interest
therein were granted to another party, that purchased (or took such security
interest in) any of such Financed Student Loans in the ordinary course of its
business and took possession of such Financed Student Loans, then the purchaser
(or secured party) would acquire an interest in such Financed Student Loans
superior to the interest of the Eligible Lender Trustee if the purchaser (or
secured party) acquired (or took a security interest in) such Financed Student
Loans for new value and without actual knowledge of the Eligible Lender
Trustee's interest. See "Description of the Transfer and Servicing
Agreements -- Sale of Financed Student Loans; Representations and Warranties"
and " -- Servicer Covenants."
CERTAIN MATTERS RELATING TO RECEIVERSHIP
The FDIA, as amended by FIRREA, sets forth certain powers that the FDIC
could exercise if it were appointed as receiver or conservator of the Seller.
Subject to clarification by FDIC regulations or interpretations, it would
appear from the positions taken by the FDIC that the FDIC, in its capacity as a
receiver or conservator for the Seller, would not interfere with the timely
transfer to the Trust of collections with respect to the Financed Student Loans.
To the extent that the transfer of the Financed Student Loans is deemed to
create a security interest, and that interest was validly perfected before the
Seller's insolvency and was not taken in contemplation of insolvency or with the
intent to hinder, delay or defraud the Seller or its creditors, based upon
opinions and statements of policy issued by the general counsel of the FDIC
addressing the enforceability against the FDIC, as conservator or receiver for a
depository institution, of a security interest in collateral granted by such
depository institution, such security interest should not be subject to
avoidance and payments to the Trust with respect to the Financed Student Loans
should not be subject to recovery by the FDIC as receiver or conservator of the
Seller. If, however, the FDIC were to assert a contrary position, certain
provisions of the FDIA which, at the request of the FDIC, have been applied in
recent lawsuits to avoid security interests in collateral granted by depository
institutions, would permit the FDIC to avoid such security interest, thereby
resulting in possible delays and reductions in payments on the Notes and the
Certificates. In addition, if the FDIC were to require the Indenture Trustee or
the Eligible Lender Trustee to establish its right to such payments by
submitting to and completing the administrative claims procedure
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under the FDIA, as amended by FIRREA, delays in payments on the Notes and the
Certificates and possible reductions in the amount of those payments could
occur.
In the event of a Servicer Default or an Administrator Default resulting
solely from certain events of insolvency or bankruptcy that may occur with
respect to a Servicer or the Administrator, a court, conservator, receiver or
liquidator may have the power to prevent either the Indenture Trustee or
Noteholders from appointing a successor Servicer or Administrator, as the case
may be. See "Description of the Transfer and Servicing Agreements -- Rights Upon
Servicer Default and Administrator Default."
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. Also, some state laws impose finance charge ceilings and other
restrictions on certain consumer transactions and require contract disclosures
in addition to those required under federal law. These requirements impose
specific statutory liabilities upon lenders who fail to comply with their
provisions. In certain circumstances, the Trust may be liable for certain
violations of consumer protection laws that apply to the Financed Student Loans,
either as assignee from the Seller or as the party directly responsible for
obligations arising after the transfer. For a discussion of the Trust's rights
if the Financed Student Loans were not originated or serviced in compliance in
all material respects with applicable laws, see "Description of the Transfer and
Servicing Agreements -- Sale of Financed Student Loans; Representations and
Warranties" and "-- Servicer Covenants."
LOAN ORIGINATION AND SERVICING PROCEDURES APPLICABLE TO FINANCED STUDENT LOANS
The Higher Education Act, including the implementing regulations thereunder
(in the case of Federal Loans), and the Programs impose specified requirements,
guidelines and procedures with respect to originating and servicing Student
Loans such as the Financed Student Loans. Generally, those procedures require
that completed loan applications be processed, a determination of whether an
applicant is an eligible borrower under applicable standards (including a review
of a financial need analysis in the case of Federal Loans and the performance of
a creditworthiness evaluation in the case of Private Loans) be made, the
borrower's responsibilities under the loan be explained to him or her, the
promissory note evidencing the loan be executed by the borrower and then that
the loan proceeds be disbursed in a specified manner by the lender. After the
loan is made, the lender must establish repayment terms with the borrower,
properly administer deferrals and forbearances and credit the borrower for
payments made thereon. If a borrower becomes delinquent in repaying a loan, a
lender or a servicing agent must perform certain collection procedures
(primarily telephone calls and demand letters) which vary depending upon the
length of time a loan is delinquent. The Servicers have agreed pursuant to the
Sale and Servicing Agreement to perform collection and servicing procedures on
behalf of the Trust with respect to the Financed Student Loans each is
servicing. However, failure to follow these procedures or failure of the Seller
to follow procedures relating to the origination of any Financed Federal Loans
could result in adverse consequences. In the case of any such Financed Federal
Loans, any such failure could result in the Department's refusal to make
reinsurance payments to the Federal Guarantors or to make Interest Subsidy
Payments and Special Allowance Payments to the Eligible Lender Trustee with
respect to such Financed Federal Loans or in the Federal Guarantors' refusal to
honor their Guarantee Agreements with the Eligible Lender Trustee with respect
to such Financed Federal Loans. Failure of the Federal Guarantors to receive
reinsurance payments from the Department could adversely affect the Federal
Guarantors' ability or legal obligation to make Guarantee Payments to the
Eligible Lender Trustee with respect to such Financed Federal Loans. In the case
of the Financed Private Loans, failure to make or service properly such Private
Loans in accordance with such procedures could adversely affect the Eligible
Lender Trustee's ability to obtain Guarantee Payments from TERI or HICA with
respect to such Financed Private Loans.
Loss of any such Guarantee Payments, Interest Subsidy Payments or Special
Allowance Payments could adversely affect the amount of Available Funds on any
Distribution Date and the Trust's ability to
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pay principal and interest on the Notes and to make distributions in respect of
the Certificates. Under certain circumstances, pursuant to the Sale and
Servicing Agreement, the Seller is obligated to repurchase any Financed Student
Loan, or a Servicer is obligated to purchase any Financed Student Loan, if a
breach of the representations, warranties or covenants of the Seller or such
Servicer, as the case may be, with respect to such Financed Student Loan has a
material adverse effect on the interest of the Trust therein and such breach is
not cured within any applicable cure period (it being understood that any such
breach that does not affect any Guarantor's obligation to guarantee or insure
payment of such Financed Student Loan will not be considered to have such a
material adverse effect). See "Description of the Transfer and Servicing
Agreements -- Sale of Financed Student Loans; Representations and Warranties"
and " -- Servicer Covenants." The failure of the Seller or a Servicer to so
purchase a Financed Student Loan would constitute a breach of the Sale and
Servicing Agreement, enforceable by the Eligible Lender Trustee on behalf of the
Trust or by the Indenture Trustee on behalf of the Noteholders, but would not
constitute an Event of Default under the Indenture.
STUDENT LOANS GENERALLY NOT SUBJECT TO DISCHARGE IN BANKRUPTCY
Neither Financed Federal Loans nor Financed Private Loans guaranteed by
TERI are generally dischargeable by a borrower in bankruptcy pursuant to the
Bankruptcy Code, unless excepting such debt from discharge will impose an undue
hardship on the debtor and the debtor's dependents. However, Financed Private
Loans guaranteed by HICA are generally dischargeable by a borrower in
bankruptcy.
INCOME TAX CONSEQUENCES
Set forth below is a general summary of material federal and Pennsylvania
state income tax consequences of the purchase, ownership and disposition of the
Notes and the Certificates. Federal Tax Counsel has reviewed this summary with
respect to federal income tax matters and is of the opinion that the
descriptions of the law and legal conclusions contained herein are correct in
all material respects and the discussions hereunder fairly summarize the federal
income tax considerations that are likely to be material to Noteholders and
Certificateholders. Pennsylvania Tax Counsel has reviewed this summary with
respect to Pennsylvania income and franchise tax matters and is of the opinion
that the descriptions of the law and legal conclusions contained herein are
correct in all material respects and the discussions hereunder fairly summarize
the Pennsylvania income and franchise tax considerations that are likely to be
material to Noteholders and Certificateholders. The summary is intended as an
explanatory discussion of the possible effects of certain federal and
Pennsylvania income tax consequences to holders generally, but does not purport
to furnish information in the level of detail or with the attention to a
holder's specific tax circumstances that would be provided by a holder's own tax
advisor. For example, it does not discuss the tax treatment of Noteholders or
Certificateholders that are insurance companies, regulated investment companies
or dealers in securities. In addition, any discussion regarding the Notes is
limited to the federal and Pennsylvania income tax consequences of the initial
Noteholders and not a purchaser in the secondary market. Moreover, there are no
cases or Internal Revenue Service ("IRS") rulings on similar transactions
involving both debt and equity interests issued by a trust with terms similar to
those of the Notes and the Certificates. As a result, the IRS may disagree with
all or a part of the discussion below. Prospective investors are urged to
consult their own tax advisors in determining the federal, state, local, foreign
and any other tax consequences to them of the purchase, ownership and
disposition of the Notes and the Certificates.
With respect to federal tax matters, the summary is based upon current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury Regulations promulgated thereunder and judicial or ruling authority,
all of which are subject to change, which change may be retroactive. The Trust
will be provided with an opinion of Federal Tax Counsel, regarding certain
federal income tax matters. An opinion of Federal Tax Counsel, however, is not
binding on the IRS or the courts. No ruling on any of the issues discussed below
will be sought from the IRS.
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SCOPE OF THE TAX OPINIONS
Federal Tax Counsel will, prior to the issuance of the Notes and
Certificates, deliver its opinion that the Trust will not be classified as an
association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes. Further, Federal Tax Counsel will advise the Trust
that the Notes will be characterized as debt for federal income tax purposes.
Pennsylvania Tax Counsel will, prior to the issuance of the Notes and
Certificates, deliver its opinion that the same characterizations of the Notes
and the Trust would apply for Pennsylvania state income tax purposes as for
federal income tax purposes.
FEDERAL TAX CONSEQUENCES WITH RESPECT TO THE NOTES
Tax Characterization of the Notes and the Trust. Federal Tax Counsel will,
prior to the issuance of the Notes, deliver its opinion that based on the terms
of the Notes and the transactions relating to the Financed Student Loans as set
forth herein, the Notes will be treated as debt for federal income tax purposes.
There is, however, no specific authority with respect to the characterization
for federal income tax purposes of securities having the same terms as the
Notes.
Federal Tax Counsel will also deliver its opinion that based on the
applicable provisions of the Trust Agreement and related documents, the Trust
will not be classified as an association (or publicly traded partnership)
taxable as a corporation for federal income tax purposes. If the Trust were
taxable for federal income tax purposes as a corporation, the income from the
Financed Student Loans (reduced by deductions, possibly including interest on
the Notes) would be subject to federal income tax at corporate rates, which
would reduce the amounts available to make payments on the Notes.
If, contrary to the opinion of Federal Tax Counsel, the IRS successfully
asserted that one or more of the Notes did not represent debt for federal income
tax purposes, the Notes might be treated as equity interests in the Trust. If so
treated, the Trust might be treated as a publicly traded partnership but it
would not be taxable as a corporation because it would meet certain qualifying
income tests. Nonetheless, treatment of the Notes as equity interests in such a
publicly traded partnership could have adverse tax consequences to certain
holders. For example, income to certain tax-exempt entities (including pension
funds) would be "unrelated business taxable income," income to foreign holders
generally would be subject to U.S. tax and U.S. tax return filing and
withholding requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of Trust expenses.
Furthermore, such a characterization could subject holders to state and local
taxation in jurisdictions in which they are not currently subject to tax.
Treatment of the Notes as Indebtedness. The Seller will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal, state and local income and franchise tax purposes. The discussion
below assumes that all payments on the Notes are denominated in U.S. dollars,
and that the Notes are not Strip Notes. Moreover, the discussion assumes that
the interest formula for the Notes meets the requirements for "qualified stated
interest" under Treasury Regulations (the "OID regulations") relating to
original issue discount ("OID"), and that any OID on the Notes (i.e., any excess
of the principal amount of the Notes over their issue price) does not exceed a
de minimis amount (i.e., 1/4% of their principal amount multiplied by the
number of full years included in their term), all within the meaning of the OID
regulations.
Interest Income on the Notes. The stated interest on the Notes will be
taxable to a Noteholder as ordinary income when received or accrued in
accordance with such Noteholder's method of tax accounting. Based on the above
assumptions, the Notes will not be considered issued with original issue
discount. However, because of limitations on the payment of interest on the
Notes to the extent of the Trust's having insufficient Available Funds the IRS
may contend that the Notes should be treated as having been issued with OID. In
such case, Noteholders (regardless of whether they otherwise use the cash or
accrual method of accounting) would be required to include interest on the Notes
in taxable income on an accrual basis. However, until the IRS determines
otherwise, the Trust intends to take the
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position that the Notes are not issued with OID. A holder who purchases a Note
at a discount that exceeds a statutorily defined de minimis amount will be
subject to the "market discount" rules of the Code, and a holder who purchases a
Note at a premium will be subject to the premium amortization rules of the Code.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any OID, market discount and gain previously
included by such Noteholder in income with respect to the Note and decreased by
the amount of bond premium (if any) previously amortized and by the amount of
principal payments previously received by such Noteholder with respect to such
Note. Any such gain or loss will be capital gain or loss if the Note was held as
a capital asset, except for gain representing accrued interest and accrued
market discount not previously included in income. Capital losses generally may
be used by a corporate taxpayer only to offset capital gains, and by an
individual taxpayer only to the extent of capital gains plus $3,000 of other
income.
Foreign Holders. If interest paid (or accrued) to a Noteholder who is a
nonresident alien, foreign corporation or other non-United States person (a
"foreign person") is not effectively connected with the conduct of a trade or
business within the United States by the foreign person, the interest generally
will be considered "portfolio interest", and generally will not be subject to
United States federal income tax and withholding tax, if the foreign person (i)
is not actually or constructively a "10 percent shareholder" of the Trust or the
Seller (including a holder of 10% of the outstanding Certificates) or a
"controlled foreign corporation" with respect to which the Trust or the Seller
is a "related person" within the meaning of the Code and (ii) provides the
Trustee or other person who is otherwise required to withhold U.S. tax with an
appropriate statement (on Form W-8 or similar form), signed under penalties of
perjury, certifying that the beneficial owner of the Note is a foreign person
and providing the foreign person's name and address. If a Note is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide a relevant signed statement to the
withholding agent. However, in that case, the signed statement must be
accompanied by a Form W-8 or substitute form provided by the foreign person that
owns the Note. If such interest is not portfolio interest, then it will be
subject to United States federal income and withholding tax at a rate of 30%,
unless reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person (although exempt from the withholding tax
previously discussed if the holder provides an appropriate statement), the
holder generally will be subject to United States Federal income tax on the
interest, gain or income at regular federal income tax rates. In addition, if
the foreign person is a foreign corporation, it may be subject to a branch
profits tax equal to 30% of its "effectively connected earnings and profits"
within the meaning of the Code for the taxable year, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable tax treaty.
On October 6, 1997, Treasury Regulations (the "New Withholding Tax
Regulations") were issued which alter the rules described above in certain
respects. The New Withholding Tax Regulations generally will be effective with
respect to payments made after December 31, 1999, regardless of the issue date
of the instrument with respect to which such payments are made. Prospective
investors should consult their tax advisors concerning the requirements imposed
by the New Withholding Tax Regulations and their effect on the holding of the
Notes.
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Information Reporting and Backup Withholding. The Trust will be required to
report annually to the IRS, and to each Noteholder of record, the amount of
interest paid on the Notes (and the amount of interest withheld for Federal
income taxes, if any) for each calendar year, except as to exempt holders
(generally, holders that are corporations, tax-exempt organizations, qualified
pension and profit-sharing trusts, individual retirement accounts, or
nonresident aliens who provide certification as to their status as
nonresidents). Accordingly, each holder (other than exempt holders who are not
subject to the reporting requirements) will be required to provide, under
penalties of perjury, a certificate containing the holder's name, address,
correct federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt Noteholder fail to
provide the required certification, the Trust will be required to withhold 31%
of the amount otherwise payable to the holder, and remit the withheld amount to
the IRS as a credit against the holder's Federal income tax liability.
Prospective investors should consult with their tax advisors as to their
eligibility for exemption from backup withholding and the procedure for
obtaining the exemption, and the potential impact of the New Withholding Tax
Regulations.
PENNSYLVANIA INCOME AND FRANCHISE TAX CONSEQUENCES WITH RESPECT TO THE NOTES
The activities to be undertaken by PHEAA, as Servicer in servicing and
collecting the Financed Student Loans it is servicing will take place in
Pennsylvania. There is no authority in Pennsylvania addressing the question of
whether the Notes will be treated as debt or equity for Pennsylvania purposes.
Furthermore, Pennsylvania does not necessarily adopt Federal income tax
definitions in characterizing income for state tax purposes. Nonetheless,
subject to the foregoing uncertainties, Pennsylvania Tax Counsel will, prior to
the issuance of the Notes and Certificates, deliver its opinion to the Trust
that, assuming the Notes are treated as debt for Federal income tax purposes,
the Notes will be treated as debt for Pennsylvania income tax purposes.
Noteholders not otherwise subject to taxation in Pennsylvania should not become
subject to taxation in Pennsylvania solely because of a holder's ownership of
Notes. However, for Pennsylvania resident Noteholders otherwise subject to
Pennsylvania tax, the interest on the Notes will be included in Pennsylvania
taxable income.
FEDERAL TAX CONSEQUENCES WITH RESPECT TO THE CERTIFICATES
Tax Characterization of the Trust. Federal Tax Counsel will, prior to the
issuance of the Certificates, deliver its opinion that the Trust will not be
classified as an association (or publicly traded partnership) taxable as a
corporation for federal income tax purposes. The Seller and the Servicers will
agree, and the Certificateholders will agree by their purchase of Certificates,
to treat the Trust as a partnership for purposes of federal, state and local
income and franchise tax purposes, with the assets of the partnership being the
assets held by the Trust, the partners of the partnership being the
Certificateholders (including the Seller in its capacity as recipient of
distributions from the Reserve Account), and the Notes being debt of the
partnership.
If the Trust were held to be an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes, rather
than a partnership, the Trust would be subject to a corporate level income tax.
Any such corporate income tax could materially reduce or eliminate cash that
would otherwise be distributable with respect to the Certificates (and
Certificateholders could be liable for any such tax that is unpaid by the
Trust).
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax, but each Certificateholder will be required to separately
take into account such holder's accruals of guaranteed payments from the Trust
and its allocated share of other income, gains, losses, deductions and credits
of the Trust. The Trust's income will consist primarily of interest earned on
the Financed Student Loans (including appropriate adjustments for market
discount, OID and bond premium), investment income from Eligible Investments in
the Trust Accounts and any gain upon collection or disposition of the Financed
Student Loans. The Trust's deductions will consist primarily of interest
accruing with respect to the Notes, guaranteed payments on the Certificates,
servicing and other fees, and losses or deductions upon collection or
disposition of the Financed Student Loans.
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The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury Regulations and the partnership agreement (here, the
Trust Agreement and related documents). Under the Trust Agreement, payments on
the Certificates at the Certificate Rate (including accruals on amounts
previously due on the Certificates but not yet distributed) will be treated as
"guaranteed payments" under Section 707(c) of the Code. Guaranteed payments are
payments to partners for the use of their capital and, in the present
circumstances, are treated as deductible to the Trust and ordinary income to the
Certificateholders. The Trust will have a calendar year tax year and will deduct
the guaranteed payments under the accrual method of accounting.
Certificateholders with a calendar year tax year are required to include the
accruals of guaranteed payments in income in their taxable year that corresponds
to the year in which the Trust deducts the payments, and the Certificateholders
with a different taxable year are required to include the payments in income in
their taxable year that includes the December 31 of the year in which the Trust
deducts the payments. It is possible that guaranteed payments will not be
treated as interest for all purposes of the Code.
In addition, the Trust Agreement will provide, in general, that the
Certificateholders will be allocated taxable income of the Trust for each
Collection Period equal to the sum of (i) prepayment premium, if any, payable to
the Certificateholders for such month, and (ii) any Trust income attributable to
discount on the Financed Student Loans that corresponds to any excess of the
principal amount of the Certificates over their initial issue price. Such
allocation will be reduced by any amortization by the Trust of premium on
Financed Student Loans that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust will be allocated to the Seller. It is believed that this allocation will
be valid under applicable Treasury Regulations, although no assurance can be
given that the IRS would not require a greater amount of income to be allocated
to Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire amount of
interest accruing on the Certificates for an Interest Period based on the
Certificate Rate plus the other items described above even though the Trust
might not have sufficient cash to make current cash distributions of such
amount. Thus, cash basis Certificateholders will, in effect, be required to
report income from the Certificates on the accrual basis. In addition, because
tax allocations and tax reporting will be done on a uniform basis for all
Certificateholders but Certificateholders may be purchasing Certificates at
different times and at different prices, Certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
Additionally, all of the guaranteed payments and the taxable income
allocated to a Certificateholder that is a tax-exempt entity will constitute
"unrelated business taxable income," which, under the Code, is generally taxable
to such a holder despite the holder's tax exempt status.
An individual taxpayer may generally deduct miscellaneous itemized
deductions (which do not include interest expenses) only to the extent they
exceed two percent of the individual's adjusted gross income. Those limitations
would apply to an individual Certificateholder's share of expenses of the Trust
(including fees paid to the Servicers) and might result in such holder being
taxed on an amount of income that exceeds the amount of cash actually
distributed to such holder over the life of the Trust. It is not clear whether
these rules would be applicable to a Certificateholder accruing guaranteed
payments.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each of the Financed
Student Loans, the Trust might be required to incur additional expense, but it
is believed that there would not be a material adverse affect on
Certificateholders.
Discount and Premium. It is believed that the Financed Student Loans will
not be issued with OID, and, therefore, the Trust should not have OID income.
However, the purchase price paid by the Trust for the Financed Student Loans may
be greater or less than the remaining principal balance of the Financed Student
Loans at the time of purchase. If so, the Financed Student Loans will have been
acquired at a premium or discount, as the case may be. (As indicated above, the
Trust will make this calculation on an aggregate basis, but might be required to
recompute it on a loan by loan basis.) The Trust will make an
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election that will result in any such market discount on the Financed Student
Loans being included in income currently as such discount accrues over the life
of the loans. As indicated above, a portion of such market discount income will
be allocated to Certificateholders. Similarly, the Trust will make an election
to amortize any market premium over the life of the Financed Student Loans,
which could result in additional deductions allocated to the Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust (which include the Certificates and
the Seller's interest) are sold or exchanged within a 12-month period. If such a
termination occurs the Trust will be considered to contribute all of its assets
and its liabilities to the Trust, as a new partnership (the "New Partnership"),
for an interest in the New Partnership; and immediately thereafter, the Trust,
as the former partnership (the "Terminated Partnership"), will be considered to
distribute interests in the New Partnership to the Certificateholders in
proportion to their respective interests in the Terminated Partnership in
liquidation of the Terminated Partnership. The Trust will not comply with
certain technical requirements that might apply when such a constructive
termination occurs. As a result, the Trust may be subject to certain tax
penalties and may incur additional expenses if it is required to comply with
those requirements. Furthermore, the Trust might not be able to comply due to
lack of data.
Disposition of Certificates. Subject to the discussion in the immediately
following paragraph, generally, capital gain or loss will be recognized on a
sale of a Certificate in an amount equal to the difference between the amount
realized and the seller's tax basis in the Certificate sold. A
Certificateholder's tax basis in a Certificate will generally equal his cost
increased by his share of Trust income that is includable in his gross income
and decreased by any distributions received with respect to such Certificate. In
addition, both the tax basis in the Certificate and the amount realized on a
sale of a Certificate would include the holder's share of the Notes and other
liabilities of the Trust. A holder acquiring Certificates at different prices
may be required to maintain a single aggregate adjusted tax basis in such
Certificates, and, upon sale or other disposition of some of the Certificates,
allocate a pro rata portion of such aggregate tax basis to the Certificates sold
(rather than maintaining a separate tax basis in each Certificate for purposes
of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Financed Student Loans would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The Trust does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid these special reporting requirements, the Trust will elect to include any
such market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed miscellaneous itemized
deductions described above) over the life of the Certificates that exceeds the
aggregate cash distributions with respect thereto, such excess will generally
give rise to a capital loss upon the retirement of the Certificates.
Allocations Between Transferor and Transferee. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect the tax liability and tax basis of the
holder) attributable to periods before the actual purchase takes place.
The use of such a monthly convention may not be permitted by existing
Treasury Regulations. If a monthly convention is not allowed (or is allowed only
for transfers of less than all of the partner's interest), taxable income or
losses of the Trust might be reallocated among the Certificateholders. The
Seller is authorized to revise the Trust's method of allocation between
transferors and transferees to conform to a method permitted by any future
authority.
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Section 754 Election. In the event that a Certificateholder sells a
Certificate at a profit (or loss), the purchasing Certificateholder will have a
higher (or lower) basis in the Certificate than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust files an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such an election. As
a result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Eligible Lender Trustee is required to keep or
cause to be kept complete and accurate books of the Trust. Such books will be
maintained for financial reporting and tax purposes on an accrual basis and the
taxable year of the Trust will be the calendar year. The Eligible Lender Trustee
will file a partnership information return (IRS Form 1065) with the IRS for each
taxable year of the Trust and will report to holders (and to the IRS) each
Certificateholder's allocable share of items of Trust income and expense on
Schedule K-1. The Trust will provide the Schedule K-1 information to nominees
that fail to provide the Trust with the information statement described below
and such nominees will be required to forward such information to the beneficial
owners of the Certificates. Generally, holders must file tax returns that are
consistent with the information returns filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee on behalf of another person at any time during a calendar year is
required to furnish the Trust with a statement containing certain information on
the nominee, the beneficial owners and the Certificates so held. Such
information includes (i) the name, address and taxpayer identification number of
the nominee and (ii) as to each beneficial owner (x) the name, address and
taxpayer identification number of such person, (y) whether such person is a
United States person, a tax-exempt entity or a foreign government, an
international organization, or any wholly-owned agency or instrumentality of
either of the foregoing and (z) certain information concerning Certificates that
were held, acquired or transferred on behalf of such person throughout the year.
In addition, brokers and financial institutions that hold Certificates through a
nominee are required to furnish directly to the Trust information as to
themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act that holds Certificates as a nominee is
not required to furnish any such information statement to the Trust. The
information referred to above for any calendar year must be furnished to the
Trust on or before the following January 31. Nominees, brokers and financial
institutions that fail to provide the Trust with the information described above
may be subject to penalties. The Trust will provide the Schedule K-1 information
to nominees that fail to provide the Trust with the information described above
and such nominees will be required to forward such information to the beneficial
owners of the Certificates.
The Seller, will be designated as the tax matters partner in the Trust
Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. If the Trust is considered
to be engaged in a trade or business in the United States, it may be required to
withhold taxes on income allocable to non-U.S. Certificateholders. It is not
clear whether the Trust would be considered to be engaged in a trade or business
in the United States for purposes of Federal withholding taxes with respect to
non-U.S. persons because there is no clear authority dealing with that issue
under facts substantially similar to those described herein. Because it is
unclear whether the Trust would be engaged in a trade or business in the
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United States for such purposes, the Trust will withhold as if it were so
engaged in order to protect the Trust from possible adverse consequences of a
failure to withhold. The Trust expects to withhold on the portion of its taxable
income that is allocable to foreign Certificateholders pursuant to Section 1446
of the Code, as if such income were effectively connected to a U.S. trade or
business, at a rate of 35% for foreign holders that are taxable as corporations
and 39.6% for all other foreign holders. Subsequent adoption of Treasury
Regulations or the issuance of other administrative pronouncements may require
the Trust to change its withholding procedures. In determining a holder's
nonforeign status, the Trust may rely on IRS Form W-8, IRS Form W-9 or the
holder's certification of nonforeign status signed under penalties of perjury.
Each foreign Certificateholder might be required to file a U.S. individual
or corporate income tax return (including, in the case of a corporation, the
computation of the branch profits tax) on its share of accruals of guaranteed
payments and the Trust's income. Each foreign Certificateholder must obtain a
taxpayer identification number from the IRS and submit that number to the Trust
on Form W-8 in order to assure appropriate crediting of the taxes withheld. A
foreign Certificateholder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust, taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business. The Trust will cooperate in any such refund claim if it can
do so without incurring any out-of-pocket cost. No assurance can be given as to
whether any such refund claim would be granted.
The New Withholding Tax Regulations modify certain of the filing
requirements with which foreign persons must comply in order to be entitled to
an exemption from U.S. withholding tax or a reduction to the applicable U.S.
withholding tax rate. The New Withholding Tax Regulations generally are
effective for payments of interest due after December 31, 1999. Prospective
investors are urged to consult their tax advisors with respect to the effect of
the New Withholding Tax Regulations.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code. Certificateholders should consult with their
tax advisors as to their eligibility for exemption to backup withholding and the
procedure for obtaining the exemption, and the potential impact of the New
Withholding Tax Regulations.
PENNSYLVANIA INCOME AND FRANCHISE TAX CONSEQUENCES WITH RESPECT TO THE
CERTIFICATES
Because state and local income and franchise tax laws vary greatly, it is
impossible to predict the income and franchise tax consequences to the
Certificateholders in all of the state and local taxing jurisdictions in which
they are already subject to tax. Certificateholders are urged to consult their
own advisors with respect to state and local income and franchise taxes.
However, Pennsylvania Tax Counsel will, prior to the issuance of the Notes and
Certificates, deliver its opinion that the Trust will not be subject to
Pennsylvania corporate net income tax or capital stock franchise tax or any
other Pennsylvania entity level income or franchise tax. There is no assurance,
however, that this conclusion will not be challenged by the Pennsylvania taxing
authorities or, if challenged, that the taxing authorities will not be
successful. If the Trust were subject to an entity level tax in Pennsylvania,
any such tax could materially reduce or eliminate cash that would otherwise be
distributable with respect to the Certificates (and Certificateholders could be
liable for any such tax that is unpaid by the Trust). Certificateholders not
otherwise subject to taxation in Pennsylvania should not become subject to
taxation in Pennsylvania solely because of a holding ownership of Certificates.
However, for Pennsylvania resident Certificateholders otherwise subject to
Pennsylvania tax, the distributions on the Certificates will be included in
Pennsylvania taxable income.
THE FEDERAL AND PENNSYLVANIA TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
NOTEHOLDER'S OR CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSE-
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QUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND
CERTIFICATES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of ERISA, and/or Section 4975 of the Code, prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual retirement
accounts, and certain types of Keogh Plans, and other plans subject to Section
4975 of the Code (each a "Benefit Plan") from engaging in certain transactions
with persons that are "parties in interest" under ERISA or "disqualified
persons" under the Code with respect to such Benefit Plan. A violation of these
"prohibited transaction" rules may result in an excise tax or other penalties
and liabilities under ERISA and the Code for such persons. Title I of ERISA also
requires that fiduciaries of a Benefit Plan subject to ERISA make investments
that are prudent, diversified (except if prudent not to do so) and in accordance
with governing plan documents.
Certain transactions involving the purchase, holding or transfer of the
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code if assets of the Trust were deemed to be assets of a Benefit Plan. Under a
regulation issued by the United States Department of Labor (the "Plan Assets
Regulation"), the assets of the Trust would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquires an "Equity Interest" in the Trust and none of the exceptions contained
in the Plan Assets Regulation is applicable. An equity interest is defined under
the Plan Assets Regulation as an interest other than an instrument which is
treated as indebtedness under applicable local law and which has no substantial
equity features. The Notes should be treated as indebtedness without substantial
equity features for purposes of the Plan Assets Regulation. However, 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 Benefit Plan could be
considered to give rise to a prohibited transaction if the Trust, the Trustee or
the Indenture Trustee, the Seller, the owner of collateral, or any of their
respective affiliates is or becomes a party in interest or a disqualified person
with respect to such Benefit Plan. In such case, certain exemptions from the
prohibited transaction rules could be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a Note.
Included among these exemptions are: Prohibited Transaction Class Exemption
("PTCE") 90-1, regarding investments by insurance company pooled separate
accounts; PTCE 95-60, regarding investments by insurance company general
accounts; PTCE 91-38, regarding investments by bank collective investment funds;
PTCE 96-23, regarding transactions effected by in-house asset managers; and PTCE
84-14, regarding transactions effected by "qualified professional asset
managers."
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Notes should consult its tax
and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
No Certificates may be purchased for, or on behalf of, any Benefit Plan or
any entity whose underlying assets are deemed to be plan assets of such Benefit
Plan.
If the Securities are Certificates, the purchaser is deemed to have
represented that it is not acquiring the Certificates directly or indirectly
for, or on behalf of, a Benefit Plan or any entity whose underlying assets are
deemed to be plan assets of such Benefit Plan. If the Securities are Notes, the
purchaser is deemed to have represented that either: (A) the purchaser is not
acquiring the Notes directly or indirectly for, or on behalf of, a Benefit Plan
or any entity whose underlying assets are deemed to be plan assets of such
Benefit Plan, or (B) the acquisition and holding of the Notes by the purchaser
qualifies for prohibited transaction exemptive relief under PTCE 95-60, PTCE
96-23, PTCE 91-38, PTCE 90-1, PTCE 84-14 or some other applicable exemption.
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UNDERWRITING
Subject to the terms and conditions set forth in the respective
Underwriting Agreements relating to the Notes and the Certificates (the
"Underwriting Agreements"), the Seller has agreed to cause the Trust to sell to
the underwriters named below (the "Underwriters"), and each of the Underwriters
has severally agreed to purchase, the principal amount of Class A-1 Notes, Class
A-2 Notes and Certificates set forth opposite its name:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF PRINCIPAL
CLASS A-1 CLASS A-2 AMOUNT OF
UNDERWRITER NOTES NOTES CERTIFICATES TOTAL
----------- --------- --------- ------------ --------
<S> <C> <C> <C> <C>
Credit Suisse First Boston Corporation....
McDonald Investments......................
Total................................
</TABLE>
In the respective Underwriting Agreements, the Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase (i) all the
Notes offered hereby if any of the Notes are purchased and (ii) all the
Certificates offered hereby if any of the Certificates are purchased. The Seller
has been advised by the Underwriters that the Underwriters propose initially to
offer the Securities to the public at the respective public offering prices set
forth on the covering page of this Prospectus, and to certain dealers at such
prices less a concession not in excess of % per Class A-1 Note, % per
Class A-2 Note and % per Certificate. The Underwriters may allow and such
dealers may reallow to other dealers a discount not in excess of % per
Class A-1 Note, % per Class A-2 Note and % per Certificate. After the
initial public offering, such public offering prices, concessions and
reallowances may be changed.
Credit Suisse First Boston Corporation has informed the Seller that it does
not expect discretionary sales by the Underwriters to exceed 5% of the aggregate
principal amount of the Notes and the Certificates being offered hereby.
The Seller does not intend to apply for listing of the Securities on a
national securities exchange, but has been advised by Credit Suisse First Boston
Corporation that it intends to, and by McDonald Investments that it may, make a
market in the Securities. The Underwriters are not obligated, however, to make a
market in the Securities and may discontinue market-making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
the Securities.
The Underwriting Agreements provide that the Seller will indemnify the
Underwriters against certain liabilities, including liabilities under applicable
securities laws, or contribute to payments the Underwriters may be required to
make in respect thereof.
The Trust may, from time to time, invest the funds in the Trust Accounts in
Eligible Investments acquired from the Underwriters.
The closing of the sale of the Certificates is conditioned on the closing
of the sale of the Notes and the closing of the sale of the Notes is conditioned
on the closing of the sale of the Certificates.
Credit Suisse First Boston Corporation is engaged from time to time by
KeyCorp, the parent corporation of the Seller, to provide investment banking
services.
After the initial distribution of the Securities by the Underwriters, this
Prospectus may be used by McDonald Investments, an affiliate of the Seller and
KeyCorp, or its successors, in connection with offers and sales relating to
market-making transactions in the Securities. McDonald Investments may act as
principal or agent in such transactions, but has no obligation to do so.
McDonald Investments is a member of the New York Stock Exchange, Inc. Such
transactions will be at prices related to prevailing market prices at the time
of sale.
Pursuant to an Agreement and Plan of Merger dated as of June 15, 1998
between KeyCorp and McDonald & Company Investment, Inc. ("McDonald"), a
full-service investment banking and securities
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brokerage company headquarted in Cleveland, Ohio, on October 23, 1998, McDonald
was merged with and into KeyCorp. On November 9, 1998, the merger of Key Capital
Markets, Inc., a wholly-owned broker-dealer subsidiary of KeyCorp, into McDonald
& Company Securities, Inc. (a wholly-owned subsidiary of the former McDonald)
was completed and the surviving entity was renamed McDonald Investments Inc., A
KeyCorp Company. McDonald Investments may engage in market-making transactions
as described above.
LEGAL MATTERS
Certain legal matters relating to the Securities will be passed upon for
the Trust, the Seller and the Administrator by Forrest F. Stanley, Esq., General
Counsel and Assistant Secretary of the Seller, as counsel for the Seller, and by
Thompson Hine & Flory LLP, Cleveland, Ohio and for the Underwriters by Stroock &
Stroock & Lavan LLP, New York, New York. Certain federal income tax and other
matters will be passed upon for the Trust by Thompson Hine & Flory LLP. Certain
Pennsylvania state income tax matters will be passed upon for the Trust by
Kirkpatrick & Lockhart LLP.
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INDEX OF PRINCIPAL TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein.
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
1992 Amendments............................................. 23, 43
1998 Amendments............................................. 26
1998 Reauthorization Bill................................... 26
52 Week T-Bill Rate......................................... 102
91-day Treasury Bill Rate................................... 46
AACSB....................................................... 41
Additional Funding.......................................... 90
Additional Student Loans.................................... 12
Administration Agreement.................................... 4
Administration Fee.......................................... 37, 107
Administrator............................................... 2, 4
Administrator Default....................................... 103
Applicable Trustee.......................................... 85
ASA......................................................... 8
Assigned Rights............................................. 21
Auction Purchase Amount..................................... 19
Available Funds............................................. 96
Available Loan Purchase Funds............................... 15
Bank........................................................ 37
Bar Exam Loan............................................... 41
Benefit Plan................................................ 118
Capped Amount............................................... 18, 95
Cede........................................................ 2, 84
Cedel....................................................... 3
Cedel Participants.......................................... 86
Certificate Balance......................................... 98
Certificate Pool Factor..................................... 75
Certificate Rate............................................ 78
Certificateholder........................................... 85
Certificateholders.......................................... 36
Certificateholders' Distribution Amount..................... 98
Certificateholders' Interest Carryover Shortfall............ 98
Certificateholders' Interest Distribution Amount............ 98
Certificateholders' Interest Index Carryover................ 6
Certificateholders' Principal Distribution Amount........... 98
Certificates................................................ 1, 3
Class A-1 Notes............................................. 1, 3
Class A-2 Note Pool Factor.................................. 75
Class A-2 Notes............................................. 1, 3
</TABLE>
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<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Code........................................................ 110
Cohort Default Rate......................................... 73
Collection Account.......................................... 13
Collection Period........................................... 10
Commission.................................................. 2
Consolidation Loans......................................... 54
Cooperative................................................. 86
cumulative cash reserves.................................... 68
Cumulative TERI Claims Ratio................................ 7, 100
Deferral.................................................... 61
Deferral Period............................................. 47
Definitive Certificates..................................... 87
Definitive Notes............................................ 87
Definitive Securities....................................... 87
Department.................................................. 4, 9
Depositaries................................................ 84
Depository.................................................. 75
Determination Date.......................................... 96
DOE Data Book............................................... 68
DTC......................................................... 2, 3, 84
DTC Services................................................ 85
ECMC........................................................ 8
EFS......................................................... 1, 3, 38
Eligible Deposit Account.................................... 90
Eligible Institution........................................ 90
Eligible Investments........................................ 90
Eligible Lender Trustee..................................... 3
Eligible Student............................................ 40
ERISA....................................................... 20
ERISA Considerations........................................ 20
Escrow Account.............................................. 13
Euroclear................................................... 3, 86
Euroclear Operator.......................................... 86
Euroclear Participants...................................... 86
Event of Default............................................ 81
Excess Servicing Fee........................................ 18, 95
Exchange Act................................................ 2
Expected Interest Collections............................... 77
FDIA........................................................ 31
FDIC........................................................ 31
Federal Assistance.......................................... 44
</TABLE>
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<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Federal Consolidation Loan.................................. 49
Federal Consolidation Loan Rebate........................... 51
Federal Consolidation Loans................................. 40
Federal Direct Student Loan Program......................... 25
Federal Guarantee Agreements................................ 39
Federal Guarantors.......................................... 8
Federal Loans............................................... 23, 40
Federal Origination Fee..................................... 25, 51
Federal Programs............................................ 25, 43
Federal Tax Counsel......................................... 19
FFELP....................................................... 30
Final Subsequent Transfer Date.............................. 11, 100
Financed Federal Loans...................................... 4, 8
Financed Private Loans...................................... 4, 9
Financed Student Loans...................................... 4
FIRREA...................................................... 31
Forbearance................................................. 61
Forbearance Period.......................................... 47
Foreign person.............................................. 112
Formula Rate................................................ 5, 76
Funding Period.............................................. 12
Grace....................................................... 60
Grace Period................................................ 46
Graduate Loan Programs...................................... 39
Graduate Schools............................................ 39
Guarantee Agreement......................................... 24
Guarantee Agreements........................................ 40
Guarantee Fee Advance....................................... 53
Guarantee Payments.......................................... 24
Guarantor................................................... 40
Guarantors.................................................. 9, 40
HICA........................................................ 9
Higher Education Act........................................ 9, 39
Indenture................................................... 4
Indenture Trustee........................................... 3
Index Maturity.............................................. 80
Indirect Participants....................................... 85
Industry.................................................... 85
Initial Financed Student Loans.............................. 12
Initial Pool Balance........................................ 10
In-School................................................... 60
</TABLE>
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<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Interest Period............................................. 76
Interest Subsidy Payments................................... 47
Interim..................................................... 52
Investment Earnings......................................... 90
Investor Index.............................................. 5, 76
IRS......................................................... 110
LIBOR Determination Date.................................... 80
Liquidated Student Loans.................................... 96
Liquidation Proceeds........................................ 96
Loan Purchase Termination Date.............................. 12
Lock-In Period.............................................. 79
Margin...................................................... 5, 76
Maximum TERI Payments Amount................................ 15, 23, 98
McDonald.................................................... 119
McDonald Investments........................................ 1
Minimum Purchase Amount..................................... 18, 106
Monthly Rebate Fee.......................................... 25
Monthly Servicing Payment Date.............................. 14
Net Government Receivable................................... 98
new borrowers............................................... 45
New Partnership............................................. 115
New Withholding Tax Regulations............................. 112
Note Collateralization Amount............................... 99
Note Interest Rate.......................................... 76
Noteholder.................................................. 85
Noteholders................................................. 36
Noteholders' Distribution Amount............................ 99
Noteholders' Interest Carryover Shortfall................... 99
Noteholders' Interest Distribution Amount................... 99
Noteholders' Principal Distribution Amount.................. 99
Noteholders' Interest Carryover Shortfall................... 99
Noteholders' Interest Index Carryover....................... 6
Noteholders' Priority Principal Distribution Amount......... 99
Notes....................................................... 1, 3
NSLP........................................................ 8
Obligors.................................................... 99
OID......................................................... 111
OID regulations............................................. 111
Original Principal Amount of Outstanding Loans.............. 68
Other Additional Pre-Funded Amount.......................... 11, 91
Other Additional Pre-Funding Subaccount..................... 11, 91
</TABLE>
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<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Other Student Loans......................................... 12
Other Subsequent Student Loans.............................. 12
Participants................................................ 76
Pennsylvania Tax Counsel.................................... 19
PHEAA....................................................... 1, 3, 37
Plan Assets Regulation...................................... 118
Pool Balance................................................ 10, 99
Pool Factor................................................. 75
Pre-Funded Amount........................................... 11
Pre-Funding Account......................................... 11
Prepayments................................................. 32
Principal Distribution Amount............................... 7, 99
Private Consolidation Guarantee Fee......................... 54
Private Consolidation Loan.................................. 54
Private Consolidation Loans................................. 40
Private Guarantee Agreements................................ 40
Private Guarantors.......................................... 9, 40
Private Loan Repayment Commencement Date.................... 53
Private Loans............................................... 24, 40
Programs.................................................... 40
PTCE........................................................ 118
Purchase Amount............................................. 89
Purchase Price.............................................. 11
Realized Losses............................................. 102
Reference Bank.............................................. 81
Registration Statement...................................... 2
Related Documents........................................... 84
Repayment................................................... 52, 60
Reserve Account............................................. 15
Reserve Account Initial Deposit............................. 15
Residency Loan.............................................. 41
Rules....................................................... 86
Secretary................................................... 26
Securities.................................................. 1, 3
Securities Act.............................................. 2
Securityholder.............................................. 85
Seller...................................................... 1, 3
Seller Insolvency Event..................................... 105
Seller Trusts............................................... 28
Serial Loans................................................ 91
Servicer.................................................... 1, 3
</TABLE>
125
<PAGE> 128
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Servicers................................................... 3
Servicer Default............................................ 103
Servicing Fee............................................... 17, 95
Servicing Fee Percentage.................................... 17, 95
SLS Loans................................................... 40, 48
SLS Program................................................. 48
Special Allowance Payments.................................. 44
Special Determination Date.................................. 8
Specified Collateral Balance................................ 7, 100
Specified Reserve Account Balance........................... 15, 100
Stafford Loans.............................................. 40, 44
Statistical Cutoff Date..................................... 8
Student Loan Rate........................................... 76
Student Loans............................................... 1, 4
Subsequent Cutoff Date...................................... 92
Subsequent Pool............................................. 8
Subsequent Pool Pre-Funded Amount........................... 8
Subsequent Pool Pre-Funding Subaccount...................... 11, 91
Subsequent Pool Student Loans............................... 12
Systems..................................................... 85
T-Bill Rate................................................. 79
Telerate Page 3750.......................................... 81
Terminated Partnership...................................... 115
Terms and Conditions........................................ 87
TERI........................................................ 9
TERI Trigger Event.......................................... 7, 100
Three-Month LIBOR........................................... 80
total loans outstanding..................................... 72
Transfer Agreement.......................................... 92
Transfer and Servicing Agreements........................... 89
Transfer Date............................................... 13, 92
Trust....................................................... 1, 3
Trust Accounts.............................................. 90
Trust Agreement............................................. 3
Underlying Federal Loan..................................... 49
Underlying Private Loans.................................... 54
Underwriters................................................ 1, 119
Underwriting Agreements..................................... 119
Unrelated Business Taxable Income........................... 111, 114
Unsubsidized Stafford Loans................................. 44
UCC......................................................... 107
</TABLE>
126
<PAGE> 129
[ALTERNATE PAGE]
SUBJECT TO COMPLETION, DATED JANUARY , 1999
$865,000,000
$260,000,000 FLOATING RATE CLASS A-1 ASSET BACKED NOTES
$570,400,000 FLOATING RATE CLASS A-2 ASSET BACKED NOTES
$34,600,000 FLOATING RATE ASSET BACKED CERTIFICATES
KEYCORP STUDENT LOAN TRUST 1999-A
KEY BANK USA, NATIONAL ASSOCIATION
SELLER
(KEYBANK LOGO)
------------------------
The KeyCorp Student Loan Trust 1999-A (the "Trust") will issue $260,000,000
aggregate principal amount of Floating Rate Class A-1 Asset Backed Notes (the
"Class A-1 Notes") and $570,400,000 aggregate principal amount of Floating Rate
Class A-2 Asset Backed Notes (the "Class A-2 Notes" and together with the Class
A-1 Notes, the "Notes") and $34,600,000 aggregate principal amount of Floating
Rate Asset Backed Certificates (the "Certificates" and together with the Notes,
the "Securities") as set forth below. The Class A-1 Notes and Class A-2 Notes
will be secured by a pool of law school, medical school, dental school, graduate
business school, and other graduate school student loans ("Student Loans"),
originated by Key Bank USA, National Association (the "Seller"). The
Certificates will represent undivided beneficial ownership interests in the
Trust. Pennsylvania Higher Education Assistance Agency ("PHEAA" and in its
capacity as servicer, "Servicer") and EFS Services, Inc. ("EFS" or "Servicer")
will service the Student Loans included in the Trust.
Interest on and principal of the Securities will be payable quarterly on or
about the twenty-seventh day of each March, June, September and December,
commencing June 28, 1999; provided, that no distributions in respect of
principal of the Class A-2 Notes will be payable until the Class A-1 Notes are
paid in full, and no distributions in respect of principal of the Certificates
will be payable until the Class A-2 Notes are paid in full. The rights of
Certificateholders to receive payments of interest and principal shall be
subordinated to the rights of the Noteholders to receive payments of interest
and principal to the extent described herein.
Neither the Notes nor the Certificates will be listed on any national
securities exchange. Credit Suisse First Boston Corporation intends to, and
McDonald Investments Inc., A KeyCorp Company ("McDonald Investments") may, make
a secondary market in the Notes and the Certificates but neither has any
obligation to do so. There can be no assurance that a secondary market for the
Notes or the Certificates will develop or, if it does develop, that it will
continue.
See "Risk Factors" beginning on page for certain considerations relevant
to an investment in the Securities.
The Certificates represent beneficial interests in, and the Notes represent
obligations of, the Trust only and do not represent interests in or obligations
of the Seller, the Servicers or any affiliate thereof. Neither the Certificates
nor the Notes are guaranteed or insured by any governmental agency.
Neither the Securities and Exchange Commission nor any state securities
commission have approved or disapproved these Securities or passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
------------------------
<TABLE>
<CAPTION>
ORIGINAL UNDERWRITING PROCEEDS TO
PRINCIPAL BALANCE INTEREST RATE(1) PRICE TO PUBLIC DISCOUNT SELLER(2)
----------------- ---------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Class A-1 Note.............. $ % % %
Class A-2 Note.............. $ % % %
Certificates................ $ % % %
Total....................... $
</TABLE>
- ---------------
(1) Interest will accrue with respect to each Interest Period at a rate per
annum equal to the lesser of (i) the applicable Investor Index plus the
applicable Margin and (ii) the Student Loan Rate as described herein.
(2) Before deducting expenses, estimated to be $ .
------------------------
The Securities are offered by Credit Suisse First Boston Corporation and
McDonald Investments (the "Underwriters") when, as and if issued by the Trust,
delivered to and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that delivery of the
Securities in book-entry form will be made through the facilities of The
Depository Trust Company on the Same Day Funds Settlement System and, in the
case of the Notes, also Cedelbank, societe anonyme and the Euroclear System on
or about February , 1999.
This Prospectus is to be used by McDonald Investments an affiliate of the
Seller in connection with offers and sales related to market-making transactions
in the Securities in which McDonald Investments acts as principal. McDonald
Investments may also act as agent in such transactions. Sales will be made at
prices related to the prevailing prices at the time of sale.
------------------------
The date of this Prospectus is January , 1999.
<PAGE> 130
[ALTERNATE PAGE]
PLAN OF DISTRIBUTION
This Prospectus is to be used by McDonald Investments, an affiliate of the
Seller, in connection with offers and sales related to market-making
transactions in the Securities in which McDonald Investments acts as principal.
McDonald Investments may also act as agent in such transactions. Sales will be
made at prices related to prevailing prices at the time of sale. Any obligations
of McDonald Investments are the sole obligations of McDonald Investments and do
not create any obligations on the part of any affiliate of McDonald Investments.
In connection with the offering, McDonald Investments may engage in
transactions that stabilize, maintain or otherwise affect the price of the Notes
and the Certificates. Specifically, McDonald Investments may overallot the
offering, creating a short position in the Notes and the Certificates for its
own account. McDonald Investments may bid for and purchase Notes and
Certificates in the open market to cover such short positions. In addition,
McDonald Investments may bid for and purchase Notes and Certificates in the open
market to stabilize the price of the Notes and the Certificates. These
activities may stabilize or maintain the market price of the Notes and the
Certificates above independent market levels. McDonald Investments is not
required to engage in these activities, and may end these activities at any
time.
<PAGE> 131
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER, THE TRUST OR
THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION
BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO
OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Reports to Securityholders............ 2
Incorporation of Certain Documentation
by Reference........................ 2
Summary of Terms...................... 3
Risk Factors.......................... 21
Formation of the Trust................ 36
Use of Proceeds....................... 37
The Seller, the Administrator and the
Servicers........................... 37
The Student Loan Financing Business... 39
The Financed Student Loan Pool........ 55
Pool Factors and Trading
Information......................... 75
Description of the Securities......... 75
Description of the Transfer and
Servicing Agreements................ 89
Certain Legal Aspects of the Financed
Student Loans....................... 107
Income Tax Consequences............... 110
ERISA Considerations.................. 118
Underwriting.......................... 119
Legal Matters......................... 120
Index of Principal Terms.............. 121
</TABLE>
UNTIL , 1999 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
$865,000,000
KEYCORP STUDENT LOAN
TRUST 1999-A
$260,000,000
FLOATING RATE CLASS A-1
ASSET BACKED NOTES
$570,400,000
FLOATING RATE CLASS A-2
ASSET BACKED NOTES
$34,600,000
FLOATING RATE
ASSET BACKED CERTIFICATES
KEY BANK USA,
NATIONAL ASSOCIATION
SELLER
-----------------------
PROSPECTUS
-----------------------
CREDIT SUISSE FIRST BOSTON
MCDONALD INVESTMENTS
A KEYCORP COMPANY
------------------------------------------------------
------------------------------------------------------
<PAGE> 132
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the offering of the Notes and the Certificates
being registered herein are estimated as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 240,500
Legal fees and expenses..................................... 290,000
Accounting fees and expenses................................ 175,000
Rating agency fees.......................................... 180,000
Eligible Lender Trustee fees and expenses................... 15,000
Indenture Trustee fees and expenses......................... 13,000
Printing and engraving...................................... 150,000
Servicer conversion fees.................................... 10,000
Miscellaneous............................................... 50,000
----------
Total.................................................. $1,123,500
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Paragraph (a) of Article Tenth of the Articles of Association of the
Registrant (this "Association") provides as follows:
(a) This Association shall indemnify, to the full extent permitted or
authorized by the Ohio General Corporation Law as it may from time to time
be amended, any person made or threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that he
is or was a director, officer, or employee of this Association, or is or
was serving at the request of this Association as a director, trustee,
officer, or employee of another association, corporation, partnership,
joint venture, trust, or other enterprise; in the case of a person serving
at the request of this Association, such request shall be evidenced by a
resolution of the Board of Directors or a duly authorized committee thereof
or by a writing executed by an officer of this Association pursuant to a
resolution of the Board of Directors or a duly authorized committee
thereof. In the case of a merger into this Association of a constituent
association which, if its separate existence had continued, would have been
required to indemnify directors, officers, or employees in specified
situations prior to the merger, any person who served as a director,
officer, or employee of the constituent association, or served at the
request of the constituent association as a director, trustee, officer, or
employee of another association, corporation, partnership, joint venture,
trust, or other enterprise, shall be entitled to indemnification by this
Association (as the surviving association) for acts, omissions, or other
events or occurrences prior to the merger to the same extent he would have
been entitled to indemnification by the constituent association if its
separate existence had continued. The indemnification provided by this
Article Tenth shall not be deemed exclusive of any other rights to which
any person seeking indemnification may be entitled by law or under these
Articles or the Bylaws of this Association, or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a
director, trustee, officer, or employee and shall inure to the benefit of
the heirs, executors, and administrators of such a person.
(b) Notwithstanding division (a) of this [Article Tenth], no director,
officer, or employee of this Association shall be indemnified against
expenses, including attorneys' fees, penalties or other payments incurred
in an administrative proceeding or action instituted by the Comptroller of
the Currency or other appropriate bank regulatory agency when such
proceeding or action results in a final order assessing civil money
penalties against, or requiring affirmative action of, such director,
officer, or employee in the form of payments to this Association.
II-1
<PAGE> 133
Reference is made to Section 1701.13(E) of the General Corporation Law of
the State of Ohio relating to indemnification of directors, officers and
employees of an Ohio corporation. For the full text of Article Tenth of the
Registrant's Articles of Association, reference is hereby made to Exhibit 3(a)
hereto.
The Registrant also maintains insurance on behalf of each director and
certain officers against any loss arising from any claim asserted against him in
any such capacity, subject to certain exclusions.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
1.1. Form of Underwriting Agreement for Notes
1.2. Form of Underwriting Agreement for Certificates
3.1. Articles of Association of Key Bank USA, National
Association
3.2. Bylaws of Key Bank USA, National Association
4.1. Form of Indenture between the Trust and the Indenture
Trustee (including as exhibits thereto a form of Floating
Rate Asset Backed Note)
4.2. Form of Amended and Restated Trust Agreement between Key
Bank USA, National Association and the Eligible Lender
Trustee (including as an exhibit thereto a form of Floating
Rate Asset Backed Certificate)
5.1. Opinion of Forrest F. Stanley, Esq. with respect to legality
8.1. Opinion of Thompson Hine & Flory LLP with respect to federal
tax matters
8.2. Opinion of Kirkpatrick & Lockhart with respect to
Pennsylvania tax matters
10.1. Form of Sale and Servicing Agreement among the Seller, the
Servicers, the Trust, the Eligible Lender Trustee and the
Administrator
10.2. Form of Supplemental Sale and Servicing Agreement among Key
Bank USA, National Association, as Seller and Administrator,
the Servicers, the Trust and the Eligible Lender Trustee
10.3. Form of Administration Agreement among the Administrator,
the Trust and the Indenture Trustee
10.4. Form of Guarantee Agreement between the Eligible Lender
Trustee on behalf of the Trust and PHEAA
10.5. Form of Guarantee Agreement between the Eligible Lender
Trustee on behalf of the Trust and ASA
10.6. Form of Guarantee Agreement between the Eligible Lender
Trustee on behalf of the Trust and NSLP
10.7. Form of Guarantee Agreement between the Eligible Lender
Trustee on behalf of the Trust and ECMC
10.8. Form of Guarantee Agreement among the Eligible Lender
Trustee on behalf of the Trust, Key Bank USA, National
Association, as Seller, and TERI
10.9. Form of Endorsement to Surety Bonds issued to the Seller by
HICA
23.1. Consent of Thompson Hine & Flory LLP (included as part of
Exhibit 8.1)
23.2. Consent of Forrest F. Stanley, Esq. (included as part of
Exhibit 5.1)
23.3. Consent of Kirkpatrick & Lockhart LLP (included as part of
Exhibit 8.2)
24.1. Powers of Attorney of James A. Fishell, Ronald J. Nicolas,
Jr., Joseph A. Pampush, Allen J. Gula, Jr., Kevin M. Blakely
and K. Brent Somers*
24.2. Power of Attorney of Michael W. Dvorak
25.1. Statement of Eligibility under the Trust Indenture Act of
1939 of the Indenture Trustee
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreements Notes and Certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
II-2
<PAGE> 134
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act") may be permitted
to directors, officers and controlling persons of the Registrant pursuant
to the provisions described under Item 15, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(3) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
(5) For purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(6) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(7) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(8) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE> 135
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, it believes that the securities rating
requirement for use of Form S-3 will be met by the time of sale of the
securities and it has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cleveland, State of Ohio, on January 29, 1999.
KEY BANK USA, NATIONAL ASSOCIATION,
ON BEHALF OF THE TRUST AS
ADMINISTRATOR
By: /s/ FORREST F. STANLEY
------------------------------------
Forrest F. Stanley, Assistant
Secretary and
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed on January 29, 1999, by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
*
- ------------------------------------------------
James A. Fishell Principal Executive Officer and Director
*
- ------------------------------------------------
Michael W. Dvorak Principal Financial Officer
*
- ------------------------------------------------
Joseph A. Pampush Principal Accounting Officer
*
- ------------------------------------------------
Allen J. Gula, Jr. Director
*
- ------------------------------------------------
Kevin M. Blakely Director
*
- ------------------------------------------------
K. Brent Somers Director
/s/ FORREST F. STANLEY
- ------------------------------------------------
Forrest F. Stanley Director
</TABLE>
*By: /s/ FORREST F. STANLEY
-------------------------------
Forrest F. Stanley
Attorney-in-Fact
January 29, 1999
II-4
<PAGE> 136
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NUMBER
- ----------- ---------------------- -----------
<C> <S> <C>
1.1. Form of Underwriting Agreement for Notes
1.2. Form of Underwriting Agreement for Certificates
3.1. Articles of Association of Key Bank USA, National
Association
3.2. Bylaws of Key Bank USA, National Association
4.1. Form of Indenture between KeyCorp Student Loan Trust 1999-A
(the "Trust") and Bankers Trust Company (the "Indenture
Trustee") (including as exhibits thereto a form of Floating
Rate Asset Backed Note)
4.2. Form of Amended and Restated Trust Agreement between Key
Bank USA, National Association and The First National Bank
of Chicago (the "Eligible Lender Trustee") (including as an
exhibit thereto a form of Floating Rate Asset Backed
Certificate)
5.1. Opinion of Forrest F. Stanley, Esq. with respect to
legality*
8.1. Opinion of Thompson Hine & Flory LLP with respect to federal
tax matters.
8.2. Opinion of Kirkpatrick & Lockhart with respect to
Pennsylvania tax matters
10.1. Form of Sale and Servicing Agreement among Key Bank USA,
National Association (in its capacity as the Seller and the
Administrator),the Servicers, the Trust and the Eligible
Lender Trustee
10.2. Form of Supplemental Sale and Servicing Agreement among Key
Bank USA, National Association, as Seller and Administrator,
the Servicers, the Trust and the Eligible Lender Trustee
10.3. Form of Administration Agreement among the Administrator,
the Servicers, the Trust and the Indenture Trustee
10.4. Form of Guarantee Agreement between the Eligible Lender
Trustee on behalf of the Trust and the Pennsylvania Higher
Education Assistance Agency ("PHEAA")
10.5. Form of Guarantee Agreement between the Eligible Lender
Trustee on behalf of the Trust and American Student
Assistance ("ASA")
10.6. Form of Guarantee Agreement between the Eligible Lender
Trustee on behalf of the Trust and Nebraska Student Loan
Program ("NSLP")
10.7. Form of Guarantee Agreement between the Eligible Lender
Trustee on behalf of the Trust and Educational Credit
Management Corporation ("ECMC")
10.8. Form of Guarantee Agreement among the Eligible Lender
Trustee on behalf of the Trust, Key Bank USA, National
Association and The Education Resources Institute, Inc.
("TERI")
10.9. Form of Endorsement to Surety Bonds issued by the Seller by
HICA
23.1. Consent of Thompson Hine & Flory LLP (included as Exhibit
8.1)
23.2. Consent of Forrest F. Stanley, Esq. (included as Exhibit
5.1)
23.3. Consent of Kirkpatrick & Lockhart LLP (included as Exhibit
8.2)
24.1. Powers of Attorney of James A. Fishell, Ronald J. Nicolas,
Jr., Joseph A. Pampush, Allen J. Gula, Jr., Kevin M. Blakely
and K. Brent Somers*
24.2. Power of Attorney of Michael W. Dvorak
25.1. Statement of Eligibility under the Trust Indenture Act of
1939 of the Indenture Trustee
</TABLE>
- ---------------
* Previously filed.
II-5
<PAGE> 1
Exhibit 1.1
KEYCORP STUDENT LOAN TRUST 1999-A
$__________
FLOATING RATE CLASS A-1 ASSET BACKED NOTES
$__________
FLOATING RATE CLASS A-2 ASSET BACKED NOTES
KEY BANK USA, NATIONAL ASSOCIATION
(SELLER)
NOTE UNDERWRITING AGREEMENT
---------------------------
January ___ 1999
Credit Suisse First Boston Corporation
As Representative of the
several Underwriters
11 Madison Avenue
New York, N.Y. 10010
Dear Sirs:
1. INTRODUCTORY. Key Bank USA, National Association, a
national banking association (the "Seller"), proposes to cause KeyCorp Student
Loan Trust 1999-A (the "Trust") to issue and sell $__________ principal amount
of its Floating Rate Asset Backed Notes (the "Class A-1 Notes"), $___________
principal amount of its Floating Rate Class A-2 Asset Backed Notes (the "Class
A-2 Notes" and together with the Class A-1 Notes, the "Notes"), to the
underwriters named in Schedule I hereto (the "Underwriters"), for whom you (the
"Representative") are acting as representative. The assets of the Trust include,
among other things, a pool of law school, medical school, dental school,
graduate business school and other graduate school student loans (the "Financed
Student Loans") and certain monies due hereunder on and after January 1, 1999
(the "Cutoff Date"). The Notes will be secured by a group of Financed Student
Loans reinsured by the United States Department of Education ("Financed Federal
Loans") and by a group of Financed Student Loans that are not reinsured by the
United States Department of Education ("Financed Private Loans"). Financed
Student Loans were sold to the Eligible Lender Trustee (as defined below) on
behalf of the Trust by the Seller and are to be serviced by Pennsylvania Higher
Education Assistance Agency, an agency of the Commonwealth of Pennsylvania
("PHEAA" and, in its capacity as a servicer, "Servicer") and EFS Services, Inc.,
a wholly-owned subsidiary of EFS, Inc. of Indiana ("EFS" or a "Servicer"). The
Notes will be issued pursuant to the Indenture
<PAGE> 2
to be dated as of January 1, 1999 (as amended and supplemented from time to
time, the "Indenture"), between the Trust and Bankers Trust Company, a New York
banking corporation (the "Indenture Trustee").
Simultaneously with the issuance and sale of the Notes as
contemplated herein, the Trust will issue $__________ principal amount of its
Floating Rate Class B Asset Backed Certificates (the "Certificates"),
representing a fractional undivided ownership interest in the Trust, which will
be sold pursuant to an underwriting agreement dated the date hereof (the
"Certificate Underwriting Agreement") between the Seller and the Representative.
Capitalized terms used and not otherwise defined herein shall
have the meanings given them in Appendix A hereto.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLER. (a) The
Seller represents and warrants to and agrees with the several Underwriters that:
(i) A registration statement (No. 333-58073), including a form
of prospectus, on Form S-3 relating to the Notes, has been filed with
the Securities and Exchange Commission (the "Commission") and either
(A) has been declared effective under the Securities Act of 1933, as
amended (the "Act"), and is not proposed to be amended or (B) is
proposed to be amended by amendment or post-effective amendment. If the
Seller does not propose to amend such registration statement and if any
post-effective amendment to such registration statement has been filed
with the Commission prior to the execution and delivery of this
Agreement, the most recent such amendment has been declared effective
by the Commission. For purposes of this Agreement, "Effective Time"
means (x) if the Seller has advised the Representative that it does not
propose to amend such registration statement, the date and time as of
which such registration statement, or the most recent post-effective
amendment thereto (if any) filed prior to the execution and delivery of
this Agreement, was declared effective by the Commission, or (y) if the
Seller has advised the Representative that it proposes to file an
amendment or post-effective amendment to such registration statement,
the date and time as of which such registration statement, as amended
by such amendment or post-effective amendment, as the case may be, is
declared effective by the Commission. "Effective Date" means the date
of the Effective Time. Such registration statement, as amended at the
Effective Time, including all information (if any) deemed to be a part
of such registration statement as of the Effective Time pursuant to
Rule 430A(b) under the Act, and including the exhibits thereto and any
material incorporated by reference therein, is hereinafter referred to
as the "Registration Statement", and the form of prospectus relating to
the Notes, as first filed with the Commission pursuant to and in
accordance with Rule 424(b) ("Rule 424(b)") under the Act or, if no
such filing is required, as included in the Registration Statement at
the Effective Date, is hereinafter referred to as the "Prospectus".
(ii) If the Effective Time is prior to the execution and
delivery of this Agreement: (A) on the Effective Date, the Registration
Statement conformed in all material respects to the requirements of the
Act, the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), and the rules and regulations of the Commission
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<PAGE> 3
thereunder (the "Rules and Regulations") and did not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading, (B) on the date of this Agreement,
the Registration Statement conforms, and at the time of filing of the
Prospectus pursuant to Rule 424(b), the Registration Statement and the
Prospectus will conform, in all material respects to the requirements
of the Act, the Trust Indenture Act and the Rules and Regulations, (C)
on the Effective Date, the Registration Statement did not and will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein not misleading and (D) on the Effective
Date, the Prospectus, if not filed pursuant to Rule 424(b), did not or
will not, and on the date of any filing pursuant to Rule 424(b) and on
the Closing Date, the Prospectus will not, include any untrue statement
of a material fact or omit to state a material fact necessary in order
to make the statements therein, in light of the circumstances under
which they are made, not misleading. If the Effective Time is
subsequent to the execution and delivery of this Agreement: (1) on the
Effective Date, the Registration Statement and the Prospectus will
conform in all material respects to the requirements of the Act, the
Trust Indenture Act and the Rules and Regulations, (2) on the Effective
Date, the Registration Statement will not include any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading and (3) on the Effective Date, at the time of filing of the
Prospectus pursuant to Rule 424(b) and at the Closing Date, the
Prospectus will not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The two
preceding sentences do not apply to statements in or omissions from the
Registration Statement or Prospectus based upon written information
furnished to the Seller by any Underwriter through the Representative
specifically for use therein. As of the Closing Date (as defined
below), the Seller's representations and warranties in the Sale and
Servicing Agreement, the Supplemental Sale and Servicing Agreement, the
Trust Agreement and the Guarantee Agreement to which TERI is a party
will be true and correct in all material respects.
(iii) This Agreement has been duly authorized, executed and
delivered by the Seller. The execution, delivery and performance of
this Agreement and the issuance and sale of the Notes and compliance
with the terms and provisions hereof will not result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, any agreement or instrument to which the Seller is a
party or by which the Seller is bound or to which any of the properties
of the Seller is subject which could reasonably be expected to have a
material adverse effect on the transactions contemplated herein. The
Seller has full corporate power and authority to cause the Trust to
authorize, issue and sell the Notes, all as contemplated by this
Agreement.
(iv) Other than as contemplated by this Agreement or as
disclosed in the Prospectus, there is no broker, finder or other party
that is entitled to receive from the Seller or any of its subsidiaries
any brokerage or finder's fee or other fee or commission as a result of
any of the transactions contemplated by this Agreement.
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<PAGE> 4
(v) All legal or governmental proceedings, contracts or
documents of a character required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement have been so described or filed as required.
(vi) The Seller's assignment and delivery of the Initial
Financed Student Loans to the Eligible Lender Trustee on behalf of the
Trust as of the Closing Date will vest in the Eligible Lender Trustee
on behalf of the Trust all the Seller's right, title and interest
therein, or will result in a first priority perfected security interest
therein, in either case subject to no prior lien, mortgage, security
interest, pledge, adverse claim, charge or other encumbrance.
(vii) The Trust's assignment of the Initial Financed Student
Loans to the Indenture Trustee pursuant to the Indenture will vest in
the Indenture Trustee, for the benefit of the holders of the Notes, a
first priority perfected security interest therein, subject to no prior
lien, mortgage, security interest, pledge, adverse claim, charge or
other encumbrance.
(viii) The Seller is not, and after giving effect to the offering
and sale of the Notes, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the United States Investment Company Act of 1940, as amended (the
"Investment Company Act");
(b) The Seller hereby agrees with the Underwriters that, for
all purposes of this Agreement, the only information furnished to the Seller by
the Underwriters through the Representative specifically for use in the
Registration Statement, the Prospectus, or any amendment or supplement thereto,
or any related preliminary prospectus, are the statements with respect to
stabilization on the second page of, and the statements under the caption
"Underwriting" in, the preliminary prospectus and the Prospectus.
3. PURCHASE, SALE AND DELIVERY OF THE NOTES. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Seller agrees to cause the Trust
to sell to the Underwriters, and the Underwriters agree, severally and not
jointly, to purchase from the Trust, at a purchase price of _____% of the
principal amount of the Class A-1 Notes and at a purchase price of _____% of the
principal amount of the Class A-2 Notes, the respective principal amounts of
each class of Notes set forth opposite the names of the Underwriters in Schedule
I hereto.
The Seller will deliver the Notes to the Representative for
the respective accounts of the Underwriters, against payment of the purchase
price to or upon the order of the Seller by wire transfer or check in Federal
(same day) Funds, at the office of Stroock & Stroock & Lavan LLP, 180 Maiden
Lane, New York, New York 10038, on February __, 1999, or at such other time not
later than seven full business days thereafter as the Representative and the
Seller determine, such time being herein referred to as the "Closing Date". The
Notes to be so delivered will be initially represented by one or more Notes of
each class registered in the name of Cede & Co., the nominee of The Depository
Trust Company ("DTC"). The interests of beneficial owners of
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<PAGE> 5
the Notes will be represented by book entries on the records of DTC and
participating members thereof. Definitive Notes will be available only under the
limited circumstances specified in the Indenture.
4. OFFERING BY THE UNDERWRITERS. It is understood that, after
the Registration Statement becomes effective, the several Underwriters propose
to offer the Notes for sale to the public (which may include selected dealers)
as set forth in the Prospectus.
5. COVENANTS OF THE SELLER. The Seller covenants and agrees
with the several Underwriters that:
(a) If the Effective Time is prior to the execution and
delivery of this Agreement, the Seller will file the Prospectus, properly
completed, with the Commission pursuant to and in accordance with subparagraph
(1) (or, if applicable and if consented to by the Representative, subparagraph
(4)) of Rule 424(b) not later than the earlier of (i) the second business day
following the execution and delivery of this Agreement and (ii) the fifth
business day after the Effective Date. The Seller will advise the Representative
promptly of any such filing pursuant to Rule 424(b).
(b) The Seller will advise the Representative promptly of any
proposal to amend or supplement the registration statement as filed or the
related prospectus or the Registration Statement or the Prospectus and will not
effect such amendment or supplementation without the consent of the
Representative prior to the Closing Date, and thereafter will not effect any
such amendment or supplementation to which the Representative reasonably
objects; the Seller will also advise the Representative promptly of any request
by the Commission for any amendment of or supplement to the Registration
Statement or the Prospectus or for any additional information; and the Seller
will also advise the Representative promptly of the effectiveness of the
Registration Statement (if the Effective Time is subsequent to the execution of
this Agreement) and of any amendment or supplement to the Registration Statement
or the Prospectus and of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the institution or
threat of any proceeding for that purpose and the Seller will use its best
efforts to prevent the issuance of any such stop order and to obtain as soon as
possible the lifting of any issued stop order.
(c) If, at any time when a prospectus relating to the Notes is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus as then amended or supplemented would contain an untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend or supplement
the Prospectus to comply with the Act, the Seller promptly will prepare and
file, or cause to be prepared and filed, with the Commission an amendment or
supplement which will correct such statement or omission, or an amendment or
supplement which will effect such compliance. Neither the consent of the
Representative to, nor the delivery of the several Underwriters of, any such
amendment or supplement shall constitute a waiver of any of the conditions set
forth in Section 6.
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<PAGE> 6
(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Seller will cause the Trust to make
generally available to the holders of the Notes an earnings statement of the
Trust covering a period of at least twelve months beginning after the Effective
Date which will satisfy the provisions of Section 11(a) of the Act and Rule 158
of the applicable Rules and Regulations thereunder. For the purpose of the
preceding sentence, "Availability Date" means the 45th day after the end of the
fourth fiscal quarter following the fiscal quarter that includes the Effective
Date, except that, if such fourth fiscal quarter is the last quarter of the
Trust's fiscal year, "Availability Date" means the 90th day after the end of
such fourth fiscal quarter.
(e) The Seller will furnish to the Representative copies of
the Registration Statement (two of which will be signed and will include all
exhibits), each related preliminary prospectus, the Prospectus and all
amendments and supplements to such documents, in each case as soon as available
and in such quantities as the Representative reasonably requests.
(f) The Seller will arrange for the qualification of the Notes
for sale under the laws of the States of [New York and California] and will
continue such qualifications in effect so long as required for the distribution.
(g) For a period from the date of this Agreement until the
retirement of the Notes, or until such time as the several Underwriters shall
cease to maintain a secondary market in the Notes, whichever occurs first, the
Seller will deliver to the Representative the annual statements of compliance
and the annual independent certified public accountants' reports furnished to
the Indenture Trustee or the Eligible Lender Trustee pursuant to the Sale and
Servicing Agreement, as soon as such statements and reports are furnished to the
Indenture Trustee or the Eligible Lender Trustee.
(h) So long as any of the Notes is outstanding, the Seller
will furnish to the Representative (i) as soon as practicable after the end of
the fiscal year all documents required to be distributed to the holders of the
Notes or filed with the Commission on behalf of the Trust pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any order
of the Commission thereunder and (ii) from time to time, any other information
concerning the Seller as the Representative may reasonably request only insofar
as such information reasonably relates to the Registration Statement or the
transactions contemplated by the Basic Documents.
(i) On or before the Closing Date, the Seller shall mark its
accounting and other records, if any, relating to the Initial Financed Student
Loans and shall cause each Servicer to mark the computer records of such
Servicer relating to the Initial Financed Student Loans to show the absolute
ownership by the Eligible Lender Trustee on behalf of the Trust of the Initial
Financed Student Loans, and from and after the Closing Date neither the Seller
nor any Servicer shall take any action inconsistent with the ownership by the
Eligible Lender Trustee on behalf of the Trust of such Initial Financed Student
Loans, other than as permitted by the Sale and Servicing Agreement.
(j) To the extent, if any, that the rating provided with
respect to the Notes by the rating agency or agencies that initially rate the
Notes is conditional upon the furnishing of
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<PAGE> 7
documents or the taking of any other actions by the Seller agreed upon on or
prior to the Closing Date, the Seller shall furnish such documents and take any
such other actions. A copy of any such document shall be provided to the
Representative at the time it is delivered to the rating agencies.
(k) For the period beginning on the date of this Agreement and
ending 90 days after the Closing Date, neither the Seller nor any trust
originated, directly or indirectly, by the Seller will, without the prior
written consent of the Representative, offer to sell or sell notes (other than
the Notes) collateralized by, or certificates (other than the Certificates)
evidencing an ownership interest in, student loans; PROVIDED, HOWEVER, that this
shall not be construed to prevent the sale of student loans by the Seller.
(l) The Seller will apply the net proceeds of the offering and
the sale of the Notes and the Certificates that it receives in the manner set
forth in the Prospectus under the caption "Use of Proceeds."
(m) The Seller will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the printing
and filing of the documents (including the Registration Statement and
Prospectus) (ii) the preparation, issuance and delivery of the Notes to the
Representative, (iii) the fees and disbursements of the Seller's counsel and
accountants, (iv) the qualification of the Notes under securities laws in
accordance with the provisions of Section 5(f), including filing fees and the
fees and disbursements of counsel for the Representative in connection therewith
and in connection with the preparation of any blue sky or legal investment
survey, if any is requested, (v) the printing and delivery to the Representative
of copies of the Registration Statement as originally filed and of each
amendment thereto, (vi) the printing and delivery to the Representative of
copies of any blue sky or legal investment survey prepared in connection with
the Notes, (vii) any fees charged by rating agencies for the rating of the
Notes, (viii) the fees and expenses, if any, incurred with respect to any filing
with the National Association of Securities Dealers, Inc. and (ix) the fees and
expenses of Thompson Hine & Flory LLP in its role as counsel to the Trust
incurred as a result of providing the opinions required by Section 6(h) hereof.
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Notes will
be subject to the accuracy of the representations and warranties on the part of
the Seller herein, to the accuracy of the written statements of officers of the
Seller made pursuant to the provisions of this Section, to the performance by
the Seller of its obligations hereunder and to the following additional
conditions precedent:
(a) If the Effective Time is not prior to the execution and
delivery of this Agreement, the Effective Time shall have occurred not later
than 6:00 p.m., New York City time, on the date of this Agreement or such later
time or date as shall have been consented to by the Representative.
(b) If the Effective Time is prior to the execution and
delivery of this Agreement, the Prospectus and any supplements thereto shall
have been filed with the
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<PAGE> 8
Commission in accordance with the Rules and Regulations and Section 5(a) hereof.
Prior to the Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Seller or the
Representative, shall be contemplated by the Commission.
(c) The Representative shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time is prior to the execution
and delivery of this Agreement, shall be on or prior to the date of this
Agreement or, if the Effective Time is subsequent to the execution and delivery
of this Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the Registration Statement to be filed shortly prior
to the Effective Time), of (i) Ernst & Young LLP on behalf of the Seller and
(ii) KPMG Peat Marwick LLP with respect to certain agreed-upon procedures with
respect to the Programs, in each case confirming that such accountants are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder, and substantially in the form of the
drafts to which the Representative has previously agreed and otherwise in form
and substance reasonably satisfactory to the Representative and its counsel.
(d) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any development
involving a prospective change, in or affecting particularly the business or
properties of the Trust, the Seller, a Servicer or KeyCorp which, in the
judgment of the Representative, materially impairs the investment quality of the
Notes or makes it impractical or inadvisable to market the Notes; (ii) any
downgrading in the rating of any debt securities of the Seller or KeyCorp by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Act), or any public announcement that any such
organization has under surveillance or review its rating of any debt securities
of the Seller or KeyCorp (other than an announcement with positive implications
of a possible upgrading, and no implication of a possible downgrading, of such
rating); (iii) any suspension or limitation of trading in securities generally
on the New York Stock Exchange, or any setting of minimum prices for trading on
such exchange; (iv) any suspension of trading of any securities of the Seller or
KeyCorp on any exchange or in the over-the-counter market; (v) any banking
moratorium declared by Federal or New York authorities; or (vi) any outbreak or
escalation of hostilities involving the United States or the declaration by the
United States of a national emergency or war, if the effect of any such event
specified in this clause (vi) in the judgment of the Representative makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Notes on the terms and in the manner contemplated in the Prospectus.
(e) The Representative shall have received an opinion of
Forrest F. Stanley, Esq., General Counsel of Key Bank USA, National Association
("Key Bank"), as counsel for Key Bank, as the Seller and the Administrator,
dated the Closing Date, in the form attached hereto as Exhibit A, or as is
otherwise satisfactory in form and substance to the Representative and its
counsel.
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<PAGE> 9
(f) The Representative shall have received an opinion of
Thompson Hine & Flory LLP, counsel to the Seller, dated the Closing Date, in the
form attached hereto as Exhibit B, or as is otherwise satisfactory in form and
substance to the Representative and its counsel.
(g) The Representative shall have received an opinion of
Kirkpatrick & Lockhart, counsel to the Seller, dated the Closing Date and
satisfactory in form and substance to the Representative and its counsel, to the
effect that the statements in the Prospectus under the headings "Summary of
Terms--Tax Considerations" and "Material Tax Consequences--State and Local
Income and Franchise Tax Consequences with Respect to the Notes" accurately
describe the material Pennsylvania tax consequences to holders of the Notes.
(h) The Representative shall have received an opinion
addressed to the several Underwriters of Thompson Hine & Flory LLP, in its
capacity as Federal tax and ERISA counsel for the Trust, to the effect that the
statements in the Prospectus under the headings "Summary of Terms--Tax
Considerations" and "Material Tax Consequences--Material Federal Tax
Consequences with Respect to the Notes" accurately describe the material Federal
income tax consequences to holders of the Notes, and the statements in the
Prospectus under the headings "Summary of Terms--ERISA Considerations" and
"ERISA Considerations--The Notes," to the extent that they constitute statements
of matters of law or legal conclusions with respect thereto, have been prepared
or reviewed by such counsel and accurately describe the material consequences to
holders of the Notes under ERISA. Thompson Hine & Flory LLP, in its capacity as
special counsel to the Trust, shall have delivered an opinion with respect to
the characterization of the transfer of the Initial Financed Student Loans.
(i) The Representative shall have received an opinion
addressed to the several Underwriters of Stroock & Stroock & Lavan LLP, in its
capacity as special counsel to the several Underwriters, dated the Closing Date,
with respect to the validity of the Notes and the Certificates and such other
related matters as the Representative shall reasonably require and the Seller
shall have furnished or caused to be furnished to such counsel such documents as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
(j) The Representative shall have received an opinion of Dean
Blakey & Moskowitz, special student loan counsel to the several Underwriters
and, in the case of clause (iii) below, special student loan counsel to the
Eligible Lender Trustee, dated the Closing Date, satisfactory in form and
substance to the Representative, to the effect that:
(i) the agreements implementing the Program, (including the
Coordination Agreements (as such term is defined in the Supplemental
Sale and Servicing Agreement)) and the Basic Documents, and the
transactions contemplated by the Basic Documents, conform in all
material respects to the applicable requirements of the Higher
Education Act, and that, upon the due authorization, execution and
delivery of the Basic Documents and the consummation of such
transactions, the Financed Federal Loans, legal title to which will be
held by the Eligible Lender Trustee on behalf of the Trust, will
qualify, subject to compliance with all applicable origination and
servicing requirements, for all applicable federal assistance payments,
including federal reinsurance and federal interest subsidies and
special allowance payments;
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<PAGE> 10
(ii) such counsel has examined the Registration Statement and
the Prospectus, and nothing has come to such counsel's attention that
would lead such counsel to believe that, solely with respect to the
Higher Education Act and the student loan business, the Registration
Statement or the Prospectus or any amendment or supplement thereto as
of the respective dates thereof or on the Closing Date contains an
untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements therein not misleading; and
(iii) the Eligible Lender Trustee is an "eligible lender" as
such term is defined in Section 435(d) of the Higher Education Act for
purposes of holding legal title to the Financed Federal Loans.
(k) The Representative shall have received an opinion of
counsel to PHEAA, dated the Closing Date and satisfactory in form and substance
to the Representative and its counsel, to the effect that:
(i) PHEAA has been duly organized and is validly existing as
an agency of the Commonwealth of Pennsylvania in good standing under
the laws thereof with full power and authority (corporate and other) to
own its properties and conduct its business, as presently conducted by
it, and to enter into and perform its obligations under the Sale and
Servicing Agreement, the Supplemental Sale and Servicing Agreement and
the Guarantee Agreement (and the agreements with the Department under
Section 428 of the Higher Education Act to the extent relevant to
PHEAA's obligations under such Guarantee Agreement) to which it is a
party, and had at all relevant times, and now has, the power, authority
and legal right to service the Financed Student Loans, to guarantee the
Financed Federal Loans covered by such Guarantee Agreement and to
receive, subject to compliance with all applicable conditions,
restrictions and limitations of the Higher Education Act, reinsurance
payments from the Department with respect to claims paid by it on such
Financed Federal Loans.
(ii) PHEAA is duly qualified to do business and is in good
standing, and has obtained all necessary licenses and approvals in each
jurisdiction in which failure to qualify or to obtain such license or
approval would render any Financed Student Loan or PHEAA's obligation
under its Guarantee Agreement unenforceable by or on behalf of the
Trust.
(iii) Each of the Sale and Servicing Agreement, the
Supplemental Sale and Servicing Agreement and the Guarantee Agreement
(and the agreements with the Department under Section 428 of the Higher
Education Act to the extent relevant to PHEAA's obligations under such
Guarantee Agreement) to which PHEAA is a party has been duly
authorized, executed and delivered by PHEAA and is the legal, valid and
binding obligation of PHEAA enforceable against PHEAA in accordance
with its terms, notwithstanding the existence of any doctrine of
sovereign immunity except (x) the enforceability thereof may be subject
to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and (y)
the remedy of specific performance and injunctive and other forms of
equitable
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<PAGE> 11
relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
(iv) Neither the execution and delivery by PHEAA of the Sale
and Servicing Agreement, the Supplemental Sale and Servicing Agreement
or the Guarantee Agreement to which it is a party, nor the consummation
by PHEAA of the transactions contemplated therein nor the fulfillment
of the terms thereof by PHEAA will conflict with, result in a breach,
violation or acceleration of, or constitute a default under, any term
or provision of the certificate of incorporation or by-laws of PHEAA or
of any indenture or other agreement or instrument to which PHEAA is a
party or by which PHEAA is bound, or result in a violation of or
contravene the terms of any statute, order or regulation applicable to
PHEAA of any court, regulatory body, administrative agency or
governmental body having jurisdiction over PHEAA.
(v) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge after due inquiry,
threatened against PHEAA before or by any governmental authority that
might materially and adversely affect the performance by PHEAA of its
obligations under, or the validity or enforceability of, the Sale and
Servicing Agreement, the Supplemental Sale and Servicing Agreement or
the Guarantee Agreement (or the agreements with the Department under
Section 428 of the Higher Education Act to the extent relevant to
PHEAA's obligations under such Guarantee Agreement) to which it is a
party.
(vi) Nothing has come to such counsel's attention that would
lead such counsel to believe that the representations and warranties of
PHEAA contained in the Sale and Servicing Agreement and the
Supplemental Sale and Servicing Agreement are other than as stated
therein.
(l) The Representative shall have received an opinion of
counsel to EFS, dated the Closing Date and satisfactory in form and substance to
the Representative and its counsel, to the effect that:
(i) EFS has been duly organized and is validly existing as
____________ of Indiana in good standing under the laws thereof with
full power and authority (corporate and other) to own its properties
and conduct its business, as presently conducted by it, and to enter
into and perform its obligations under the Sale and Servicing Agreement
and the Supplemental Sale and Servicing Agreement, and had at all
relevant times, and now has, the power, authority and legal right to
service the Financed Student Loans.
(ii) Each of the Sale and Servicing Agreement and the
Supplemental Sale and Servicing Agreement has been duly authorized,
executed and delivered by EFS and is the legal, valid and binding
obligation of EFS enforceable against EFS in accordance with its terms,
except (x) the enforceability thereof may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and (y) the remedy of
specific performance and injunctive and other forms
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<PAGE> 12
of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought.
(iii) Neither the execution and delivery of EFS of the Sale
and Servicing Agreement or the Supplemental Sale and Servicing
Agreement, nor the consummation by EFS of the transactions contemplated
therein nor the fulfillment of the terms thereof by EFS will conflict
with, result in a breach, violation or acceleration of, or constitute a
default under, any term or provision of the certificate of
incorporation or by-laws of EFS or of any indenture or other agreement
or instrument to which EFS is a party or by which EFS is bound, or
result in a violation of or contravene the terms of any statute, order
or regulation applicable to EFS of any court, regulatory body,
administrative agency or governmental body having jurisdiction over
EFS.
(iv) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge after due inquiry,
threatened against EFS before or by any governmental authority that
might materially and adversely affect the performance by EFS of its
obligations under, or the validity or enforceability of, the Sale and
Servicing Agreement or the Supplemental Sale and Servicing Agreement.
(v) Nothing has come to such counsel's attention that would
lead such counsel to believe that the representations and warranties of
EFS contained in the Sale and Servicing Agreement and the Supplemental
Sale and Servicing Agreement are other than as stated therein.
(m) The Representative shall have received an opinion of
counsel to the Massachusetts Higher Education Assistance Corporation, now doing
business as American Student Assistance, a Massachusetts non-profit corporation
("ASA"), dated the Closing Date and satisfactory in form and substance to the
Representative and its counsel, to the effect that:
(i) ASA has been duly incorporated and is validly existing as
a non-profit corporation in good standing under the laws of the
Commonwealth of Massachusetts with full power and authority (corporate
and other) to own its properties and conduct its business, as presently
conducted by it, and to enter into and perform its obligations under
the Guarantee Agreement (and the agreements with the Department under
Section 428 of the Higher Education Act to the extent relevant to ASA's
obligations under such Guarantee Agreement) to which it is a party, and
had at all relevant times, and now has, the power, authority and legal
right to guarantee the Financed Federal Loans covered by such Guarantee
Agreement and to receive, subject to compliance with all applicable
conditions, restrictions and limitations of the Higher Education Act,
reinsurance payments from the Department with respect to claims paid by
it on such Financed Federal Loans.
(ii) ASA is duly qualified to do business and is in good
standing, and has obtained all necessary licenses and approvals in each
jurisdiction in which failure to qualify or to obtain such license or
approval would render ASA's obligation under its
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<PAGE> 13
Guarantee Agreement to guarantee the Financed Federal Loans covered
thereby unenforceable by or on behalf of the Trust.
(iii) The Guarantee Agreement (and the agreements with the
Department under Section 428 of the Higher Education Act to the extent
relevant to ASA's obligations under such Guarantee Agreement) to which
ASA is a party has been duly authorized, executed and delivered by ASA
and is the legal, valid and binding obligation of ASA enforceable
against ASA in accordance with its terms, except (x) the enforceability
thereof may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and (y) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(iv) Neither the execution and delivery by ASA of the
Guarantee Agreement to which it is a party, nor the consummation by ASA
of the transactions contemplated therein nor the fulfillment of the
terms thereof by ASA will conflict with, result in a breach, violation
or acceleration of, or constitute a default under, any term or
provision of the certificate of incorporation or by-laws of ASA or of
any indenture or other agreement or instrument to which ASA is a party
or by which ASA is bound, or result in a violation of or contravene the
terms of any statute, order or regulation applicable to ASA of any
court, regulatory body, administrative agency or governmental body
having jurisdiction over ASA.
(v) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge after due inquiry,
threatened against ASA before or by any governmental authority that
might materially and adversely affect the performance by ASA of its
obligations under, or the validity or enforceability of, the Guarantee
Agreement (or the agreements with the Department under Section 428 of
the Higher Education Act to the extent relevant to ASA's obligations
under such Guarantee Agreement) to which it is a party.
(n) The Representative shall have received an opinion of
counsel to the Nebraska Student Loan Program ("NSLP"), dated the Closing Date
and satisfactory in form and substance to the Representative and its counsel, to
the effect that:
(i) NSLP has been duly incorporated and is validly existing as
a non-profit corporation in good standing under the laws of the State
of [Nebraska] with full power and authority (corporate and other) to
own its properties and conduct its business, as presently conducted by
it, and to enter into and perform its obligations under the Guarantee
Agreement (and the agreements with the Department under Section 428 of
the Higher Education Act to the extent relevant to NSLP's obligations
under such Guarantee Agreement) to which it is a party, and had at all
relevant times, and now has, the power, authority and legal right to
guarantee the Financed Federal Loans covered by such Guarantee
Agreement and to receive, subject to compliance with all applicable
conditions,
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<PAGE> 14
restrictions and limitations of the Higher Education Act, reinsurance
payments from the Department with respect to claims paid by it on such
Financed Federal Loans.
(ii) NSLP is duly qualified to do business and is in good
standing, and has obtained all necessary licenses and approvals in each
jurisdiction in which failure to qualify or to obtain such license or
approval would render NSLP's obligation under its Guarantee Agreement
to guarantee the Financed Federal Loans covered thereby unenforceable
by or on behalf of the Trust.
(iii) The Guarantee Agreement (and the agreements with the
Department under Section 428 of the Higher Education Act to the extent
relevant to NSLP's obligations under such Guarantee Agreement) to which
NSLP is a party has been duly authorized, executed and delivered by
NSLP and is the legal, valid and binding obligation of NSLP enforceable
against NSLP in accordance with its terms, except (x) the
enforceability thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and (y) the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(iv) Neither the execution and delivery by NSLP of the
Guarantee Agreement to which it is a party, nor the consummation by
NSLP of the transactions contemplated therein nor the fulfillment of
the terms thereof by NSLP will conflict with, result in a breach,
violation or acceleration of, or constitute a default under, any term
or provision of the certificate of incorporation or by-laws of NSLP or
of any indenture or other agreement or instrument to which NSLP is a
party or by which NSLP is bound, or result in a violation of or
contravene the terms of any statute, order or regulation applicable to
NSLP of any court, regulatory body, administrative agency or
governmental body having jurisdiction over NSLP.
(v) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge after due inquiry,
threatened against NSLP before or by any governmental authority that
might materially and adversely affect the performance by NSLP of its
obligations under, or the validity or enforceability of, the Guarantee
Agreement (or the agreements with the Department under Section 428 of
the Higher Education Act to the extent relevant to NSLP's obligations
under such Guarantee Agreement) to which it is a party.
(o) The Representative shall have received an opinion of
counsel to the Educational Credit Management Corporation ("ECMC"), dated the
Closing Date and satisfactory in form and substance to the Representative and
its counsel, to the effect that:
(i) ECMC has been duly incorporated and is validly existing as
a non-profit corporation in good standing under the laws of the State
of ____________ with full power and authority (corporate and other) to
own its properties and conduct its business, as presently conducted by
it, and to enter into and perform its obligations under the Guarantee
Agreement (and the agreements with the Department under Section 428 of
the Higher
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<PAGE> 15
Education Act to the extent relevant to ECMC's obligations under such
Guarantee Agreement) to which it is a party, and had at all relevant
times, and now has, the power, authority and legal right to guarantee
the Financed Federal Loans covered by such Guarantee Agreement and to
receive, subject to compliance with all applicable conditions,
restrictions and limitations of the Higher Education Act, reinsurance
payments from the Department with respect to claims paid by it on such
Financed Federal Loans.
(ii) ECMC is duly qualified to do business and is in good
standing, and has obtained all necessary licenses and approvals in each
jurisdiction in which failure to qualify or to obtain such license or
approval would render ECMC's obligation under its Guarantee Agreement
to guarantee the Financed Federal Loans covered thereby unenforceable
by or on behalf of the Trust.
(iii) The Guarantee Agreement (and the agreements with the
Department under Section 428 of the Higher Education Act to the extent
relevant to ECMC's obligations under such Guarantee Agreement) to which
ECMC is a party has been duly authorized, executed and delivered by
ECMC and is the legal, valid and binding obligation of ECMC enforceable
against ECMC in accordance with its terms, except (x) the
enforceability thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and (y) the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(iv) Neither the execution and delivery by ECMC of the
Guarantee Agreement to which it is a party, nor the consummation by
ECMC of the transactions contemplated therein nor the fulfillment of
the terms thereof by ECMC will conflict with, result in a breach,
violation or acceleration of, or constitute a default under, any term
or provision of the certificate of incorporation or by-laws of ECMC or
of any indenture or other agreement or instrument to which ECMC is a
party or by which ECMC is bound, or result in a violation of or
contravene the terms of any statute, order or regulation applicable to
ECMC of any court, regulatory body, administrative agency or
governmental body having jurisdiction over ECMC.
(v) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge after due inquiry,
threatened against ECMC before or by any governmental authority that
might materially and adversely affect the performance by ECMC of its
obligations under, or the validity or enforceability of, the Guarantee
Agreement (or the agreements with the Department under Section 428 of
the Higher Education Act to the extent relevant to ECMC's obligations
under such Guarantee Agreement) to which it is a party.
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<PAGE> 16
(p) The Representative shall have received an opinion of
_____________, counsel to The Education Resources Institute, Inc., a
Massachusetts non-profit corporation ("TERI"), dated the Closing Date and
satisfactory in form and substance to the Representative and its counsel, to the
effect that:
(i) TERI has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the Commonwealth of
Massachusetts with full power and authority (corporate and other) to
own its properties and conduct its business, as presently conducted by
it, and to enter into and perform its obligations under the Guarantee
Agreement to which it is a party, and had at all relevant times, and
now has, the power, authority and legal right to guarantee the Financed
Private Loans covered by such Guarantee Agreement.
(ii) TERI is duly qualified to do business and is in good
standing, and has obtained all necessary licenses and approvals in each
jurisdiction in which failure to qualify or to obtain such license or
approval would render TERI's obligation under its Guarantee Agreement
to guarantee the Financed Private Loans unenforceable by or on behalf
of the Trust.
(iii) The Guarantee Agreement to which TERI is a party has
been duly authorized, executed and delivered by TERI and is the legal,
valid and binding obligation of TERI enforceable against TERI in
accordance with its terms, except (x) the enforceability thereof may be
subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
and (y) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought.
(iv) Neither the execution and delivery by TERI of the
Guarantee Agreement to which it is a party, nor the consummation by
TERI of the transactions contemplated therein nor the fulfillment of
the terms thereof by TERI will conflict with, result in a breach,
violation or acceleration of, or constitute a default under, any term
or provision of the certificate of incorporation or by-laws of TERI or
of any indenture or other agreement or instrument to which TERI is a
party or by which TERI is bound, or result in a violation of or
contravene the terms of any statute, order or regulation applicable to
TERI of any court, regulatory body, administrative agency or
governmental body having jurisdiction over TERI.
(v) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge after due inquiry,
threatened against TERI before or by any governmental authority that
might materially and adversely affect the performance by TERI of its
obligations under, or the validity or enforceability of, the Guarantee
Agreement to which it is a party.
(q) The Representative shall have received an opinion of counsel to
HEMAR Insurance Company of America, a subsidiary of Sallie Mae, Inc. ("HICA"),
dated the Closing
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<PAGE> 17
Date and satisfactory in form and substance to the Representative and its
counsel, to the effect that:
(i) HICA has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the Commonwealth of
_____________ with full power and authority (corporate and other) to
own its properties and conduct its business, as presently conducted by
it, and to enter into and perform its obligations under the Guarantee
Agreement to which it is a party, and had at all relevant times, and
now has, the power, authority and legal right to guarantee the Financed
Private Loans covered by such Guarantee Agreement.
(ii) HICA is duly qualified to do business and is in good
standing, and has obtained all necessary licenses and approvals in each
jurisdiction in which failure to qualify or to obtain such license or
approval would render HICA's obligation under its Guarantee Agreement
to guarantee the Financed Private Loans unenforceable by or on behalf
of the Trust.
(iii) The Guarantee Agreement to which HICA is a party has
been duly authorized, executed and delivered by HICA and is the legal,
valid and binding obligation of HICA enforceable against HICA in
accordance with its terms, except (x) the enforceability thereof may be
subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
and (y) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought.
(iv) Neither the execution and delivery by HICA of the
Guarantee Agreement to which it is a party, nor the consummation by
HICA of the transactions contemplated therein nor the fulfillment of
the terms thereof by HICA will conflict with, result in a breach,
violation or acceleration of, or constitute a default under, any term
or provision of the certificate of incorporation or by-laws of HICA or
of any indenture or other agreement or instrument to which HICA is a
party or by which HICA is bound, or result in a violation of or
contravene the terms of any statute, order or regulation applicable to
HICA of any court, regulatory body, administrative agency or
governmental body having jurisdiction over HICA.
(v) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge after due inquiry,
threatened against HICA before or by any governmental authority that
might materially and adversely affect the performance by HICA of its
obligations under, or the validity or enforceability of, the Guarantee
Agreement to which it is a party.
(r) The Representative shall have received an opinion of
Seward & Kissel, counsel to the Indenture Trustee, dated the Closing Date and
satisfactory in form and substance to the Representative and its counsel, to the
effect that:
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<PAGE> 18
(i) The Indenture Trustee is a New York banking corporation
duly incorporated or organized under the laws of New York.
(ii) The Indenture Trustee has the full corporate trust power to
accept the office of indenture trustee under the Indenture, the Sale
and Servicing Agreement, the Supplemental Sale and Servicing Agreement
and the Administration Agreement.
(iii) The execution and delivery of the Indenture, the
Supplemental Sale and Servicing Agreement and the performance by the
Indenture Trustee of its obligations under the Indenture, the Sale and
Servicing Agreement, the Supplemental Sale and Servicing Agreement and
the Administration Agreement have been duly authorized by all necessary
action of the Indenture Trustee and each has been duly executed and
delivered by the Indenture Trustee.
(iv) The Indenture, the Sale and Servicing Agreement, the
Supplemental Sale and Servicing Agreement and the Administration
Agreement constitute valid and binding obligations of the Indenture
Trustee enforceable against the Indenture Trustee in accordance with
their terms under the laws of the State of New York and the Federal law
of the United States.
(v) The execution and delivery by the Indenture Trustee of the
Indenture, the Supplemental Sale and Servicing Agreement and the
Administration Agreement and the acceptance of the Sale and Servicing
Agreement do not require any consent, approval or authorization of, or
any registration or filing with, any New York or United States Federal
governmental authority, other than the qualification of the Indenture
Trustee under the Trust Indenture Act.
(vi) Each of the Notes has been duly authenticated by the
Indenture Trustee.
(vii) Neither the consummation by the Indenture Trustee of the
transactions contemplated in the Sale and Servicing Agreement, the
Supplemental Sale and Servicing Agreement, the Indenture or the
Administration Agreement nor the fulfillment of the terms thereof by
the Indenture Trustee will conflict with, result in the breach or
violation of, or constitute a default under any law or the charter,
by-laws or other organizational documents of the Indenture Trustee or
the terms of any indenture or other agreement or instrument known to
such counsel and to which the Indenture Trustee or any of its
subsidiaries is a party or is bound or any judgment, order or decree
known to such counsel to be applicable to the Indenture Trustee or any
of its subsidiaries of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over the
Indenture Trustee or any of its subsidiaries.
(viii) There are no actions, suits or proceedings pending or, to
the best of such counsel's knowledge after due inquiry, threatened
against the Indenture Trustee (as indenture trustee under the Indenture
or in its individual capacity) before or by any governmental authority
that might materially and adversely affect the performance by the
Indenture Trustee of its obligations under, or the validity or
enforceability of, the
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<PAGE> 19
Indenture, the Sale and Servicing Agreement, the Supplemental Sale and
Servicing Agreement or the Administration Agreement.
(ix) The execution, delivery and performance by the Indenture
Trustee of the Indenture, the Supplemental Sale and Servicing Agreement
and the Administration Agreement, and the acceptance of the Sale and
Servicing Agreement, will not subject any of the property or assets of
the Trust or any portion thereof, to any lien created by or arising
under the Indenture Trustee that are unrelated to the transactions
contemplated in such agreements.
(s) The Representative shall have received an opinion of
counsel to the Eligible Lender Trustee, dated the Closing Date and satisfactory
in form and substance to the Representative and its counsel, to the effect that:
(i) The Eligible Lender Trustee is a national banking
association duly incorporated or organized and validly existing under
the laws of the United States.
(ii) The Eligible Lender Trustee has the full corporate trust
power to accept the office of eligible lender trustee under the Trust
Agreement and to enter into and perform its obligations under the Trust
Agreement, the Sale and Servicing Agreement, the Supplemental Sale and
Servicing Agreement and, on behalf of the Trust, under the Indenture,
the Sale and Servicing Agreement, the Supplemental Sale and Servicing
Agreement, the Administration Agreement and the Guarantee Agreements.
(iii) The execution and delivery of the Trust Agreement, the
Sale and Servicing Agreement and the Supplemental Sale and Servicing
Agreement and, on behalf of the Trust, of the Indenture, the Sale and
Servicing Agreement, the Supplemental Sale and Servicing Agreement, the
Administration Agreement and the Guarantee Agreements, and the
performance by the Eligible Lender Trustee of its obligations under the
Trust Agreement, the Indenture, the Sale and Servicing Agreement, the
Supplemental Sale and Servicing Agreement, the Administration Agreement
and the Guarantee Agreements have been duly authorized by all necessary
action of the Eligible Lender Trustee and each has been duly executed
and delivered by the Eligible Lender Trustee.
(iv) The Trust Agreement, the Sale and Servicing Agreement, the
Supplemental Sale and Servicing Agreement and the Administration
Agreement constitute valid and binding obligations of the Eligible
Lender Trustee enforceable against the Eligible Lender Trustee in
accordance with their terms.
(v) The execution and delivery by the Eligible Lender Trustee
of the Trust Agreement, the Sale and Servicing Agreement and the
Supplemental Sale and Servicing Agreement and, on behalf of the Trust,
of the Indenture, the Sale and Servicing Agreement, the Supplemental
Sale and Servicing Agreement, the Administration Agreement and the
Guarantee Agreements do not require any consent, approval or
authorization of, or any registration or filing with, any applicable
governmental authority.
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<PAGE> 20
(vi) Each of the Certificates has been duly executed and
delivered by the Eligible Lender Trustee, as eligible lender trustee
and authenticating agent. Each of the Notes has been duly executed and
delivered by the Eligible Lender Trustee, on behalf of the Trust.
(vii) Neither the consummation by the Eligible Lender Trustee of
the transactions contemplated in the Sale and Servicing Agreement, the
Supplemental Sale and Servicing Agreement, the Indenture, the Trust
Agreement or the Administration Agreement nor the fulfillment of the
terms thereof by the Eligible Lender Trustee will conflict with, result
in a breach or violation of, or constitute a default under any law or
the charter, by-laws or other organizational documents of the Eligible
Lender Trustee or the terms of any indenture or other agreement or
instrument known to such counsel and to which the Eligible Lender
Trustee or any of its subsidiaries is a party or is bound or any
judgment, order or decree known to such counsel to be applicable to the
Eligible Lender Trustee or any of its subsidiaries of any court,
regulatory body, administrative agency, governmental body or arbitrator
having jurisdiction over the Eligible Lender Trustee or any of its
subsidiaries.
(viii) There are no actions, suits or proceedings pending or, to
the best of such counsel's knowledge after due inquiry, threatened
against the Eligible Lender Trustee (as eligible lender trustee under
the Trust Agreement or in its individual capacity) before or by any
governmental authority that might materially and adversely affect the
performance by the Eligible Lender Trustee of its obligations under, or
the validity or enforceability of, the Trust Agreement, the Sale and
Servicing Agreement or the Supplemental Sale and Servicing Agreement.
(ix) The execution, delivery and performance by the Eligible
Lender Trustee of the Sale and Servicing Agreement, the Supplemental
Sale and Servicing Agreement, the Indenture, the Trust Agreement, the
Administration Agreement or any Guarantee Agreement will not subject
any of the property or assets of the Trust or any portion thereof, to
any lien created by or arising under the Eligible Lender Trustee that
are unrelated to the transactions contemplated in such agreements.
(t) The Representative shall have received certificates dated
the Closing Date of any two of the Chairman of the Board, the President, any
Executive Vice President, Senior Vice President or Vice President, the
Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, the
principal financial officer or the principal accounting officer of each the
Seller and the Servicers in which such officers shall state that, to the best of
their knowledge after reasonable investigation, (i) the representations and
warranties of the Seller or the Servicers, as the case may be, contained in the
Trust Agreement, the Sale and Servicing Agreement and the Supplemental Sale and
Servicing Agreement, as applicable, are true and correct in all material
respects, that the Seller or the Servicers, as the case may be, has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied under such agreements at or prior to the Closing Date, in the case of
the certificate from the Seller only, that no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are contemplated by the Commission, and
(ii) since
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June 30, 1998, except as may be disclosed in the Prospectus or in such
certificate, no material adverse change, or any development involving a
prospective material adverse change, in or affecting particularly the business
or properties of the Trust, the Seller or the Servicers, as applicable, has
occurred.
(u) The Representative shall have received evidence
satisfactory to it that, on or before the Closing Date, UCC-1 financing
statements have been or are being filed in the office of the Secretary of State
of the States of Ohio and New York and the Commonwealth of Pennsylvania
reflecting the transfer of the interest of the Seller in the Financed Student
Loans to the Eligible Lender Trustee on behalf of the Trust and the proceeds
thereof to the Trust and the grant of the security interest by the Trust in the
Financed Student Loans and the proceeds thereof to the Indenture Trustee.
(v) Each class of Notes shall be rated at least "AAA" by
Standard and Poor's Ratings Service, a division of McGraw-Hill, Inc., at least
"Aaa" by Moody's Investors Service, Inc., and "AAA" by Fitch IBCA, Inc. and none
of the foregoing shall have placed either class of Notes under surveillance or
review with possible negative implications.
(w) The issuance of the Notes and the Certificates shall not
have resulted in a reduction or withdrawal by any Rating Agency of the current
rating of any outstanding securities issued or originated by the Seller or any
of its affiliates.
(x) On the Closing Date, $__________ principal amount of the
Class B Asset Backed Certificates shall have been issued and sold.
(y) TERI shall have furnished to the Representative a
certificate of TERI, signed by the President or any Executive Vice President,
dated the Closing Date, to the effect that the signer of such certificate has
carefully examined the Prospectus (excluding any documents incorporated by
reference therein) and this Agreement and that, to the best of his knowledge any
information with respect to TERI in the Prospectus, as of its date, did not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(z) PHEAA shall have furnished to the Representative a
certificate of PHEAA, signed by the President or any Senior Vice President,
dated the Closing Date, to the effect that the signer of such certificate has
carefully examined the Prospectus (excluding any documents incorporated by
reference therein) and this Agreement and that, to the best of his knowledge any
information with respect to PHEAA in the Prospectus, as of its date, did not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(aa) ASA shall have furnished to the Purchasers a certificate
of ASA, signed by the President or any Senior Vice President, dated the Closing
Date, to the effect that the signer of such certificate has carefully examined
the Prospectus (excluding any documents incorporated by reference therein) and
this Agreement and that, to the best of his knowledge any information with
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respect to ASA in the Prospectus, as of its date, did not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(bb) EFS shall have furnished to the Representative a
certificate of EFS, signed by the President or any Executive Vice President,
dated the Closing Date, to the effect that the signer of such certificate has
carefully examined the Prospectus (excluding any documents incorporated by
reference therein) and this Agreement and that, to the best of his knowledge any
information with respect to EFS in the Prospectus, as of its date, did not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(cc) NSLP shall have furnished to the Representative a
certificate of NSLP, signed by the President or any Senior Vice President, dated
the Closing Date, to the effect that the signer of such certificate has
carefully examined the Prospectus (excluding any documents incorporated by
reference therein) and this Agreement and that, to the best of his knowledge any
information with respect to NSLP in the Prospectus, as of its date, did not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(dd) ECMC shall have furnished to the Purchasers a certificate
of ECMC, signed by the President or any Senior Vice President, dated the Closing
Date, to the effect that the signer of such certificate has carefully examined
the Prospectus (excluding any documents incorporated by reference therein) and
this Agreement and that, to the best of his knowledge any information with
respect to ECMC in the Prospectus, as of its date, did not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(ee) HICA shall have furnished to the Representative a
certificate of HEMAR, signed by the President or any Senior Vice President,
dated the Closing Date, to the effect that the signer of such certificate has
carefully examined the Prospectus (excluding any documents incorporated by
reference therein) and this Agreement and that, to the best of his knowledge any
information with respect to HICA in the Prospectus, as of its date, did not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
The Seller will provide or cause to be provided to the
Representative such conformed copies of such of the foregoing opinions,
certificates, letters and documents as the Representative reasonably requests.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Seller will
indemnify and hold each Underwriter harmless against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, the Prospectus or any amendment or supplement
thereto or any related preliminary
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<PAGE> 23
prospectus, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; PROVIDED, HOWEVER, that the
Seller will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with written information furnished
to the Seller by any Underwriter through the Representative specifically for use
therein.
(b) Each Underwriter will severally and not jointly indemnify
and hold harmless the Seller against any losses, claims, damages or liabilities
to which the Seller may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, the Prospectus or
any amendment or supplement thereto or any related preliminary prospectus, or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information relating to such Underwriter furnished to the Seller by such
Underwriter through the Representative specifically for use therein, and will
reimburse any legal or other expenses reasonably incurred by the Seller in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under subsection (a) or (b) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a) or (b) above. In case any such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified party, be counsel to the indemnifying party), and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof and approval by the indemnified party of the
counsel appointed by the indemnifying party, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. In no event shall
the indemnifying party be liable for fees and expenses for more than one counsel
separate from their own counsel for all indemnified parties in connection with
any one action or related actions in the same jurisdiction arising out of the
same general allegations or circumstances unless any such indemnified party
shall have been
-23-
<PAGE> 24
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to or in conflict with those
available to the other indemnified parties and in the judgment of such counsel
it is advisable for such indemnified party to employ separate counsel. An
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such action or claim and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of any
indemnified party.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnifying party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Seller on the one hand and the Underwriters on the other from the offering
of the Notes or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Seller on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Seller on the one hand and
the Underwriters on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
the Seller bear to the total underwriting discounts and commissions received by
the Underwriters. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Seller or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
subsection (d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Notes underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, except as may be
provided in any agreement among the Underwriters relating to the offering of the
Notes. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The
-24-
<PAGE> 25
obligations of the Underwriters in this subsection (d) to contribute are several
in proportion their respective underwriting obligations and not joint.
(e) The obligations of the Seller under this Section shall be
in addition to any liability which the Seller may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
any Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Seller, to each officer of the Seller
who has signed the Registration Statement and to each person, if any, who
controls the Seller within the meaning of the Act.
8. SURVIVAL OF REPRESENTATIONS AND OBLIGATIONS. The respective
indemnities, agreements, representations, warranties and other statements of the
Seller or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement or contained in certificates of officers of the
Seller submitted pursuant hereto shall remain operative and in full force and
effect, regardless of any investigation or statement as to the results thereof,
made by or on behalf of any Underwriter, the Seller or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Notes. If for any reason the purchase of
the Notes by the Underwriters is not consummated, the Seller shall remain
responsible for the expenses to be paid or reimbursed by the Seller pursuant to
Section 5 and the respective obligations of the Seller and the Underwriters
pursuant to Section 7 shall remain in effect. If for any reason the purchase of
the Notes by the Underwriters is not consummated (other than pursuant to Section
9), the Seller will reimburse the Underwriters for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by them in
connection with the offering of the Notes.
9. DEFAULT BY THE UNDERWRITER. (a) If any Underwriter shall
default in its obligation to purchase the Notes which it has agreed to purchase
hereunder, you may in your discretion arrange for you or another party or other
parties to purchase such Notes on the terms contained herein. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Notes, then the Seller shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Notes on such terms. In the event
that, within the respective prescribed periods, you notify the Seller that you
have so arranged for the purchase of such Notes, or the Seller notifies you that
it has so arranged for the purchase of such Notes, you or the Seller shall have
the right to postpone the Closing Date for a period of not more than seven days,
in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Seller agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Notes.
-25-
<PAGE> 26
(b) If, after giving effect to any arrangements for the purchase of the
Notes of a defaulting Underwriter or Underwriters by you and the Seller as
provided in subsection (a) above, the aggregate principal amount of such Notes
which remains unpurchased does not exceed one-eleventh of the aggregate
principal amount of all the Notes, then the Seller shall have the right to
require each non-defaulting Underwriter to purchase the principal amount of
Notes which such Underwriter agreed to purchase hereunder and, in addition, to
require each non-defaulting Underwriter to purchase its pro rata share (based on
the principal amount of Notes which such Underwriter agreed to purchase
hereunder) of the Notes of such defaulting Underwriter or Underwriters for which
such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Notes of a defaulting Underwriter or Underwriters by you and the Seller as
provided in subsection (a) above, the aggregate principal amount of Notes which
remains unpurchased exceeds one-eleventh of the aggregate principal amount of
all the Notes, or if the Seller shall not exercise the right described in
subsection (b) above to require non-defaulting Underwriters to purchase Notes of
a defaulting Underwriter or Underwriters, then this Agreement shall thereupon
terminate, without liability on the part of any non-defaulting Underwriter or
the Seller, except for the expenses to be borne by the Seller as provided in
Section 5 hereof and the indemnity and contribution agreements in Section 7
hereof; but nothing herein shall relieve a defaulting Underwriter from liability
for its default.
10. NOTICES. All communications hereunder will be in writing
and, if sent to the Underwriters, will be mailed, delivered or telegraphed and
confirmed to the Representative at 11 Madison Avenue, New York, NY 10010,
Attention: _________________________; if sent to the Seller, will be mailed,
delivered or telegraphed and confirmed to it at Key Bank USA, National
Association, 800 Superior Avenue, Cleveland, OH 44144, Attention: Senior Vice
President, Education Lending; PROVIDED, HOWEVER, that any notice to an
Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed and
confirmed to such Underwriter. Any such notice will take effect at the time of
receipt.
11. SUCCESSORS. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 7, and no
other person will have any right or obligations hereunder.
12. REPRESENTATION OF UNDERWRITERS. The Representative shall
act for the several Underwriters in connection with this financing, and any
action under this Agreement taken by the Representative will be binding upon all
the Underwriters.
13. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. This Agreement will be governed by, and
construed in accordance with, the laws of the State of New York.
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<PAGE> 27
-27-
<PAGE> 28
If the foregoing is in accordance with the understanding of
the Representative of our agreement, kindly sign and return to us one of the
counterparts hereof, whereupon it will become a binding agreement between the
Seller and the several Underwriters in accordance with its terms.
Very truly yours,
KEY BANK USA,
NATIONAL ASSOCIATION
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
The foregoing Note Underwriting
Agreement is hereby confirmed
and accepted as of the date
first written above.
CREDIT SUISSE FIRST BOSTON CORPORATION
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
Acting on behalf of itself and as of
Representative of the several
Underwriters.
-28-
<PAGE> 29
<TABLE>
<CAPTION>
SCHEDULE I
Class A-1 Class A-2
------------ -------------
<S> <C> <C>
Credit Suisse First Boston Corporation.......... $___________ $____________
Key Capital Markets, Inc........................ $___________ $____________
Total........................................... $___________ $____________
</TABLE>
<PAGE> 30
APPENDIX A
[See Appendix A to Sale and Servicing Agreement]
<PAGE> 31
EXHIBIT A
[Key Bank opinion]
<PAGE> 32
EXHIBIT B
[Thompson Hine & Flory LLP opinions]
<PAGE> 1
Exhibit 1.2
KEYCORP STUDENT LOAN TRUST 1999-A
$___________
FLOATING RATE ASSET BACKED CERTIFICATES
KEY BANK USA, NATIONAL ASSOCIATION
(SELLER)
CERTIFICATE UNDERWRITING AGREEMENT
----------------------------------
January __, 1999
Credit Suisse First Boston Corporation
As Representative of the
several Underwriters
11 Madison Avenue
New York, N.Y. 10010
Dear Sirs:
1. INTRODUCTORY. Key Bank USA, National Association, a
national banking association (the "Seller"), proposes to cause KeyCorp Student
Loan Trust 1999-A (the "Trust") to issue and sell $__________ principal amount
of its Floating Rate Asset Backed Certificates (the "Certificates") to the
underwriters named in Schedule I hereto (the "Underwriters"), for whom you (the
"Representative") are acting as representative. The assets of the Trust include,
among other things, a pool of law school, medical school, dental school,
graduate business school and other graduate school student loans (the "Financed
Student Loans") and certain monies due thereunder on and after January 1, 1999
(the "Cutoff Date"). The Certificates will be secured by a group of Financed
Student Loans reinsured by the United States Department of Education ("Financed
Federal Loans") and by a group of Financed Student Loans that are not reinsured
by the United States Department of Education ("Financed Private Loans").
Financed Student Loans were sold to the Eligible Lender Trustee (as defined
below) on behalf of the Trust by the Seller and are to be serviced by
Pennsylvania Higher Education Assistance Agency, an agency of the Commonwealth
of Pennsylvania ("PHEAA" and, in such capacity as a servicer, "Servicer") and
EFS Services, Inc., a wholly-owned subsidiary of EFS, Inc. of Indiana ("EFS"
and, in such capacity as a servicer, a "Servicer"). The Certificates will be
issued pursuant to the Amended and Restated Trust Agreement to be dated as of
January 1, 1999 (as amended and supplemented from time to time, the "Trust
Agreement"), between the Seller, as Depositor, and The First National Bank of
Chicago, a national banking association (the "Eligible Lender Trustee").
Simultaneously with the issuance and sale of the Certificates
as contemplated herein, the Trust will issue $___________ principal amount of
its Floating Rate Class A-1 Asset Backed Notes (the "Class A-1 Notes") and
$___________ principal amount of its Floating Rate
<PAGE> 2
Class A-2 Asset Backed Notes (the "Class A-2 Notes" and, with the Class A-1
Notes, the "Notes"). The Notes will be sold pursuant to an underwriting
agreement dated the date hereof (the "Note Underwriting Agreement") between the
Seller and the Representative.
Capitalized terms used and not otherwise defined herein shall
have the meanings given them in Appendix A hereto.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLER. (a) The
Seller represents and warrants to and agrees with the several Underwriters that:
(i) A registration statement (No. 333-58073), including a form
of prospectus, on Form S-3 relating to the Certificates, has been filed
with the Securities and Exchange Commission (the "Commission") and
either (A) has been declared effective under the Securities Act of
1933, as amended (the "Act"), and is not proposed to be amended or (B)
is proposed to be amended by amendment or post-effective amendment. If
the Seller does not propose to amend such registration statement and if
any post-effective amendment to such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent such amendment has been declared effective
by the Commission. For purposes of this Agreement, "Effective Time"
means (x) if the Seller has advised the Representative that it does not
propose to amend such registration statement, the date and time as of
which such registration statement, or the most recent post-effective
amendment thereto (if any) filed prior to the execution and delivery of
this Agreement, was declared effective by the Commission, or (y) if the
Seller has advised the Representative that it proposes to file an
amendment or post-effective amendment to such registration statement,
the date and time as of which such registration statement, as amended
by such amendment or post-effective amendment, as the case may be, is
declared effective by the Commission. "Effective Date" means the date
of the Effective Time. Such registration statement, as amended at the
Effective Time, including all information (if any) deemed to be a part
of such registration statement as of the Effective Time pursuant to
Rule 430A(b) under the Act, and including the exhibits thereto and any
material incorporated by reference therein, is hereinafter referred to
as the "Registration Statement," and the form of prospectus relating to
the Certificates, as first filed with the Commission pursuant to and in
accordance with Rule 424(b) ("Rule 424(b)") under the Act or, if no
such filing is required, as included in the Registration Statement at
the Effective Date, is hereinafter referred to as the "Prospectus."
(ii) If the Effective Time is prior to the execution and
delivery of this Agreement: (A) on the Effective Date, the Registration
Statement conformed in all material respects to the requirements of the
Act, the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), and the rules and regulations of the Commission thereunder (the
"Rules and Regulations") and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading, (B) on the date of this Agreement, the Registration
Statement conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b), the Registration Statement and the Prospectus
will conform, in all material respects to the requirements of the Act,
the Trust Indenture Act and the Rules
-2-
<PAGE> 3
and Regulations, (C) on the Effective Date, the Registration Statement
did not and will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading and
(D) on the Effective Date, the Prospectus, if not filed pursuant to
Rule 424(b), did not or will not, and on the date of any filing
pursuant to Rule 424(b) and on the Closing Date, the Prospectus will
not, include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
If the Effective Time is subsequent to the execution and delivery of
this Agreement: (1) on the Effective Date, the Registration Statement
and the Prospectus will conform in all material respects to the
requirements of the Act, the Trust Indenture Act and the Rules and
Regulations, (2) on the Effective Date, the Registration Statement will
not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order
to make the statements therein not misleading and (3) on the Effective
Date, at the time of filing of the Prospectus pursuant to Rule 424(b)
and at the Closing Date, the Prospectus will not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The two preceding sentences do not apply to
statements in or omissions from the Registration Statement or
Prospectus based upon written information furnished to the Seller by
any Underwriter through the Representative specifically for use
therein. As of the Closing Date (as defined below), the Seller's
representations and warranties in the Sale and Servicing Agreement, the
Supplemental Sale and Servicing Agreement, the Trust Agreement and the
Guarantee Agreement to which TERI is a party will be true and correct
in all material respects.
(iii) This Agreement has been duly authorized, executed and
delivered by the Seller. The execution, delivery and performance of
this Agreement and the issuance and sale of the Certificates and
compliance with the terms and provisions hereof will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any agreement or instrument to which the
Seller is a party or by which the Seller is bound or to which any of
the properties of the Seller is subject which could reasonably be
expected to have a material adverse effect on the transactions
contemplated herein. The Seller has full corporate power and authority
to cause the Trust to authorize, issue and sell the Certificates, all
as contemplated by this Agreement
(iv) Other than as contemplated by this Agreement or as
disclosed in the Prospectus, there is no broker, finder or other party
that is entitled to receive from the Seller or any of its subsidiaries
any brokerage or finder's fee or other fee or commission as a result of
any of the transactions contemplated by this Agreement.
(v) All legal or governmental proceedings, contracts or
documents of a character required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement have been so described or filed as required.
-3-
<PAGE> 4
(vi) The Seller's assignment and delivery of the Initial
Financed Student Loans to the Eligible Lender Trustee on behalf of the
Trust as of the Closing Date will vest in the Eligible Lender Trustee
on behalf of the Trust all the Seller's right, title and interest
therein, or will result in a first priority perfected security interest
therein, in either case subject to no prior lien, mortgage, security
interest, pledge, adverse claim, charge or other encumbrance.
(vii) The Trust's assignment of the Initial Financed Student
Loans to the Indenture Trustee pursuant to the Indenture will vest in
the Indenture Trustee, for the benefit of the holders of the Notes, a
first priority perfected security interest therein, subject to no prior
lien, mortgage, security interest, pledge, adverse claim, charge or
other encumbrance.
(viii) The Seller is not, and after giving effect to the
offering and sale of the Notes, will not be an "investment company" or
an entity "controlled" by an "investment company," as such terms are
defined in the United States Investment Company Act of 1940, as amended
(the "Investment Company Act");
(b) The Seller hereby agrees with the Underwriters that, for
all purposes of this Agreement, the only information furnished to the Seller by
the Underwriters through the Representative specifically for use in the
Registration Statement, the Prospectus, or any amendment or supplement thereto,
or any related preliminary prospectus, are the statements with respect to
stabilization on the second page of, and the statements under the caption
"Underwriting" in, the preliminary prospectus and the Prospectus.
3. PURCHASE, SALE AND DELIVERY OF THE CERTIFICATES. On the
basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Seller agrees to cause
the Trust to sell to the Underwriters, and the Underwriters agree, severally and
not jointly, to purchase from the Trust, at a purchase price of _____% of the
principal amount of the Certificates the respective principal amounts of
Certificates set forth opposite the names of the Underwriters in Schedule I
hereto.
The Seller will deliver the Certificates to the Representative
for the respective accounts of the Underwriters, against payment of the purchase
price to or upon the order of the Seller by wire transfer or check in Federal
(same day) Funds, at the office of Stroock & Stroock & Lavan LLP, 180 Maiden
Lane, New York, New York 10038, on February __, 1999, or at such other time not
later than seven full business days thereafter as the Representative and the
Seller determine, such time being herein referred to as the "Closing Date." The
Certificates to be so delivered will be initially represented by one or more
Certificates registered in the name of Cede & Co., the nominee of The Depository
Trust Company ("DTC"). The interests of beneficial owners of the Certificates
will be represented by book entries on the records of DTC and participating
members thereof. Definitive Certificates will be available only under the
limited circumstances specified in the Trust Agreement.
-4-
<PAGE> 5
4. OFFERING BY THE UNDERWRITERS. It is understood that, after
the Registration Statement becomes effective, the several Underwriters propose
to offer the Certificates for sale to the public (which may include selected
dealers) as set forth in the Prospectus.
5. COVENANTS OF THE SELLER. The Seller covenants and agrees
with the several Underwriters that:
(a) If the Effective Time is prior to the execution and
delivery of this Agreement, the Seller will file the Prospectus, properly
completed, with the Commission pursuant to and in accordance with subparagraph
(1) (or, if applicable and if consented to by the Representative, subparagraph
(4)) of Rule 424(b) not later than the earlier of (i) the second business day
following the execution and delivery of this Agreement and (ii) the fifth
business day after the Effective Date. The Seller will advise the Representative
promptly of any such filing pursuant to Rule 424(b).
(b) The Seller will advise the Representative promptly of any
proposal to amend or supplement the registration statement as filed or the
related prospectus or the Registration Statement or the Prospectus and will not
effect such amendment or supplementation without the consent of the
Representative prior to the Closing Date, and thereafter will not effect any
such amendment or supplementation to which the Representative reasonably
objects; the Seller will also advise the Representative promptly of any request
by the Commission for any amendment of or supplement to the Registration
Statement or the Prospectus or for any additional information; and the Seller
will also advise the Representative promptly of the effectiveness of the
Registration Statement (if the Effective Time is subsequent to the execution of
this Agreement) and of any amendment or supplement to the Registration Statement
or the Prospectus and of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the institution or
threat of any proceeding for that purpose and the Seller will use its best
efforts to prevent the issuance of any such stop order and to obtain as soon as
possible the lifting of any issued stop order.
(c) If, at any time when a prospectus relating to the
Certificates is required to be delivered under the Act, any event occurs as a
result of which the Prospectus as then amended or supplemented would contain an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if it is necessary at any time to amend or
supplement the Prospectus to comply with the Act, the Seller promptly will
prepare and file, or cause to be prepared and filed, with the Commission an
amendment or supplement which will correct such statement or omission, or an
amendment or supplement which will effect such compliance. Neither the consent
of the Representative to, nor the delivery of the several Underwriters of, any
such amendment or supplement shall constitute a waiver of any of the conditions
set forth in Section 6.
(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Seller will cause the Trust to make
generally available to the holders of the Certificates an earnings statement of
the Trust covering a period of at least twelve months beginning after the
Effective Date which will satisfy the provisions of Section 11(a) of the Act
-5-
<PAGE> 6
and Rule 158 of the applicable Rules and Regulations thereunder. For the purpose
of the preceding sentence, "Availability Date" means the 45th day after the end
of the fourth fiscal quarter following the fiscal quarter that includes the
Effective Date, except that, if such fourth fiscal quarter is the last quarter
of the Trust's fiscal year, "Availability Date" means the 90th day after the end
of such fourth fiscal quarter.
(e) The Seller will furnish to the Representative copies of
the Registration Statement (two of which will be signed and will include all
exhibits), each related preliminary prospectus, the Prospectus and all
amendments and supplements to such documents, in each case as soon as available
and in such quantities as the Representative reasonably requests.
(f) The Seller will arrange for the qualification of the
Certificates for sale under the laws of the States of [New York and California]
and will continue such qualifications in effect so long as required for the
distribution.
(g) For a period from the date of this Agreement until the
retirement of the Certificates, or until such time as the several Underwriters
shall cease to maintain a secondary market in the Certificates, whichever occurs
first, the Seller will deliver to the Representative the annual statements of
compliance and the annual independent certified public accountants' reports
furnished to the Indenture Trustee or the Eligible Lender Trustee pursuant to
the Sale and Servicing Agreement, as soon as such statements and reports are
furnished to the Indenture Trustee or the Eligible Lender Trustee.
(h) So long as any of the Certificates is outstanding, the
Seller will furnish to the Representative (i) as soon as practicable after the
end of the fiscal year all documents required to be distributed to the holders
of the Certificates or filed with the Commission on behalf of the Trust pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
order of the Commission thereunder and (ii) from time to time, any other
information concerning the Seller as the Representative may reasonably request
only insofar as such information reasonably relates to the Registration
Statement or the transactions contemplated by the Basic Documents.
(i) On or before the Closing Date, the Seller shall mark its
accounting and other records, if any, relating to the Initial Financed Student
Loans and shall cause each Servicer to mark the computer records of such
Servicer relating to the Initial Financed Student Loans to show the absolute
ownership by the Eligible Lender Trustee on behalf of the Trust of the Initial
Financed Student Loans, and from and after the Closing Date neither the Seller
nor any Servicer shall take any action inconsistent with the ownership by the
Eligible Lender Trustee on behalf of the Trust of such Initial Financed Student
Loans, other than as permitted by the Sale and Servicing Agreement.
(j) To the extent, if any, that the rating provided with
respect to the Certificates by the rating agency or agencies that initially rate
the Certificates is conditional upon the furnishing of documents or the taking
of any other actions by the Seller agreed upon on or prior to the Closing Date,
the Seller shall furnish such documents and take any such other
-6-
<PAGE> 7
actions. A copy of any such document shall be provided to the Representative at
the time it is delivered to the rating agencies.
(k) For the period beginning on the date of this Agreement and
ending 90 days after the Closing Date, neither the Seller nor any trust
originated, directly or indirectly, by the Seller will, without the prior
written consent of the Representative, offer to sell or sell notes (other than
the Notes) collateralized by, or certificates (other than the Certificates)
evidencing an ownership interest in, student loans; PROVIDED, HOWEVER, that this
shall not be construed to prevent the sale of student loans by the Seller.
(l) The Seller will apply the net proceeds of the offering and
the sale of the Certificates and the Notes that it receives in the manner set
forth in the Prospectus under the caption "Use of Proceeds."
(m) The Seller will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the printing
and filing of the documents (including the Registration Statement and
Prospectus) (ii) the preparation, issuance and delivery of the Certificates to
the Representative, (iii) the fees and disbursements of the Seller's counsel and
accountants, (iv) the qualification of the Certificates under securities laws in
accordance with the provisions of Section 5(f), including filing fees and the
fees and disbursements of counsel for the Representative in connection therewith
and in connection with the preparation of any blue sky or legal investment
survey, if any is requested, (v) the printing and delivery to the Representative
of copies of the Registration Statement as originally filed and of each
amendment thereto, (vi) the printing and delivery to the Representative of
copies of any blue sky or legal investment survey prepared in connection with
the Certificates, (vii) any fees charged by rating agencies for the rating of
the Certificates, (viii) the fees and expenses, if any, incurred with respect to
any filing with the National Association of Securities Dealers, Inc. and (ix)
the fees and expenses of Thompson Hine & Flory LLP in its role as counsel to the
Trust incurred as a result of providing the opinions required by Section 6(h)
hereof.
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Certificates
will be subject to the accuracy of the representations and warranties on the
part of the Seller herein, to the accuracy of the written statements of officers
of the Seller made pursuant to the provisions of this Section, to the
performance by the Seller of its obligations hereunder and to the following
additional conditions precedent:
(a) If the Effective Time is not prior to the execution and
delivery of this Agreement, the Effective Time shall have occurred not later
than 6:00 p.m., New York City time, on the date of this Agreement or such later
time or date as shall have been consented to by the Representative.
(b) If the Effective Time is prior to the execution and
delivery of this Agreement, the Prospectus and any supplements thereto shall
have been filed with the Commission in accordance with the Rules and Regulations
and Section 5(a) hereof. Prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have
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been issued and no proceedings for that purpose shall have been instituted or,
to the knowledge of the Seller or the Representative, shall be contemplated by
the Commission.
(c) The Representative shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time is prior to the execution
and delivery of this Agreement, shall be on or prior to the date of this
Agreement or, if the Effective Time is subsequent to the execution and delivery
of this Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the Registration Statement to be filed shortly prior
to the Effective Time), of (i) Ernst & Young LLP on behalf of the Seller and
(ii) KPMG Peat Marwick LLP with respect to certain agreed-upon procedures with
respect to the Programs, in each case confirming that such accountants are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder, and substantially in the form of the
drafts to which the Representative has previously agreed and otherwise in form
and substance reasonably satisfactory to the Representative and its counsel.
(d) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any development
involving a prospective change, in or affecting particularly the business or
properties of the Trust, the Seller, a Servicer or KeyCorp which, in the
judgment of the Representative, materially impairs the investment quality of the
Certificates or makes it impractical or inadvisable to market the Certificates;
(ii) any downgrading in the rating of any debt securities of the Seller or
KeyCorp by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Act), or any public announcement
that any such organization has under surveillance or review its rating of any
debt securities of the Seller or KeyCorp (other than an announcement with
positive implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any suspension or limitation of trading in
securities generally on the New York Stock Exchange, or any setting of minimum
prices for trading on such exchange; (iv) any suspension of trading of any
securities of the Seller or KeyCorp on any exchange or in the over-the-counter
market; (v) any banking moratorium declared by Federal or New York authorities;
or (vi) any outbreak or escalation of hostilities involving the United States or
the declaration by the United States of a national emergency or war, if the
effect of any such event specified in this clause (vi) in the judgment of the
Representative makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Certificates on the terms and in the manner
contemplated in the Prospectus.
(e) The Representative shall have received an opinion of
Forrest F. Stanley, Esq., General Counsel of Key Bank USA, National Association
("Key Bank"), as counsel for Key Bank, as the Seller and the Administrator,
dated the Closing Date, in the form attached hereto as Exhibit A, or as is
otherwise satisfactory in form and substance to the Representative and its
counsel.
(f) The Representative shall have received an opinion of
Thompson Hine & Flory LLP, counsel to the Seller, dated the Closing Date, in the
form attached hereto as Exhibit B, or as is otherwise satisfactory in form and
substance to the Representative and its counsel.
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<PAGE> 9
(g) The Representative shall have received an opinion of
Kirkpatrick & Lockhart Flory LLP, counsel to the Seller, dated the Closing Date
and satisfactory in form and substance to the Representative and its counsel, to
the effect that the statements in the Prospectus under the headings "Summary of
Terms--Tax Considerations" and "Material Tax Consequences--State and Local
Income and Franchise Tax Consequences with Respect to the Certificates"
accurately describe the material Pennsylvania tax consequences to holders of the
Certificates.
(h) The Representative shall have received an opinion
addressed to the several Underwriters of Thompson Hine & Flory LLP, in its
capacity as Federal tax and ERISA counsel for the Trust, to the effect that the
statements in the Prospectus under the headings "Summary of Terms--Tax
Considerations" and "Material Tax Consequences--Material Federal Tax
Consequences with Respect to the Certificates" accurately describe the material
Federal income tax consequences to holders of the Certificates, and the
statements in the Prospectus under the headings "Summary of Terms--ERISA
Considerations" and "ERISA Considerations--The Certificates," to the extent that
they constitute statements of matters of law or legal conclusions with respect
thereto, have been prepared or reviewed by such counsel and accurately describe
the material consequences to holders of the Certificates under ERISA. Thompson
Hine & Flory LLP, in its capacity as special counsel to the Trust, shall have
delivered an opinion with respect to the characterization of the transfer of the
Initial Financed Student Loans.
(i) The Representative shall have received an opinion
addressed to the several Underwriters of Stroock & Stroock & Lavan LLP, in its
capacity as special counsel to the several Underwriters, dated the Closing Date,
with respect to the validity of the Certificates and the Notes and such other
related matters as the Representative shall reasonably require and the Seller
shall have furnished or caused to be furnished to such counsel such documents as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
(j) The Representative shall have received an opinion of Dean
Blakey & Moskowitz, special student loan counsel to the several Underwriters
and, in the case of clause (iii) below, special student loan counsel to the
Eligible Lender Trustee, dated the Closing Date, satisfactory in form and
substance to the Representative, to the effect that:
(i) the agreements implementing the Program, (including the
Coordination Agreements (as such term is defined in the Supplemental
Sale and Servicing Agreement)) and the Basic Documents, and the
transactions contemplated by the Basic Documents, conform in all
material respects to the applicable requirements of the Higher
Education Act, and that, upon the due authorization, execution and
delivery of the Basic Documents and the consummation of such
transactions, the Financed Federal Loans, legal title to which will be
held by the Eligible Lender Trustee on behalf of the Trust, will
qualify, subject to compliance with all applicable origination and
servicing requirements, for all applicable federal assistance payments,
including federal reinsurance and federal interest subsidies and
special allowance payments;
(ii) such counsel has examined the Registration Statement and
the Prospectus, and nothing has come to such counsel's attention that
would lead such counsel to believe that, solely with respect to the
Higher Education Act and the student loan business, the
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<PAGE> 10
Registration Statement or the Prospectus or any amendment or supplement
thereto as of the respective dates thereof or on the Closing Date
contains an untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein not
misleading; and
(iii) the Eligible Lender Trustee is an "eligible lender" as
such term is defined in Section 435(d) of the Higher Education Act for
purposes of holding legal title to the Financed Federal Loans.
(k) The Representative shall have received an opinion of
counsel to PHEAA, dated the Closing Date and satisfactory in form and substance
to the Representative and its counsel, to the effect that:
(i) PHEAA has been duly organized and is validly existing as
an agency of the Commonwealth of Pennsylvania in good standing under
the laws thereof with full power and authority (corporate and other) to
own its properties and conduct its business, as presently conducted by
it, and to enter into and perform its obligations under the Sale and
Servicing Agreement, the Supplemental Sale and Servicing Agreement and
the Guarantee Agreement (and the agreements with the Department under
Section 428 of the Higher Education Act to the extent relevant to
PHEAA's obligations under such Guarantee Agreement) to which it is a
party, and had at all relevant times, and now has, the power, authority
and legal right to service the Financed Student Loans, to guarantee the
Financed Federal Loans covered by such Guarantee Agreement and to
receive, subject to compliance with all applicable conditions,
restrictions and limitations of the Higher Education Act, reinsurance
payments from the Department with respect to claims paid by it on such
Financed Federal Loans.
(ii) PHEAA is duly qualified to do business and is in good
standing, and has obtained all necessary licenses and approvals in each
jurisdiction in which failure to qualify or to obtain such license or
approval would render any Financed Student Loan or PHEAA's obligation
under its Guarantee Agreement unenforceable by or on behalf of the
Trust.
(iii) Each of the Sale and Servicing Agreement, the
Supplemental Sale and Servicing Agreement and the Guarantee Agreement
(and the agreements with the Department under Section 428 of the Higher
Education Act to the extent relevant to PHEAA's obligations under such
Guarantee Agreement) to which PHEAA is a party has been duly
authorized, executed and delivered by PHEAA and is the legal, valid and
binding obligation of PHEAA enforceable against PHEAA in accordance
with its terms, notwithstanding the existence of any doctrine of
sovereign immunity except (x) the enforceability thereof may be subject
to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and (y)
the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought.
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<PAGE> 11
(iv) Neither the execution and delivery by PHEAA of the Sale
and Servicing Agreement, the Supplemental Sale and Servicing Agreement
or the Guarantee Agreement to which it is a party, nor the consummation
by PHEAA of the transactions contemplated therein nor the fulfillment
of the terms thereof by PHEAA will conflict with, result in a breach,
violation or acceleration of, or constitute a default under, any term
or provision of the certificate of incorporation or by-laws of PHEAA or
of any indenture or other agreement or instrument to which PHEAA is a
party or by which PHEAA is bound, or result in a violation of or
contravene the terms of any statute, order or regulation applicable to
PHEAA of any court, regulatory body, administrative agency or
governmental body having jurisdiction over PHEAA.
(v) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge after due inquiry,
threatened against PHEAA before or by any governmental authority that
might materially and adversely affect the performance by PHEAA of its
obligations under, or the validity or enforceability of, the Sale and
Servicing Agreement, the Supplemental Sale and Servicing Agreement or
the Guarantee Agreement (or the agreements with the Department under
Section 428 of the Higher Education Act to the extent relevant to
PHEAA's obligations under such Guarantee Agreement) to which it is a
party.
(vi) Nothing has come to such counsel's attention that would
lead such counsel to believe that the representations and warranties of
PHEAA contained in the Sale and Servicing Agreement and the
Supplemental Sale and Servicing Agreement are other than as stated
therein.
(l) The Representative shall have received an opinion of counsel to
EFS, dated the Closing Date and satisfactory in form and substance to the
Representative and its counsel, to the effect that:
(i) EFS has been duly organized and is validly existing as
_________________ of Indiana in good standing under the laws thereof
with full power and authority (corporate and other) to own its
properties and conduct its business, as presently conducted by it, and
to enter into and perform its obligations under the Sale and Servicing
Agreement and the Supplemental Sale and Servicing Agreement, and had at
all relevant times, and now has, the power, authority and legal right
to service the Financed Student Loans.
(ii) Each of the Sale and Servicing Agreement and the
Supplemental Sale and Servicing Agreement has been duly authorized,
executed and delivered by EFS and is the legal, valid and binding
obligation of EFS enforceable against EFS in accordance with its terms,
except (x) the enforceability thereof may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and (y) the remedy of
specific performance and injunctive and other forms of equitable relief
may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
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<PAGE> 12
(iii) Neither the execution and delivery of EFS of the Sale
and Servicing Agreement or the Supplemental Sale and Servicing
Agreement, nor the consummation by EFS of the transactions contemplated
therein nor the fulfillment of the terms thereof by EFS will conflict
with, result in a breach, violation or acceleration of, or constitute a
default under, any term or provision of the certificate of
incorporation or by-laws of EFS or of any indenture or other agreement
or instrument to which EFS is a party or by which EFS is bound, or
result in a violation of or contravene the terms of any statute, order
or regulation applicable to EFS of any court, regulatory body,
administrative agency or governmental body having jurisdiction over
EFS.
(iv) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge after due inquiry,
threatened against EFS before or by any governmental authority that
might materially and adversely affect the performance by EFS of its
obligations under, or the validity or enforceability of, the Sale and
Servicing Agreement or the Supplemental Sale and Servicing Agreement.
(v) Nothing has come to such counsel's attention that would
lead such counsel to believe that the representations and warranties of
EFS contained in the Sale and Servicing Agreement and the Supplemental
Sale and Servicing Agreement are other than as stated therein.
(m) The Representative shall have received an opinion of
counsel to the Massachusetts Higher Education Assistance Corporation, now doing
business as American Student Assistance, a Massachusetts non-profit corporation
("ASA"), dated the Closing Date and satisfactory in form and substance to the
Representative and its counsel, to the effect that:
(i) ASA has been duly incorporated and is validly existing as
a non-profit corporation in good standing under the laws of the
Commonwealth of Massachusetts with full power and authority (corporate
and other) to own its properties and conduct its business, as presently
conducted by it, and to enter into and perform its obligations under
the Guarantee Agreement (and the agreements with the Department under
Section 428 of the Higher Education Act to the extent relevant to ASA's
obligations under such Guarantee Agreement) to which it is a party, and
had at all relevant times, and now has, the power, authority and legal
right to guarantee the Financed Federal Loans covered by such Guarantee
Agreement and to receive, subject to compliance with all applicable
conditions, restrictions and limitations of the Higher Education Act,
reinsurance payments from the Department with respect to claims paid by
it on such Financed Federal Loans.
(ii) ASA is duly qualified to do business and is in good
standing, and has obtained all necessary licenses and approvals in each
jurisdiction in which failure to qualify or to obtain such license or
approval would render ASA's obligation under its Guarantee Agreement to
guarantee the Financed Federal Loans covered thereby unenforceable by
or on behalf of the Trust.
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<PAGE> 13
(iii) The Guarantee Agreement (and the agreements with the
Department under Section 428 of the Higher Education Act to the extent
relevant to ASA's obligations under such Guarantee Agreement) to which
ASA is a party has been duly authorized, executed and delivered by ASA
and is the legal, valid and binding obligation of ASA enforceable
against ASA in accordance with its terms, except (x) the enforceability
thereof may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and (y) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(iv) Neither the execution and delivery by ASA of the
Guarantee Agreement to which it is a party, nor the consummation by ASA
of the transactions contemplated therein nor the fulfillment of the
terms thereof by ASA will conflict with, result in a breach, violation
or acceleration of, or constitute a default under, any term or
provision of the certificate of incorporation or by-laws of ASA or of
any indenture or other agreement or instrument to which ASA is a party
or by which ASA is bound, or result in a violation of or contravene the
terms of any statute, order or regulation applicable to ASA of any
court, regulatory body, administrative agency or governmental body
having jurisdiction over ASA.
(v) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge after due inquiry,
threatened against ASA before or by any governmental authority that
might materially and adversely affect the performance by ASA of its
obligations under, or the validity or enforceability of, the Guarantee
Agreement (or the agreements with the Department under Section 428 of
the Higher Education Act to the extent relevant to ASA's obligations
under such Guarantee Agreement) to which it is a party.
(n) The Representative shall have received an opinion of
counsel to the Nebraska Student Loan Program ("NSLP"), dated the Closing Date
and satisfactory in form and substance to the Representative and its counsel, to
the effect that:
(i) NSLP has been duly incorporated and is validly existing as
a non-profit corporation in good standing under the laws of the State
of [Nebraska] with full power and authority (corporate and other) to
own its properties and conduct its business, as presently conducted by
it, and to enter into and perform its obligations under the Guarantee
Agreement (and the agreements with the Department under Section 428 of
the Higher Education Act to the extent relevant to NSLP's obligations
under such Guarantee Agreement) to which it is a party, and had at all
relevant times, and now has, the power, authority and legal right to
guarantee the Financed Federal Loans covered by such Guarantee
Agreement and to receive, subject to compliance with all applicable
conditions, restrictions and limitations of the Higher Education Act,
reinsurance payments from the Department with respect to claims paid by
it on such Financed Federal Loans.
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<PAGE> 14
(ii) NSLP is duly qualified to do business and is in good
standing, and has obtained all necessary licenses and approvals in each
jurisdiction in which failure to qualify or to obtain such license or
approval would render NSLP's obligation under its Guarantee Agreement
to guarantee the Financed Federal Loans covered thereby unenforceable
by or on behalf of the Trust.
(iii) The Guarantee Agreement (and the agreements with the
Department under Section 428 of the Higher Education Act to the extent
relevant to NSLP's obligations under such Guarantee Agreement) to which
NSLP is a party has been duly authorized, executed and delivered by
NSLP and is the legal, valid and binding obligation of NSLP enforceable
against NSLP in accordance with its terms, except (x) the
enforceability thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and (y) the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(iv) Neither the execution and delivery by NSLP of the
Guarantee Agreement to which it is a party, nor the consummation by
NSLP of the transactions contemplated therein nor the fulfillment of
the terms thereof by NSLP will conflict with, result in a breach,
violation or acceleration of, or constitute a default under, any term
or provision of the certificate of incorporation or by-laws of NSLP or
of any indenture or other agreement or instrument to which NSLP is a
party or by which NSLP is bound, or result in a violation of or
contravene the terms of any statute, order or regulation applicable to
NSLP of any court, regulatory body, administrative agency or
governmental body having jurisdiction over NSLP.
(v) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge after due inquiry,
threatened against NSLP before or by any governmental authority that
might materially and adversely affect the performance by NSLP of its
obligations under, or the validity or enforceability of, the Guarantee
Agreement (or the agreements with the Department under Section 428 of
the Higher Education Act to the extent relevant to NSLP's obligations
under such Guarantee Agreement) to which it is a party.
(o) The Representative shall have received an opinion of
counsel to the Educational Credit Management Corporation ("ECMC"), dated the
Closing Date and satisfactory in form and substance to the Representative and
its counsel, to the effect that:
(i) ECMC has been duly incorporated and is validly existing as
a non-profit corporation in good standing under the laws of the State
of ___________ with full power and authority (corporate and other) to
own its properties and conduct its business, as presently conducted by
it, and to enter into and perform its obligations under the Guarantee
Agreement (and the agreements with the Department under Section 428 of
the Higher Education Act to the extent relevant to ECMC's obligations
under such Guarantee Agreement) to which it is a party, and had at all
relevant times, and now has, the power, authority and legal right to
guarantee the Financed Federal Loans covered by such
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<PAGE> 15
Guarantee Agreement and to receive, subject to compliance with all
applicable conditions, restrictions and limitations of the Higher
Education Act, reinsurance payments from the Department with respect to
claims paid by it on such Financed Federal Loans.
(ii) ECMC is duly qualified to do business and is in good
standing, and has obtained all necessary licenses and approvals in each
jurisdiction in which failure to qualify or to obtain such license or
approval would render ECMC's obligation under its Guarantee Agreement
to guarantee the Financed Federal Loans covered thereby unenforceable
by or on behalf of the Trust.
(iii) The Guarantee Agreement (and the agreements with the
Department under Section 428 of the Higher Education Act to the extent
relevant to ECMC's obligations under such Guarantee Agreement) to which
ECMC is a party has been duly authorized, executed and delivered by
ECMC and is the legal, valid and binding obligation of ECMC enforceable
against ECMC in accordance with its terms, except (x) the
enforceability thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and (y) the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(iv) Neither the execution and delivery by ECMC of the
Guarantee Agreement to which it is a party, nor the consummation by
ECMC of the transactions contemplated therein nor the fulfillment of
the terms thereof by ECMC will conflict with, result in a breach,
violation or acceleration of, or constitute a default under, any term
or provision of the certificate of incorporation or by-laws of ECMC or
of any indenture or other agreement or instrument to which ECMC is a
party or by which ECMC is bound, or result in a violation of or
contravene the terms of any statute, order or regulation applicable to
ECMC of any court, regulatory body, administrative agency or
governmental body having jurisdiction over ECMC.
(v) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge after due inquiry,
threatened against ECMC before or by any governmental authority that
might materially and adversely affect the performance by ECMC of its
obligations under, or the validity or enforceability of, the Guarantee
Agreement (or the agreements with the Department under Section 428 of
the Higher Education Act to the extent relevant to ECMC's obligations
under such Guarantee Agreement) to which it is a party.
(p) The Representative shall have received an opinion of
counsel to __________, counsel to The Education Resources Institute, Inc., a
Massachusetts non-profit corporation ("TERI"), dated the Closing Date and
satisfactory in form and substance to the Representative and its counsel, to the
effect that:
(i) TERI has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the Commonwealth of
Massachusetts with full power and authority (corporate and other) to
own its properties and conduct its business, as
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<PAGE> 16
presently conducted by it, and to enter into and perform its
obligations under the Guarantee Agreement to which it is a party, and
had at all relevant times, and now has, the power, authority and legal
right to guarantee the Financed Private Loans covered by such Guarantee
Agreement.
(ii) TERI is duly qualified to do business and is in good
standing, and has obtained all necessary licenses and approvals in each
jurisdiction in which failure to qualify or to obtain such license or
approval would render TERI's obligation under its Guarantee Agreement
to guarantee the Financed Private Loans unenforceable by or on behalf
of the Trust.
(iii) The Guarantee Agreement to which TERI is a party has
been duly authorized, executed and delivered by TERI and is the legal,
valid and binding obligation of TERI enforceable against TERI in
accordance with its terms, except (x) the enforceability thereof may be
subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
and (y) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought.
(iv) Neither the execution and delivery by TERI of the
Guarantee Agreement to which it is a party, nor the consummation by
TERI of the transactions contemplated therein nor the fulfillment of
the terms thereof by TERI will conflict with, result in a breach,
violation or acceleration of, or constitute a default under, any term
or provision of the certificate of incorporation or by-laws of TERI or
of any indenture or other agreement or instrument to which TERI is a
party or by which TERI is bound, or result in a violation of or
contravene the terms of any statute, order or regulation applicable to
TERI of any court, regulatory body, administrative agency or
governmental body having jurisdiction over TERI.
(v) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge after due inquiry,
threatened against TERI before or by any governmental authority that
might materially and adversely affect the performance by TERI of its
obligations under, or the validity or enforceability of, the Guarantee
Agreement to which it is a party.
(q) The Representative shall have received an opinion of,
counsel to HEMAR Insurance Company of America, a subsidiary of Sallie Mae, Inc.
("HICA"), dated the Closing Date and satisfactory in form and substance to the
Representative and its counsel, to the effect that:
(i) HICA has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the Commonwealth of
_____________ with full power and authority (corporate and other) to
own its properties and conduct its business, as presently conducted by
it, and to enter into and perform its obligations under the Guarantee
Agreement to which it is a party, and had at all relevant times, and
now has,
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<PAGE> 17
the power, authority and legal right to guarantee the Financed Private
Loans covered by such Guarantee Agreement.
(ii) HICA is duly qualified to do business and is in good
standing, and has obtained all necessary licenses and approvals in each
jurisdiction in which failure to qualify or to obtain such license or
approval would render HICA's obligation under its Guarantee Agreement
to guarantee the Financed Private Loans unenforceable by or on behalf
of the Trust.
(iii) The Guarantee Agreement to which HICA is a party has
been duly authorized, executed and delivered by HICA and is the legal,
valid and binding obligation of HICA enforceable against HICA in
accordance with its terms, except (x) the enforceability thereof may be
subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
and (y) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought.
(iv) Neither the execution and delivery by HICA of the
Guarantee Agreement to which it is a party, nor the consummation by
HICA of the transactions contemplated therein nor the fulfillment of
the terms thereof by HICA will conflict with, result in a breach,
violation or acceleration of, or constitute a default under, any term
or provision of the certificate of incorporation or by-laws of HICA or
of any indenture or other agreement or instrument to which HICA is a
party or by which HICA is bound, or result in a violation of or
contravene the terms of any statute, order or regulation applicable to
HICA of any court, regulatory body, administrative agency or
governmental body having jurisdiction over HICA.
(v) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge after due inquiry,
threatened against HICA before or by any governmental authority that
might materially and adversely affect the performance by HICA of its
obligations under, or the validity or enforceability of, the Guarantee
Agreement to which it is a party.
(r) The Representative shall have received an opinion of
counsel to the Eligible Lender Trustee, dated the Closing Date and satisfactory
in form and substance to the Representative and its counsel, to the effect that:
(i) The Eligible Lender Trustee is a national banking
association duly incorporated or organized and validly existing under
the laws of the United States.
(ii) The Eligible Lender Trustee has the full corporate trust
power to accept the office of eligible lender trustee under the Trust
Agreement and to enter into and perform its obligations under the Trust
Agreement, the Sale and Servicing Agreement, the Supplemental Sale and
Servicing Agreement and, on behalf of the Trust, under the
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<PAGE> 18
Indenture, the Sale and Servicing Agreement, the Supplemental Sale and
Servicing Agreement, the Administration Agreement and the Guarantee
Agreements.
(iii) The execution and delivery of the Trust Agreement, the
Sale and Servicing Agreement and the Supplemental Sale and Servicing
Agreement and, on behalf of the Trust, of the Indenture, the Sale and
Servicing Agreement, the Supplemental Sale and Servicing Agreement, the
Administration Agreement and the Guarantee Agreements, and the
performance by the Eligible Lender Trustee of its obligations under the
Trust Agreement, the Indenture, the Sale and Servicing Agreement, the
Supplemental Sale and Servicing Agreement, the Administration Agreement
and the Guarantee Agreements have been duly authorized by all necessary
action of the Eligible Lender Trustee and each has been duly executed
and delivered by the Eligible Lender Trustee.
(iv) The Trust Agreement, the Sale and Servicing Agreement,
the Supplemental Sale and Servicing Agreement and the Administration
Agreement constitute valid and binding obligations of the Eligible
Lender Trustee enforceable against the Eligible Lender Trustee in
accordance with their terms.
(v) The execution and delivery by the Eligible Lender Trustee
of the Trust Agreement, the Sale and Servicing Agreement and the
Supplemental Sale and Servicing Agreement and, on behalf of the Trust,
of the Indenture, the Sale and Servicing Agreement, the Supplemental
Sale and Servicing Agreement, the Administration Agreement and the
Guarantee Agreements do not require any consent, approval or
authorization of, or any registration or filing with, any applicable
governmental authority.
(vi) Each of the Certificates has been duly executed and
delivered by the Eligible Lender Trustee, as eligible lender trustee
and authenticating agent. Each of the Notes has been duly executed and
delivered by the Eligible Lender Trustee, on behalf of the Trust.
(vii) Neither the consummation by the Eligible Lender Trustee
of the transactions contemplated in the Sale and Servicing Agreement,
the Supplemental Sale and Servicing Agreement, the Indenture, the Trust
Agreement or the Administration Agreement nor the fulfillment of the
terms thereof by the Eligible Lender Trustee will conflict with, result
in a breach or violation of, or constitute a default under any law or
the charter, by-laws or other organizational documents of the Eligible
Lender Trustee or the terms of any indenture or other agreement or
instrument known to such counsel and to which the Eligible Lender
Trustee or any of its subsidiaries is a party or is bound or any
judgment, order or decree known to such counsel to be applicable to the
Eligible Lender Trustee or any of its subsidiaries of any court,
regulatory body, administrative agency, governmental body or arbitrator
having jurisdiction over the Eligible Lender Trustee or any of its
subsidiaries.
(viii) There are no actions, suits or proceedings pending or,
to the best of such counsel's knowledge after due inquiry, threatened
against the Eligible Lender Trustee (as eligible lender trustee under
the Trust Agreement or in its individual capacity) before or
-18-
<PAGE> 19
by any governmental authority that might materially and adversely
affect the performance by the Eligible Lender Trustee of its
obligations under, or the validity or enforceability of, the Trust
Agreement, the Sale and Servicing Agreement, the Supplemental Sale and
Servicing Agreement.
(ix) The execution, delivery and performance by the Eligible
Lender Trustee of the Sale and Servicing Agreement, the Supplemental
Sale and Servicing Agreement, the Indenture, the Trust Agreement, the
Administration Agreement or any Guarantee Agreement will not subject
any of the property or assets of the Trust or any portion thereof, to
any lien created by or arising under the Eligible Lender Trustee that
are unrelated to the transactions contemplated in such agreements.
(s) The Representative shall have received certificates dated
the Closing Date of any two of the Chairman of the Board, the President, any
Executive Vice President, Senior Vice President or Vice President, the
Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, the
principal financial officer or the principal accounting officer of each the
Seller and the Servicer in which such officers shall state that, to the best of
their knowledge after reasonable investigation, (i) the representations and
warranties of the Seller or the Servicer, as the case may be, contained in the
Trust Agreement, the Sale and Servicing Agreement and the Supplemental Sale and
Servicing Agreement, as applicable, are true and correct in all material
respects, that the Seller or the Servicer, as the case may be, has complied with
all agreements and satisfied all conditions on its part to be performed or
satisfied under such agreements at or prior to the Closing Date, in the case of
the certificate from the Seller only, that no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are contemplated by the Commission, and
(ii) since June 30, 1998, except as may be disclosed in the Prospectus or in
such certificate, no material adverse change, or any development involving a
prospective material adverse change, in or affecting particularly the business
or properties of the Trust, the Seller or the Servicer, as applicable, has
occurred.
(t) The Representative shall have received evidence
satisfactory to it that, on or before the Closing Date, UCC-1 financing
statements have been or are being filed in the office of the Secretary of State
of the States of Ohio and New York and the Commonwealth of Pennsylvania
reflecting the transfer of the interest of the Seller in the Financed Student
Loans to the Eligible Lender Trustee on behalf of the Trust and the proceeds
thereof to the Trust and the grant of the security interest by the Trust in the
Financed Student Loans and the proceeds thereof to the Indenture Trustee.
(u) The Certificates shall be rated in one of the four highest
investment rating categories by at least two nationally recognized agencies and
no such rating agency shall have placed the Certificates under surveillance or
review with possible negative implications.
(v) The issuance of the Notes and the Certificates shall not
have resulted in a reduction or withdrawal by any Rating Agency of the current
rating of any outstanding securities issued or originated by the Seller or any
of its affiliates.
-19-
<PAGE> 20
(w) On the Closing Date, $_________ aggregate principal amount
of the Class A-1 Notes and $___________ aggregate principal amount of the Class
A-2 Notes shall have been issued and sold.
(x) TERI shall have furnished to the Representative a
certificate of TERI, signed by the President or any Executive Vice President,
dated the Closing Date, to the effect that the signer of such certificate has
carefully examined the Prospectus (excluding any documents incorporated by
reference therein) and this Agreement and that, to the best of his knowledge any
information with respect to TERI in the Prospectus, as of its date, did not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(y) PHEAA shall have furnished to the Representative a
certificate of PHEAA, signed by the President or any Senior Vice President,
dated the Closing Date, to the effect that the signer of such certificate has
carefully examined the Prospectus (excluding any documents incorporated by
reference therein) and this Agreement and that, to the best of his knowledge any
information with respect to PHEAA in the Prospectus, as of its date, did not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(z) ASA shall have furnished to the Purchasers a certificate
of ASA, signed by the President or any Senior Vice President, dated the Closing
Date, to the effect that the signer of such certificate has carefully examined
the Prospectus (excluding any documents incorporated by reference therein) and
this Agreement and that, to the best of his knowledge any information with
respect to ASA in the Prospectus, as of its date, did not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(aa) EFS shall have furnished to the Representative a
certificate of EFS, signed by the President or any Executive Vice President,
dated the Closing Date, to the effect that the signer of such certificate has
carefully examined the Prospectus (excluding any documents incorporated by
reference therein) and this Agreement and that, to the best of his knowledge any
information with respect to EFS in the Prospectus, as of its date, did not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(bb) NSLP shall have furnished to the Representative a
certificate of NSLP, signed by the President or any Senior Vice President, dated
the Closing Date, to the effect that the signer of such certificate has
carefully examined the Prospectus (excluding any documents incorporated by
reference therein) and this Agreement and that, to the best of his knowledge any
information with respect to NSLP in the Prospectus, as of its date, did not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
-20-
<PAGE> 21
(cc) ECMC shall have furnished to the Purchasers a certificate
of ECMC, signed by the President or any Senior Vice President, dated the Closing
Date, to the effect that the signer of such certificate has carefully examined
the Prospectus (excluding any documents incorporated by reference therein) and
this Agreement and that, to the best of his knowledge any information with
respect to ECMC in the Prospectus, as of its date, did not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(dd) HICA shall have furnished to the Representative a
certificate of HEMAR, signed by the President or any Senior Vice President,
dated the Closing Date, to the effect that the signer of such certificate has
carefully examined the Prospectus (excluding any documents incorporated by
reference therein) and this Agreement and that, to the best of his knowledge any
information with respect to HICA in the Prospectus, as of its date, did not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
The Seller will provide or cause to be provided to the Representative
such conformed copies of such of the foregoing opinions, certificates, letters
and documents as the Representative reasonably requests.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Seller will
indemnify and hold each Underwriter harmless against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, the Prospectus or any amendment or supplement
thereto or any related preliminary prospectus, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
PROVIDED, HOWEVER, that the Seller will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement in or omission or alleged
omission from any of such documents in reliance upon and in conformity with
written information furnished to the Seller by any Underwriter through the
Representative specifically for use therein.
(b) Each Underwriter will severally and not jointly indemnify
and hold harmless the Seller against any losses, claims, damages or liabilities
to which the Seller may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, the Prospectus or
any amendment or supplement thereto or any related preliminary prospectus, or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission
-21-
<PAGE> 22
or alleged omission was made in reliance upon and in conformity with written
information relating to such Underwriter furnished to the Seller by such
Underwriter through the Representative specifically for use therein, and will
reimburse any legal or other expenses reasonably incurred by the Seller in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under subsection (a) or (b) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a) or (b) above. In case any such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified party, be counsel to the indemnifying party), and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof and approval by the indemnified party of the
counsel appointed by the indemnifying party, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. In no event shall
the indemnifying party be liable for fees and expenses for more than one counsel
separate from their own counsel for all indemnified parties in connection with
any one action or related actions in the same jurisdiction arising out of the
same general allegations or circumstances unless any such indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to or in
conflict with those available to the other indemnified parties and in the
judgment of such counsel it is advisable for such indemnified party to employ
separate counsel. An indemnifying party will not, without the prior written
consent of the indemnified party, settle or compromise or consent to the entry
of any judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
(i) includes an unconditional release of each indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnifying party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Seller on the one hand and the Underwriters on the other from the offering
of the Notes or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Seller on the one hand and the Underwriters on the other in
connection with
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<PAGE> 23
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
benefits received by the Seller on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Seller bear to the
total underwriting discounts and commissions received by the Underwriters. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Seller or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this subsection (d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities referred to in the first sentence
of this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any action or claim which is the subject of this subsection (d).
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Certificates underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, except as may be
provided in any agreement among the Underwriters relating to the offering of the
Certificates. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The obligations
of the Underwriters in this subsection (d) to contribute are several in
proportion their respective underwriting obligations and not joint.
(e) The obligations of the Seller under this Section shall be
in addition to any liability which the Seller may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
any Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Seller, to each officer of the Seller
who has signed the Registration Statement and to each person, if any, who
controls the Seller within the meaning of the Act.
8. SURVIVAL OF REPRESENTATIONS AND OBLIGATIONS. The respective
indemnities, agreements, representations, warranties and other statements of the
Seller or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement or contained in certificates of officers of the
Seller submitted pursuant hereto shall remain operative and in full force and
effect, regardless of any investigation or statement as to the results thereof,
made by or on behalf of any Underwriter, the Seller or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Certificates. If for any reason the
purchase of the Certificates by the Underwriters is not consummated, the Seller
shall remain responsible for the expenses to be paid or reimbursed by the Seller
pursuant
-23-
<PAGE> 24
to Section 5 and the respective obligations of the Seller and the Underwriters
pursuant to Section 7 shall remain in effect. If for any reason the purchase of
the Certificates by the Underwriters is not consummated (other than pursuant to
Section 9), the Seller will reimburse the Underwriters for all out-of-pocket
expenses (including fees and disbursements of counsel) reasonably incurred by
them in connection with the offering of the Certificates.
9. DEFAULT BY THE UNDERWRITER. (a) If any Underwriter shall
default in its obligation to purchase the Certificates which it has agreed to
purchase hereunder, you may in your discretion arrange for you or another party
or other parties to purchase such Certificates on the terms contained herein. If
within thirty-six hours after such default by any Underwriter you do not arrange
for the purchase of such Certificates, then the Seller shall be entitled to a
further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Certificates on such terms.
In the event that, within the respective prescribed periods, you notify the
Seller that you have so arranged for the purchase of such Certificates, or the
Seller notifies you that it has so arranged for the purchase of such
Certificates, you or the Seller shall have the right to postpone the Closing
Date for a period of not more than seven days, in order to effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Seller agrees to
file promptly any amendments to the Registration Statement or the Prospectus
which in your opinion may thereby be made necessary. The term "Underwriter" as
used in this Agreement shall include any person substituted under this Section
with like effect as if such person had originally been a party to this Agreement
with respect to such Certificates.
(b) If, after giving effect to any arrangements for the
purchase of the Certificates of a defaulting Underwriter or Underwriters by you
and the Seller as provided in subsection (a) above, the aggregate principal
amount of such Certificates which remains unpurchased does not exceed
one-eleventh of the aggregate principal amount of all the Certificates, then the
Seller shall have the right to require each non-defaulting Underwriter to
purchase the principal amount of Certificates which such Underwriter agreed to
purchase hereunder and, in addition, to require each non-defaulting Underwriter
to purchase its pro rata share (based on the principal amount of Certificates
which such Underwriter agreed to purchase hereunder) of the Certificates of such
defaulting Underwriter or Underwriters for which such arrangements have not been
made; but nothing herein shall relieve a defaulting Underwriter from liability
for its default.
(c) If, after giving effect to any arrangements for the
purchase of the Certificates of a defaulting Underwriter or Underwriters by you
and the Seller as provided in subsection (a) above, the aggregate principal
amount of Certificates which remains unpurchased exceeds one-eleventh of the
aggregate principal amount of all the Certificates, or if the Seller shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Certificates of a defaulting Underwriter or
Underwriters, then this Agreement shall thereupon terminate, without liability
on the part of any non-defaulting Underwriter or the Seller, except for the
expenses to be borne by the Seller as provided in Section 5 hereof and the
indemnity and contribution agreements in Section 7 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
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<PAGE> 25
10. NOTICES. All communications hereunder will be in writing and,
if sent to the Underwriters, will be mailed, delivered or telegraphed and
confirmed to the Representative at 11 Madison Avenue, New York, NY 10010,
Attention: ________________________________; if sent to the Seller, will be
mailed, delivered or telegraphed and confirmed to it at Key Bank USA, National
Association, 800 Superior Avenue, Cleveland, OH 44144, Attention: Senior Vice
President, Education Lending; PROVIDED, HOWEVER, that any notice to an
Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed and
confirmed to such Underwriter. Any such notice will take effect at the time of
receipt.
11. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 7, and no
other person will have any right or obligations hereunder.
12. REPRESENTATION OF UNDERWRITERS. The Representative shall act
for the several Underwriters in connection with this financing, and any action
under this Agreement taken by the Representative will be binding upon all the
Underwriters.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. This Agreement will be governed by, and
construed in accordance with, the laws of the State of New York.
If the foregoing is in accordance with the understanding of the
Representative of our agreement, kindly sign and return to us one of the
counterparts hereof, whereupon it will become a binding agreement between the
Seller and the several Underwriters in accordance with its terms.
Very truly yours,
KEY BANK USA, NATIONAL ASSOCIATION
By:
--------------------------------
Name:
Title:
The foregoing Certificate
Underwriting Agreement is hereby confirmed
and accepted as of the date first written above.
-25-
<PAGE> 26
CREDIT SUISSE FIRST BOSTON CORPORATION
By:
--------------------------------
Name:
Title:
Acting on behalf of itself and as of Representative
of the several Underwriters.
-26-
<PAGE> 27
<TABLE>
<CAPTION>
SCHEDULE I
Class B
<S> <C>
Credit Suisse First Boston Corporation.............................. $_________
Key Capital Markets, Inc............................................ $_________
Total............................................................... $
==========
</TABLE>
<PAGE> 28
APPENDIX A
<PAGE> 29
[See Appendix A to Sale and Servicing Agreement]
<PAGE> 30
EXHIBIT A
[Key Bank opinion]
<PAGE> 31
EXHIBIT B
[Thompson Hine & Flory LLP opinions]
<PAGE> 1
Exhibit 3.1
KEY BANK USA, NATIONAL ASSOCIATION
ARTICLES OF ASSOCIATION
FIRST. The title of this Association shall be Key Bank USA, National
Association.
SECOND. The main office of this Association shall be in Cleveland,
County of Cuyahoga, State of Ohio. The general business of this Association
shall be conducted at its main office: 127 Public Square, Cleveland, Ohio 44114.
THIRD. The Board of Directors of this Association shall consist of not
less than five nor more than twenty-five members, the exact number of Directors
within such minimum and maximum limits to be fixed and determined from time to
time by resolution of a majority of the full Board of Directors or by
resolution of the shareholders at any annual or special meeting thereof. In
accordance with 12 U.S.C. Section 72, each director; during the full term of his
or her directorship, shall own in his or her own right either shares of capital
stock of the Association the aggregate par value of which is not less than
$1,000 or an equivalent interest, as determined by the Comptroller of the
Currency, in any company which has control over the Association within the
meaning of 12 U.S.C. Section 1841. Unless otherwise provided by the laws of the
United States, any vacancy in the Board of Directors for any reason, including
an increase in the number thereof, may be filled by action of the Board of
Directors.
FOURTH. The annual meeting of the shareholders for the election of
Directors and the transaction of whatever other business may be brought before
said meeting shall be held at the main office or such other place as the Board
of Directors may designate, on the day of each year specified therefor in the
Bylaws, but if no election is held on that day, it may be held on any subsequent
day according to the provisions of law, and all elections shall be held
according to such lawful regulations as may be prescribed by the Board of
Directors.
FIFTH. The authorized amount of capital stock of this Association shall
be 659,305 shares of common stock of the par value of One Hundred Dollars ($100)
per share but said capital stock may be increased or decreased from time to
time, in accordance with the provisions of the laws of the United States.
No holder of shares of capital stock of any class of this Association
shall have any preemptive or preferential right of subscription to any shares
of any class of stock of this Association, whether now or hereafter authorized,
or to any obligations convertible into stock of this Association, issued or
sold, nor any right of subscription to any thereof other than such, if any, as
the Board of Directors, in its discretion, may from time to time determine and
at such price as the Board of Directors may from time to time fix.
This Association, at any time and from time to time, may authorize and
issue debt obligations, whether or not subordinated, without the approval of
shareholders.
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<PAGE> 2
SIXTH. The Board of Directors shall appoint one of its members
President of this Association, who shall be Chairman of the Board, unless the
Board appoints another Director to be the Chairman. The Board of Directors shall
have the power to appoint one or more Vice Presidents and to appoint a Cashier
and such other officers and employees as may be required to transact the
business of this Association.
The Board of Directors shall have the power to define the duties of the
officers and employees of this Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of this
Association shall be made; to manage and administer the business and affairs of
this Association; to make all Bylaws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
SEVENTH. The Board of Directors shall have the power to change the
location of the main office to any other place within the limits of Cleveland,
Ohio, without the approval of the shareholders but subject to the approval of
the Comptroller of the Currency, and shall have the power to establish or change
the location of any branch or branches of the Association to any other location,
without the approval of the shareholders but subject to the approval of the
Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue
until terminated in accordance with the laws of the United States.
NINTH. The Board of Directors of this Association, or any shareholders
owning, in the aggregate, not less tan ten percent (10%) of the stock of this
Association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of time, place,
and purpose of every annual and special meeting of the shareholders shall be
given by first-class mail, postage prepaid, mailed at least ten days prior to
the date of such meeting to each shareholder of record at his address as shown
upon the books of this Association, except as to any shareholder who has
specifically waived notice of such meeting.
TENTH. (a) This Association shall indemnify, to the full extent
permitted or authorized by the Ohio General Corporation Law as it may from time
to time be amended, any person made or threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that he is or
was a director, officer, or employee of this Association, or is or was serving
at the request of this Association as a director, trustee, officer, or employee
of another association, corporation, partnership, joint venture, trust, or other
enterprise; in the case of a person serving at the request of this Association,
such request shall be evidenced by a resolution of the Board of Directors or a
duly-authorized committee thereof or by a writing executed by an officer of this
Association pursuant to a resolution of the Board of Directors or a
duly-authorized committee thereof. In the case of a merger into this Association
of a constituent association which, if its separate existence had continued,
would have been required to indemnify directors, officers, or employees in
specified situations prior to the merger, any
-2-
<PAGE> 3
person who served as a director, officer, or employee of the constituent
association, or served at the request of the constituent association as a
director, trustee, officer, or employee of another association, corporation,
partnership, joint venture, trust, or other enterprise, shall be entitled to
indemnification by this Association (as the surviving association) for acts,
omissions, or other events or occurrences prior to the merger to the same extent
he would have been entitled to indemnification by the constituent association if
its separate existence had continued. The indemnification provided by this TENTH
shall not be deemed exclusive of any other rights to which any person seeking
indemnification may be entitled by law or under these Articles or the Bylaws, or
any agreement, vote of shareholders or disinterested directors, or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, trustee, officer, or employee and shall inure to the benefit of
the heirs, executors, and administrators of such a person.
(b) Notwithstanding division (a) of this TENTH, no director, officer,
or employee of this Association shall be indemnified against expenses, including
attorneys' fees, penalties or other payments incurred in an administrative
proceeding or action instituted by the Comptroller of the Currency or other
appropriate bank regulatory agency when such proceeding or action results in a
final order assessing civil money penalties against, or requiring affirmative
action of, such director, officer, or employee in the form of payments to this
Association.
(c) This Association may purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters of credit,
or self-insurance on behalf of or for any person who is or was a director,
officer, employee, or agent of this Association, or is or was serving at the
request of this Association as a director, trustee, officer, employee, or agent
of another association, corporation, partnership, joint venture, trust, or other
enterprise, against any liability asserted against him and incurred by him in
any capacity, or arising out of his status as such, whether or not this
Association would have the power to indemnify him against liability under the
provisions of this TENTH or of the Ohio General Corporation Law; provided,
however, such insurance shall explicitly exclude insurance coverage for a formal
order assessing civil money penalties against a director, officer, or employee
of this Association as a result of an administrative proceeding or action
instituted by the Comptroller of the Currency or other appropriate bank
regulatory agency. Insurance may be purchased from or maintained with a person
in which this Association has a financial interest.
(d) Expenses (including attorney's fees) incurred by a director in
defending any action, suit, or proceeding referred to in division (a) of this
TENTH commenced or threatened against the director for any action or failure to
act as a director shall be paid by this Association, as they are incurred, in
advance of final disposition of the action, suit, or proceeding upon receipt of
an undertaking by or on behalf of the director in which he agrees both (i) to
repay the amount if it is proved by clear and convincing evidence in a court of
competent jurisdiction that his action or failure to act involved an act or
omission undertaken with deliberate intent to cause injury to this Association
or undertaken with reckless disregard for the best interests of this Association
and (ii) to reasonably cooperate with this Association
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<PAGE> 4
concerning the action, suit, or proceeding. The provisions of this paragraph
shall not apply if the only liability asserted against the director in such
action, suit, or proceeding is for (i) the payment of a dividend or
distribution, or the making of a distribution of assets to shareholders, or the
purchase or redemption of this Association's own shares, contrary in any such
case to law or these Articles of Association, or (ii) a distribution of assets
to shareholders during the winding up of the affairs of the Association, on
dissolution or otherwise, without the payment of all known obligations of the
Association, or without making adequate provision therefor.
Expenses (including attorney's fees) incurred by a director (to the extent the
expenses are not required to be advanced pursuant to the preceding paragraph),
officer, or employee in defending any action, suit, or proceeding referred to in
division (a) of this TENTH may be paid by this Association, as they are
incurred, in advance of final disposition of the action, suit, or proceeding, as
authorized by the Board of Directors in the specific case, upon receipt of an
undertaking by or on behalf of the director, officer, or employee to repay the
amount if it is ultimately determined that he is not entitled to be indemnified
by this Association.
(e) Notwithstanding division (d) of this TENTH, expenses, including
attorneys' fees, incurred by a present or former director, officer, or employee
of this Association in defending an administrative proceeding or action
instituted by the Comptroller of the Currency or other appropriate bank
regulatory agency that seeks a final order assessing civil money penalties or
requiring affirmative action by an individual or individuals in the form of
payments to this Association, may be paid by this Association as they are
incurred in advance of the final disposition of the action, suit, or proceeding,
only in the event that:
(i) the Board of Directors of this Association, in good faith, determines in
writing that all of the following conditions are met:
(A) the director, officer, or employee has a substantial likelihood of
prevailing on the merits;
(B) in the event the director, officer, or employee does not prevail, he will
have the financial capability to reimburse this Association;
(C) all applicable laws and regulations affecting loans to the director,
officer, or employee will be complied with in the event reimbursement is
required;
(D) payment of expenses by this Association will not adversely affect this
Association's safety and soundness; and
(ii) the director, officer, or employee enters into an agreement with this
Association to repay such amount if:
(A) such administrative proceeding or action instituted by the Comptroller of
the Currency or other appropriate bank regulatory agency results in a final
order assessing civil money
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<PAGE> 5
penalties against, or requiring affirmative action of, such director, officer,
or employee in the form of payments to this Association; or
(B) the Board of Directors of this Association finds that the director, officer,
or employee willfully misrepresented factors relevant to the Board of Directors'
determination of conditions (A) or (B) set forth in (i), above.
If at any time the Board of Directors of this Association believes that
any of the conditions set forth in (i) above are no longer met, such expenses
will no longer be paid by this Association.
(f) Notwithstanding divisions (a) through (e) of this TENTH, all of the
provisions of this TENTH are subject to the authority of the Office of the
Comptroller of the Currency to direct a modification of a specific
indemnification by a national bank through appropriate administrative action.
ELEVENTH. These Articles of Association may be amended at any regular
or special meeting of the shareholders by the affirmative vote of the holders of
a majority of the stock of this Association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount.
In witness whereof, we have hereunto set our hands this 12th day of
May, 1995.
/s/ Lee Irving /s/ Jeanne B. Krips
- ------------------------------------- -------------------------------------
Lee Irving Jeanne B. Krips
/s/ John H. Mancuso /s/ A. Jay Meyerson
- ------------------------------------ -------------------------------------
John H. Mancuso A. Jay Meyerson
/s/ Frederick E. Wolfert
-------------------------
Frederick E. Wolfert
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<PAGE> 1
Exhibit 3.2
BYLAWS OF
KEY BANK USA, NATIONAL ASSOCIATION
----------------------------------
ARTICLE I
MEETING OF SHAREHOLDERS
------------------------
SECTION 1. ANNUAL MEETING. The annual meeting of shareholders for the election
of Directors, and the transaction of whatever other business may properly come
before the meeting, shall be held at the main office of the Bank, or such other
place authorized by the Board of Directors or the Chairman of the Board, on the
Thursday after the third Wednesday in January of each year, or such other date
authorized by the Board of Directors or the Chairman of the Board. If, for any
cause, the election of Directors is not held on that day, the Board of Directors
shall order the election to be held on some subsequent day, as soon thereafter
as practicable, according to the provisions of law, and notice thereof shall be
given in the manner herein provided for the annual meeting.
SECTION 2. SPECIAL MEETINGS. Except as otherwise specifically provided by
statute, special meetings of the shareholders may be called for any purpose at
any time by the Chairman of the Board, the President, the Board of Directors, or
by any shareholder or shareholders owning, in the aggregate, not less than ten
per centum (10%) of the stock of the Bank.
SECTION 3. NOTICE OF MEETINGS. Unless otherwise provided by law, these Bylaws,
or the Articles of Association, a notice of the time, place, any purpose of
every annual meeting and every special meeting of the shareholders shall be
given by first-class mail, postage prepaid, mailed not less than ten days nor
more than sixty days prior to the date of such meeting, to each shareholder of
record at such shareholder's address as shown upon the books of the Bank. The
attendance of any shareholder at a shareholder meeting without protesting, prior
to or at the commencement of the meeting, the lack of proper notice, shall be
deemed a waiver by such shareholder of notice of such meeting.
SECTION 4. PROXIES. Shareholders may vote at any meeting of the shareholders by
proxies duly authorized in writing, but no officer or employee of this Bank may
act as a proxy. Proxies shall be valid only for one meeting, to be specified
therein, and any adjournments of such meeting. Proxies shall be dated and shall
be filed in the Bank's records. The person appointed as proxy need not be a
shareholder. Unless the writing appointing a proxy otherwise provides, the
presence at a meeting of the person who appointed a proxy shall not operate to
revoke the appointment. Notice to the Bank, in writing or in open meeting, of
the revocation of the appointment of a proxy shall not affect any vote or act
previously taken or authorized by such proxy.
SECTION 5. QUORUM: ADJOURNMENT. Except as may otherwise be provided by law, at
any meeting of the shareholders, the holders of shares entitling them to
exercise a
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<PAGE> 2
majority of the voting power of the Bank present in person or by proxy shall
constitute a quorum for such meeting; provided, however, that no action
required by law to be authorized or taken by a designated proportion of the
shares may be authorized or taken by a lesser proportion; provided, further,
that, if a quorum is not present, the holders of a majority of the voting shares
represented thereat may adjourn such meeting or any adjournment thereof. If any
meeting is adjourned, notice of such adjournment need not be given if the time
and place to which such meeting is adjourned are fixed and announced at such
meeting.
SECTION 6. VOTING POWER: CUMULATIVE VOTING. In voting on issues at meetings of
shareholders, except on the election of Directors, each shareholder shall be
entitled to one vote for each share of stock held. A majority of votes cast
shall decide each issue submitted to the shareholders at any meeting, except in
eases where by law or by the Articles of Association a larger vote is required.
In all elections of Directors, each shareholder shall have the right to vote the
number of shares owned by such shareholder for as many persons as there are
Directors to be elected, or to cumulate such shares and give one candidate as
many votes as the number of Directors multiplied by the number of such
shareholder's shares shall equal, or to distribute them on the same principle
among as many candidates as such shareholder chooses.
SECTION 7. RECORD OF SHAREHOLDERS AND VOTES. At any meeting of the shareholders,
a record showing the names of shareholders present and the number of shares of
stock held by each, the names of shareholders represented by proxy and the
number of shares held by each, and the names of the proxies shall be made. This
record also shall show the number of shares voted on each action taken,
including the number of shares voted for each candidate for the Board of
Directors. This record shall be included in the minute book of the Bank.
ARTICLE II
Board OF DIRECTORS
------------------
SECTION 1. AUTHORITY. The Board of Directors shall have power to manage and
administer the business and affairs of the Bank. Except as expressly limited by
law, all corporate powers of the Bank shall be vested in and exercised by or
under the authority of the Board of Directors.
SECTION 2. NUMBER. The Board of Directors shall consist of not less than five
nor more than twenty-five members; the exact number within such minimum and
maximum limits shall be fixed and determined from time to time by resolution of
a majority of the full Board of Directors or by resolution of the shareholders
at any meeting thereof; provided, however, that a majority of the full Board of
Directors may not increase the number of Directors to a number which exceeds by
more than: (i) two the number of Directors last fixed and determined by the
shareholders where such number was fifteen or less, or (ii) four the number of
Directors last fixed and determined by the shareholders where such number was
sixteen or more.
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<PAGE> 3
SECTION 3. ELECTION OF DIRECTORS; VACANCIES. The Directors shall be elected at
each annual meeting of shareholders or at a special meeting called for the
purpose of electing Directors. Any vacancy or vacancies occurring in the Board
of Directors, including vacancies created by an increase in the numbers of
Directors, shall be filled by appointment by the remaining Directors at any
regular or special meeting of the Board, and any Director or Directors so
appointed shall hold office until the next election. Each person elected or
appointed a Director must take the oath of such office in the form prescribed by
the Comptroller of the Currency. No person elected or appointed a Director shall
exercise the functions of such office until he has taken such oath. The Bank
shall transmit evidence of such oath or oaths to the Comptroller of the
Currency.
SECTION 4. TERM OF OFFICE; RESIGNATIONS. Directors shall hold office until the
next annual meeting of shareholders or until their successors are elected and
have qualified, or until their earlier resignation, removal from office, or
death. Any Director may resign at any time by oral statement to that effect made
at a meeting of the Board of Directors, or in a writing to that effect delivered
to the Secretary or an Assistant Secretary of the Bank; such resignation shall
take effect immediately or at such other time as the Director may specify at
such meeting or in such writing. At a meeting of shareholders called expressly
for that purpose, any director or the entire Board of Directors may be removed,
with or without cause, by a vote of the holders of a majority of the shares then
entitled to vote at an election of directors. If permitted by law, the majority
of the Board of Directors may remove a director for cause.
SECTION 5. ORGANIZATION MEETING. Following the annual meeting of shareholders,
the Directors-elect shall hold an organization meeting for the purpose of
appointing officers and transacting such other business as properly may come
before the meeting. Such organization meeting shall be held on the day of the
election or as soon thereafter as practicable and, in any event, within thirty
days thereof. Notice of such meeting need not be given if held on the day of the
election.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be
held, without notice, on the Thursday after the third Wednesday of each month,
at the main office of the Bank or at such other times and places authorized by
the Board of Directors, the Chairman of the Board, or in such person's absence,
a Vice Chairman of the Board. When any regular meeting of the Board falls upon a
holiday, the meeting shall be held on the next banking business day unless the
Board shall designate some other day.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by the Chairman of the Board, by the President, or at the request of
three or more Directors. Notice of special meetings, stating the time and place
thereof, and whether telephone or similar communications equipment will be
utilized, shall be given in person or by mailing, telephoning, or telegraphing
such notice at least 24
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<PAGE> 4
hours prior to the meeting; provided, however, that attendance of any Director
at such meeting without protesting, prior to or at the commencement of the
meeting, the lack of proper notice, shall be deemed a waiver by such Director of
notice of such meeting. Notice of a meeting may be waived in writing or by
telegram either before or after such meeting. Unless otherwise indicated in the
notice of the meeting, any business may be transacted at such meeting.
SECTION 8. QUORUM; ADJOURNMENT. A quorum of the Board of Directors shall consist
of a majority of the Directors then in office; provided that a majority of the
Directors then present at a meeting duly held, whether or not a quorum is
present, may adjourn such meeting from time to time. If any meeting is
adjourned, 'notice of such adjournment need not be given if the time and place
to which such meeting is adjourned are fixed and announced at such meeting. At
each meeting of the Board of Directors at which a quorum is present, all issues
shall be determined by a majority vote of those present except as otherwise
expressly provided in these Bylaws or by law. A Director cannot vote or
otherwise act by proxy at a meeting of the Board of Directors.
ARTICLE III
OFFICERS
--------
SECTION 1. ELECTION AND DESIGNATION OF OFFICERS. The Board of Directors shall
elect or appoint a Chairman of the Board, a President, one or more Vice
Presidents, a Cashier, and such other officers as the Board may deem necessary.
The Chairman of the Board and the President shall be members of the Board of
Directors. The Board of Directors may delegate the authority to appoint and
dismiss officers to officers of the Bank or to a committee composed of such
officers. Any two or more offices may be held by the same person, but no officer
shall execute, acknowledge, or verify any instrument in more than one capacity
if the instrument is required to be executed, acknowledged, or verified by two
or more officers. The Board of Directors shall approve the compensation of
officers, except that the Board of Directors may delegate to a committee of the
Board of Directors, or to officers of the Bank, authority for approving
officers' compensation.
SECTION 2. TERM OF OFFICE; VACANCIES. The officers of the Bank shall hold office
until their successors are elected or appointed and qualified, except in the
case of resignation, dismissal or removal from office, or death. The Board of
Directors may dismiss or remove any officer at any time, with or without cause,
by a majority vote of the Directors then in office, without prejudice to the
contract rights of such officer; an election or appointment of an officer shall
not of itself create any contract rights. Any vacancy in any office may be
filled in the manner provided herein for the election or appointment of office.
The Board of Directors is not required to annually elect or appoint officers.
SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at all
meetings of shareholders and the Board of Directors. He also shall serve the
Bank in
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<PAGE> 5
such capacity and perform such other duties as may be assigned to him, from time
to time, by the Board of Directors. In the absence of, or at the direction of'
the Chairman of the Board, the President, or such other Director designated by
the Chairman of the Board, shall preside at a meeting of the shareholders or the
Board of Directors, as the case maybe.
SECTION 4. PRESIDENT. The President shall have general executive powers over the
management and business of the Bank, subject to the direction of the Board of
Directors and the Chairman of the Board.
SECTION 5. VICE PRESIDENTS. Each Vice President shall have such powers and
duties as may be assigned to him by the Board of Directors or as otherwise
provided for herein; the Board of Directors may authorize one of the Vice
Presidents to perform the duties of the President in the President's absence or
if the President is unable to act.
SECTION 6. CASHIER. The Board of Directors shall appoint a Cashier or other
designated officer who shall have all the powers and duties of a Cashier and
who, in the absence of a Secretary, shall have responsibility for giving or
providing all notices required by law or these Bylaws to be given, shall be
custodian of the corporate seal, records, documents, and papers of the Bank,
shall keep accurate minutes of all meetings covered by these Bylaws, and shall
perform such other duties as may be assigned from time to time by the Board of
Directors.
SECTION 7. OTHER OFFICERS. Other officers shall have such powers and duties as
may be assigned by the Board of Directors.
SECTION 8. DELEGATION OF DUTIES. The Board of Directors is authorized to
delegate the assignment of the duties of any officer, to control the action of
the officers, and to require the performance of duties in addition to those
mentioned herein, to any other officer.
ARTICLE IV
COMMITTEES
----------
SECTION 1. EXECUTIVE COMMITTEE. The Board of Directors may appoint an Executive
Committee which shall consist of the Chairman of the Board, the President, and
not less than three other Directors. Each member of the Board of Directors who
is not a member of the Committee shall be an alternate and, at the request of
the officer who is to preside at the meeting, may serve in the place of any
regular member who is unable to attend a committee meeting for any reason. The
Chairman of the Board shall preside at all meetings of the Committee; if such
officer is absent, a Vice Chairman shall preside. If none of these officers is
available, the President shall preside. If none of the foregoing persons is
available, the non-officer Director members of the Executive Committee shall
select a Director, who need not be an officer, to preside.
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<PAGE> 6
SECTION 2. POWERS OF EXECUTIVE COMMITTEE. The Executive Committee shall have and
may exercise, as far as permitted by law, all the powers and authority of the
Board of Directors and other committees of the Board of Directors between
meetings of such Board or such committees. At each meeting of the Board of
Directors, the minutes of all previous meetings of the Executive Committee not
theretofore submitted to the Board shall be presented for review and
ratification by the Board. Any action of the Board disapproving any prior action
of the Executive Committee shall not affect the rights of third parties dealing
with the Bank, if such rights have attached by virtue of action of the Executive
Committee within the scope of the corporate powers of the Bank.
SECTION 3. OTHER COMMITTEES. The Board of Directors may, by resolutions adopted
by a majority of the full Board, establish one or more other committees; each
committee shall consist of two or more members of the Board of Directors which,
to the extent provided in such resolution or resolutions or in these Bylaws,
shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Bank and may have the power to
authorize the seal of the Bank to be affixed to all papers which may require it
Such committee or committees shall have such name or names as may be stated in
these Bylaws or as may be determined from time to time by resolution adopted by
the Board of Directors. The Board of Directors may designate one or more
Directors as alternate members of any committee, who may serve in the place of
any regular member who is unable to attend a committee meeting for any reason.
Each committee shall keep regular minutes of its meetings and present such
minutes for review to the Board of Directors.
SECTION 4. NOTICE OF MEETINGS. Meetings of the Board committees shall be held at
the principal office of the Bank in the City of Cleveland, or at such other
place as may be designated in the notice of the meeting at any time upon call by
the Chairman of the Board, the Vice Chairman of the Board, the President, or the
Chairman of the Committee. Notice of each such meeting shall be given to each
member of the Committee in person or by mailing, telephoning, or telegraphing
such notice at least 24 hours prior to the meeting; provided, however, that
attendance by any Director at such meeting, without protesting prior to or at
the commencement of such meeting, the lack of proper notice shall be deemed a
waiver by such Director of the notice of such meeting. Notice of the meeting may
be waived in writing or by telegram by any member either before or after such
meeting. Unless otherwise indicated in the notice of the meeting, any business
may be transacted at such meeting.
ARTICLE V
RECORD DATES
------------
The Board of Directors may fix, or authorize the Chairman of the Board or the
President to fix, a record date for any lawful purpose. The record date for the
purpose of the determination of the shareholders who are entitled to receive
notice of
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<PAGE> 7
or to vote at a meeting of shareholders shall continue to be the record date for
all adjournments of such meeting. The Board of Directors may close the share
transfer books against transfer of shares during the whole or any part of the
period provided for in this Article, including the date of the meeting of
shareholders and the period ending with the date, if any, to which the meeting
is adjourned.
ARTICLE VI
CERTIFICATES FOR SHARES
-----------------------
SECTION 1. FORM OF CERTIFICATES AND SIGNATURES. Each holder of shares shall be
entitled to one or more certificates signed by the Chairman of the Board, the
President or a Vice President, and by the Secretary or an Assistant Secretary.
The signature of any of such officers of the Bank may be a facsimile, engraved,
stamped, or printed. In case any such officer whose legal or facsimile signature
has been placed upon such certificate ceases to be such officer before the
certificate is delivered, such certificate nevertheless shall be effective in
all respects when delivered.
SECTION 2. TRANSFER OF SHARES. Shares of the Bank shall be transferable upon the
books of the Bank by the holders thereof, in person, or by a duly authorized
attorney, upon surrender and cancellation of certificates for a like number of
shares of the same class, with duly executed assignment and power of transfer
endorsed thereon or attached thereto, and with such proof of the authenticity of
such signatures to such certificates and power of transfer as the Bank or its
agents may reasonably require.
SECTION 3. CORPORATE SEAL. The following is an impression of the seal adopted by
the Board of Directors of the Bank.
(to be inserted)
Any officer shall have authority to affix the corporate seal to any document
requiring such seal and to attest the same. Failure to affix the seal to any
instrument executed on behalf of the Bank shall not affect the validity of such
instrument unless such action is required by law.
ARTICLE VII
BANKING HOURS
-------------
The main office and branch offices of the Bank shall be open for business upon
such days of the year and for such hours as the Board of Directors or the
officers of the Bank may from time to time determine.
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<PAGE> 8
ARTICLE VIII
MISCELLANEOUS
-------------
SECTION 1. FISCAL YEAR. The fiscal year of the Bank shall be the calendar year.
SECTION 2. DEFINITIONS. The word "person" wherever used in these Bylaws shall be
taken to mean and include individuals, partnerships, associations, and
corporations when the text so requires. "Vice President", as used in these
Bylaws, shall include Vice Chairman and such titles as Senior Executive Vice
President, Executive Vice President, and Senior Vice President. Words of the
singular number shall be taken to include the plural and those of the plural
number shall be taken to include the singular whenever appropriate. Nouns and
pronouns of the masculine gender shall include the feminine whenever
appropriate.
SECTION 3. EXECUTION OF INSTRUMENTS. The Chief Executive Officer may from time
to time prescribe in writing the authority of the officers, employees, and
agents of the Bank with respect to the making, execution, and delivery in the
name and on behalf of the Bank of documents and instruments in writing necessary
to the transaction of its business, whether in a fiduciary capacity or
otherwise, and with respect to the approval orally, or by conduct other than
signing of agreements, of transactions in the name and on behalf of the Bank
necessary to the carrying out of the business of the Bank; provided, however,
that if the Chief Executive Officer fails to take such action, the Board of
Directors shall, by resolution, establish such authorities in writing. Where any
such resolution or any such writing has been certified by the Secretary or the
Cashier as to its full force and effect, any instrument executed or transaction
effected in conformity with such resolution or such writing may be relied upon
by any person. Authority granted to officers, employees, and agents of the Bank,
pursuant to this Section 3 shall apply to all documents, instruments, and
conduct relating to any entity for which the Bank is a successor in interest,
whether by merger or otherwise.
SECTION 4. USE OF COMMUNICATIONS EQUIPMENT AT MEETINGS. Members of the Board of
Directors may participate in regular or special meetings of the Board of
Directors, and members of committees appointed by the Board of Directors may
participate in regular or special meetings of those committees, through use of
conference telephone or similar communications equipment, as long as all members
participating in such meeting can hear one another.
SECTION 5. ACTION WITHOUT A MEETING. Any action which may be taken at a meeting
of the Bank's shareholders, Board of Directors, or committee of the Board of
Directors, may be taken without a meeting by the unanimous vote of approval of,
and in a writing or writings signed by, all of the Bank's shareholders,
Directors, or committee members, respectively, entitled to notice of such
meeting; such writing or writings shall be included in the minute book of the
Bank.
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<PAGE> 9
SECTION 6. WAIVERS OF NOTICE. Any shareholder or Director may waive the giving
of any notice required to be given to him under these Bylaws.
SECTION 7. TELEGRAM. Any action required or permitted to be taken hereunder by
telegram may be taken by telex, fax, or similar communication equipment.
SECTION 8. RECORDS. The Articles of Association, these Bylaws, and the
proceedings of all meetings of the shareholders, the Board of Directors, and
committees of the Board, shall be recorded in appropriate minute books provided
for that purpose. The minutes of each meeting shall be signed by the Secretary,
Cashier or other officer appointed to act as secretary of the meeting.
SECTION 9. INTEREST RATES AND ASSESSMENTS AND LOANS. The Bank may assess and
collect from borrowers interest at any rate agreed upon by the Bank and the
borrower as specified in the loan agreement. In addition to such interest, the
Bank may assess and collect any dues, fines, premiums, or other assessments on
loans made in such amount as may be agreed upon in the loan agreement,
including, but not limited to, the following: origination fees; guarantee fees
or charges for any insurance protecting a creditor against a borrower's default
or other credit loss; late, default, or delinquency charges; deferment charges;
annual or other periodic membership fees; charges for returned checks and other
forms of payment; overlimit charges; cash advance fees; stop payment fees; ATM,
electronic, or similar interchange access fees; transaction fees; currency
conversion charges; fees for replacement of credit cards, access checks, or
other access devices; minimum charges; research charges; charges for providing
documentation or other evidence; credit, property, or other types of insurance
premiums, including premiums for insurance in lieu of perfecting a security
interest; collection costs; court costs; attorney's fees; applications fees;
credit report fees; investigation fees; commitment fees; finder's fees; broker
fees; assumption fees; processing fees; credit report fees; investigation fees;
points; survey and appraisal fees; title examination and report fees; title
insurance premiums; abstract of title fees; escrow fees; trustee fees; official
fees and taxes; filing and recording fees; fees for taking or releasing a
security interest; document preparation and notarization fees; prepayment fees.
ARTICLE IX
AMENDMENTS
----------
These Bylaws may be amended, altered, or repealed, at any regular or special
meeting of the Board of Directors, by a vote of a majority of the whole number
of the Directors.
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<PAGE> 1
Exhibit 4.1
================================================================================
INDENTURE
between
KEYCORP STUDENT LOAN TRUST 1999-A,
as Issuer
and
BANKERS TRUST COMPANY,
not in its individual capacity but
solely as Indenture Trustee
Dated as of January 1, 1999
===============================================================================
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Page
ARTICLE I
DEFINITIONS AND USAGE
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SECTION 1.01. Definitions and Usage...................................................................2
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.......................................2
ARTICLE II
THE NOTES
SECTION 2.01. Form....................................................................................3
SECTION 2.02. Execution, Authentication and Delivery..................................................3
SECTION 2.03. Temporary Notes.........................................................................4
SECTION 2.04. Registration; Registration of Transfer and Exchange.....................................4
SECTION 2.05. Mutilated, Destroyed, Lost or Stolen Notes..............................................5
SECTION 2.06. Persons Deemed Owner....................................................................6
SECTION 2.07. Payment of Principal and Interest; Defaulted Interest; Noteholders' Interest
Index Carryover.........................................................................7
SECTION 2.08. Cancellation............................................................................8
SECTION 2.09. Release of Collateral...................................................................8
SECTION 2.10. Book-Entry Notes........................................................................8
SECTION 2.11. Notices to Clearing Agency..............................................................9
SECTION 2.12. Definitive Notes........................................................................9
ARTICLE III
COVENANTS
SECTION 3.01. Payment to Noteholders.................................................................10
SECTION 3.02. Maintenance of Office or Agency........................................................10
SECTION 3.03. Money for Payments To Be Held in Trust.................................................11
SECTION 3.04. Existence..............................................................................12
SECTION 3.05. Protection of Indenture Trust Estate...................................................12
SECTION 3.06. Opinions as to Indenture Trust Estate..................................................13
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SECTION 3.07. Performance of Obligations; Servicing of Financed Student Loans........................14
SECTION 3.08. Negative Covenants.....................................................................16
SECTION 3.09. Annual Statement as to Compliance......................................................17
SECTION 3.10. Issuer May Consolidate, etc., Only on Certain Terms....................................17
SECTION 3.11. Successor or Transferee................................................................19
SECTION 3.12. No Other Business......................................................................19
SECTION 3.13. No Borrowing...........................................................................19
SECTION 3.14. Obligations of Servicer and Administrator..............................................19
SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities......................................19
SECTION 3.16. Capital Expenditures...................................................................20
SECTION 3.17. Restricted Payments....................................................................20
SECTION 3.18. Notice of Events of Default............................................................20
SECTION 3.19. Further Instruments and Acts...........................................................20
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.01. Satisfaction and Discharge of Indenture................................................21
SECTION 4.02. Application of Trust Money.............................................................22
SECTION 4.03. Repayment of Moneys Held by Paying Agent...............................................22
SECTION 4.04. Auction of Financed Student Loans......................................................22
ARTICLE V
REMEDIES
SECTION 5.01. Events of Default......................................................................23
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment.....................................24
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee..............25
SECTION 5.04. Remedies; Priorities...................................................................27
SECTION 5.05. Optional Preservation of the Financed Student Loans....................................29
SECTION 5.06. Limitation of Suits....................................................................29
SECTION 5.07. Unconditional Rights of Noteholders To Receive Principal and Interest..................30
SECTION 5.08. Restoration of Rights and Remedies.....................................................30
SECTION 5.09. Rights and Remedies Cumulative.........................................................31
SECTION 5.10. Delay or Omission Not a Waiver.........................................................31
SECTION 5.11. Control by Noteholders.................................................................31
SECTION 5.12. Waiver of Past Defaults................................................................32
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<TABLE>
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SECTION 5.13. Undertaking for Costs..................................................................32
SECTION 5.14. Waiver of Stay or Extension Laws.......................................................32
SECTION 5.15. Action on Notes........................................................................33
SECTION 5.16. Performance and Enforcement of Certain Obligations.....................................33
ARTICLE VI
THE INDENTURE TRUSTEE
SECTION 6.01. Duties of Indenture Trustee............................................................34
SECTION 6.02. Rights of Indenture Trustee............................................................35
SECTION 6.03. Individual Rights of Indenture Trustee.................................................36
SECTION 6.04. Indenture Trustee's Disclaimer.........................................................36
SECTION 6.05. Notice of Defaults.....................................................................36
SECTION 6.06. Reports by Indenture Trustee to Noteholders............................................36
SECTION 6.07. Compensation and Indemnity.............................................................37
SECTION 6.08. Replacement of Indenture Trustee.......................................................38
SECTION 6.09. Successor Indenture Trustee by Merger..................................................39
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee..........................................39
SECTION 6.11. Eligibility; Disqualification..........................................................40
SECTION 6.12. Preferential Collection of Claims Against Issuer.......................................40
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.01. Issuer To Furnish Indenture Trustee Names and Addresses of Noteholders.................41
SECTION 7.02. Preservation of Information; Communications to Noteholders.............................41
SECTION 7.03. Reports by Issuer......................................................................41
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.01. Collection of Money....................................................................42
SECTION 8.02. Trust Accounts.........................................................................42
SECTION 8.03. General Provisions Regarding Accounts..................................................43
SECTION 8.04. Release of Indenture Trust Estate......................................................44
SECTION 8.05. Opinion of Counsel.....................................................................45
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<TABLE>
ARTICLE IX
SUPPLEMENTAL INDENTURES
<S> <C> <C>
SECTION 9.01. Supplemental Indentures Without Consent of Noteholders.................................45
SECTION 9.02. Supplemental Indentures with Consent of Noteholders....................................46
SECTION 9.03. Execution of Supplemental Indentures...................................................48
SECTION 9.04. Effect of Supplemental Indenture.......................................................48
SECTION 9.05. Conformity with Trust Indenture Act....................................................48
SECTION 9.06. Reference in Notes to Supplemental Indentures..........................................48
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.01. Redemption.............................................................................49
SECTION 10.02. Form of Redemption Notice..............................................................49
SECTION 10.03. Notes Payable on Redemption Date.......................................................50
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Compliance Certificates and Opinions, etc..............................................50
SECTION 11.02. Form of Documents Delivered to Indenture Trustee.......................................52
SECTION 11.03. Acts of Noteholders....................................................................53
SECTION 11.04. Notices, etc., to Indenture Trustee, Issuer and Rating Agencies........................54
SECTION 11.05. Notices to Noteholders; Waiver.........................................................54
SECTION 11.06. Alternate Payment and Notice Provisions................................................55
SECTION 11.07. Conflict with Trust Indenture Act......................................................55
SECTION 11.08. Effect of Headings and Table of Contents...............................................55
SECTION 11.09. Successors and Assigns.................................................................55
SECTION 11.10. Separability...........................................................................56
SECTION 11.11. Benefits of Indenture..................................................................56
SECTION 11.12. Legal Holidays.........................................................................56
SECTION 11.13. Governing Law..........................................................................56
SECTION 11.14. Counterparts...........................................................................56
SECTION 11.15. Recording of Indenture.................................................................56
SECTION 11.16. Trust Obligations......................................................................56
SECTION 11.17. No Petition............................................................................57
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SECTION 11.18. Inspection.............................................................................57
APPENDIX A Definitions and Usage
SCHEDULE A Schedule of Initial Financed Student Loans
SCHEDULE B Schedule of Subsequent Pool Student Loans
SCHEDULE C Location of Financed Student Loan Files
EXHIBIT A-1 Form of Class A-1 Note
EXHIBIT A-2 Form of Class A-2 Note
EXHIBIT B Form of Note Depository Agreement
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INDENTURE dated as of January 1, 1999,
between KEYCORP STUDENT LOAN TRUST 1999-A, a New
York trust (the "Issuer"), and BANKERS TRUST
COMPANY, a New York banking corporation, as
trustee and not in its individual capacity (the
"Indenture Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the holders of the Issuer's
Floating Rate Class A-1 Asset Backed Notes (the "Class A-1 Notes"), the Issuer's
Class A-2 Asset Backed Notes (the "Class A-2 Notes", and together with the Class
A-1 Notes, the "Notes):
GRANTING CLAUSE
The Issuer (and, with respect to the Financed Student Loans,
the Eligible Lender Trustee) hereby Grants to the Indenture Trustee at the
Closing Date, as trustee for the benefit of the holders of the Notes, all the
Issuer's right, title and interest in and to the following:
(a) the Financed Student Loans, and all obligations of the
Obligors thereunder including all moneys paid thereunder on or after
the Cutoff Date (or, in the case of Additional Student Loans, on or
after the related Subsequent Cutoff Date);
(b) the Sale and Servicing Agreement, including the right of
the Issuer to cause the Seller to repurchase or a Servicer to purchase,
Financed Student Loans from the Issuer under circumstances described
therein and including the Assigned Rights, and the Supplemental Sale
and Servicing Agreement;
(c) each Guarantee Agreement, including the right of the
Issuer to cause the related Guarantor to make Guarantee Payments in
respect of the Financed Student Loans;
(d) all funds on deposit from time to time in the Trust
Accounts, including the Reserve Account Initial Deposits and the
Pre-Funded Amounts; and
(e) all present and future claims, demands, causes and chooses
in action in respect of any or all of the foregoing and all payments on
or under and all proceeds of every kind and nature whatsoever in
respect of any or all of the foregoing, including all proceeds of the
conversion, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes,
drafts, acceptances, chattel paper, checks, deposit accounts, insurance
proceeds, condemnation awards, rights to payment of any and every kind
and other forms of obligations and receivables, instruments and other
<PAGE> 8
property which at any time constitute all or part of or are included in
the proceeds of any of the foregoing (collectively, the "Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction, and to
secure compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the
holders of the Notes, acknowledges such Grant, accepts the trusts under this
Indenture in accordance with the provisions of this Indenture and agrees to
perform its duties required in this Indenture to the best of its ability to the
end that the interests of the holders of the Notes may be adequately and
effectively protected.
ARTICLE I
DEFINITIONS AND USAGE
SECTION 1.01. DEFINITIONS AND USAGE. Except as otherwise
specified herein or as the context may otherwise require, capitalized terms used
but not defined herein are defined in Appendix A hereto, which also contains
rules as to usage that shall be applicable herein.
SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE
ACT. Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a holder of the Notes.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee"
means the Indenture Trustee.
"obligor" on the indenture securities means the Issuer and any
other obligor on the indenture securities.
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All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by Commission
rule have the meaning assigned to them by such definitions.
ARTICLE II
THE NOTES
SECTION 2.01. FORM. The Class A-1 Notes and the Class A-2
Notes, together with the Indenture Trustee's certificate of authentication,
shall be in substantially the forms set forth in Exhibits A-1 and A-2,
respectively, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing the Notes, as evidenced by their execution of the Notes. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
The Definitive Notes shall be typewritten, printed,
lithographed or engraved or produced by any combination of these methods (with
or without steel engraved borders), all as determined by the officers executing
such Notes, as evidenced by their execution of such Notes.
Each Note shall be dated the date of its authentication. The
terms of the Class A-1 Notes and the Class A-2 Notes set forth in Exhibits A-1
and A-2 are part of the terms of this Indenture.
SECTION 2.02. EXECUTION, AUTHENTICATION AND DELIVERY. The
Notes shall be executed on behalf of the Issuer by any of its Authorized
Officers. The signature of any such Authorized Officer on the Notes may be
manual or facsimile.
Notes bearing the manual or facsimile signature of individuals
who were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Order authenticate and
deliver Notes for original issue in an aggregate principal amount of $_______,
with respect to the Class A-1 Notes and $______ with respect to the Class A-2
Notes, except as provided in Section 2.05.
Each Note shall be dated the date of its authentication. The
Notes shall be issuable as registered Notes in the minimum denomination of
$1,000 and in integral multiples of $1,000 in excess thereof.
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No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
SECTION 2.03. TEMPORARY NOTES. Pending the preparation of
Definitive Notes, the Issuer may execute, and upon receipt of an Issuer Order
the Indenture Trustee shall authenticate and deliver, temporary Notes which are
printed, lithographed, typewritten, mimeographed or otherwise produced, of the
tenor of the Definitive Notes in lieu of which they are issued and with such
variations not inconsistent with the terms of this Indenture as the officers
executing such Notes may determine, as evidenced by their execution of such
Notes.
If temporary Notes are issued, the Issuer will cause
Definitive Notes to be prepared without unreasonable delay. After the
preparation of Definitive Notes, the temporary Notes shall be exchangeable for
Definitive Notes upon surrender of the temporary Notes at the office or agency
of the Issuer to be maintained as provided in Section 3.02, without charge to
the holder of the Notes. Upon surrender for cancellation of any one or more
temporary Notes, the Issuer shall execute and the Indenture Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
Definitive Notes of authorized denominations. Until so exchanged, the temporary
Notes shall in all respects be entitled to the same benefits under this
Indenture as Definitive Notes.
SECTION 2.04. REGISTRATION; REGISTRATION OF TRANSFER AND
EXCHANGE. The Issuer shall cause to be kept a register (the "Note Register") in
which, subject to such reasonable regulations as it may prescribe, the Issuer
shall provide for the registration of Notes and the registration of transfers of
Notes. The Indenture Trustee shall be "Note Registrar" for the purpose of
registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Issuer shall promptly appoint a successor
or, if it elects not to make such an appointment, assume the duties of Note
Registrar.
If a Person other than the Indenture Trustee is appointed by
the Issuer as Note Registrar, the Issuer will give the Indenture Trustee prompt
written notice of the appointment of such Note Registrar and of the location,
and any change in the location, of the Note Register, and the Indenture Trustee
shall have the right to inspect the Note Register at all reasonable times and to
obtain copies thereof, and the Indenture Trustee shall have the right to rely
upon a certificate executed on behalf of the Note Registrar by an Executive
Officer thereof as to the names and addresses of the holders of the Notes and
the principal amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the
office or agency of the Issuer to be maintained as provided in Section 3.02, if
the requirements of Section 8-401(1) of the UCC are met, the Issuer shall
execute, and the Indenture Trustee shall authenticate and the
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holder of the Notes shall obtain from the Indenture Trustee, in the name of the
designated transferee or transferees, one or more new Notes in any authorized
denominations and a like aggregate principal amount.
At the option of the holder of the Notes, Notes may be
exchanged for other Notes in any authorized denominations, a like class and a
like aggregate principal amount, upon surrender of the Notes to be exchanged at
such office or agency. Whenever any Notes are so surrendered for exchange, if
the requirements of Section 8-401(1) of the UCC are met, the Issuer shall
execute, and the Indenture Trustee shall authenticate and the holder of the
Notes shall obtain from the Indenture Trustee, the Notes which the holder of the
Notes making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
The Issuer initially appoints The Depository Trust Company
("DTC") to act as depositary (the "Depositary") with respect to the Note(s).
The Issuer initially appoints the Indenture Trustee to act as
custodian with respect to the Notes.
Every Note presented or surrendered for registration of
transfer or exchange shall be duly endorsed by, or be accompanied by a written
instrument of transfer in form satisfactory to the Indenture Trustee duly
executed by the holder of the Notes thereof or such holder's attorney duly
authorized in writing, with such signature guaranteed by an "eligible guarantor
institution" meeting the requirements of the Note Registrar, which requirements
include membership or participation in Securities Transfer Agent's Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Exchange Act.
No service charge shall be made to a holder of the Notes for
any registration of transfer or exchange of Notes, but the Indenture Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Notes, other than exchanges pursuant to Section 2.03 or 9.06 not
involving any transfer.
The preceding provisions of this Section notwithstanding, the
Issuer shall not be required to make and the Note Registrar need not register
transfers or exchanges of Notes selected for redemption or of any Note for a
period of 15 days preceding the due date for any payment with respect to the
Note.
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SECTION 2.05. MUTILATED, DESTROYED, LOST OR STOLEN NOTES. If
(i) any mutilated Note is surrendered to the Indenture Trustee, or the Indenture
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Note, and (ii) there is delivered to the Indenture Trustee such security
or indemnity as may be required by it to hold the Issuer and the Indenture
Trustee harmless, then, in the absence of notice to the Issuer, the Note
Registrar or the Indenture Trustee that such Note has been acquired by a bona
fide purchaser, and provided that the requirements of Section 8-405 of the UCC
are met, the Issuer shall execute and upon its request the Indenture Trustee
shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note, a replacement Note; PROVIDED,
HOWEVER, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within 15 days shall be due and payable, or shall
have been called for redemption, instead of issuing a replacement Note, the
Issuer may pay such destroyed, lost or stolen Note when so due or payable or
upon the Redemption Date without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or stolen Note pursuant to
the proviso to the preceding sentence, a bona fide purchaser of the original
Note in lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer and the Indenture Trustee shall be entitled to recover
such replacement Note (or such payment) from the Person to whom it was delivered
or any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
the Issuer or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section,
the Issuer may require the payment by the holder of the Notes thereof of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other reasonable expenses (including the fees and
expenses of the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.06. PERSONS DEEMED OWNER. Prior to due presentment
for registration of transfer of any Note, the Issuer, the Indenture Trustee and
any agent of the Issuer or the Indenture Trustee may treat the Person in whose
name any Note is registered (as of the day of determination) as the owner of
such Note for the purpose of receiving payments of principal of, interest (and
any Noteholders' Interest Index Carryover), if any, on such Note and for all
other
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purposes whatsoever, whether or not such Note be overdue, and neither the
Issuer, the Indenture Trustee nor any agent of the Issuer or the Indenture
Trustee shall be affected by notice to the contrary.
SECTION 2.07. PAYMENT OF PRINCIPAL AND INTEREST; DEFAULTED
INTEREST; NOTEHOLDERS' INTEREST INDEX CARRYOVER. (a) The Class A-1 Notes and the
Class A-2 Notes shall accrue interest as provided in the forms of the Class A-1
Note and the Class A-2 Note set forth in Exhibits A-1 and A-2 respectively, and
such interest shall be payable on each Distribution Date as specified therein,
subject to Section 3.01. Any installment of interest (and any Noteholders'
Interest Index Carryover) or principal, if any, payable on any Note which is
punctually paid or duly provided for by the Issuer on the applicable
Distribution Date shall be paid to the Person in whose name such Note (or one or
more Predecessor Notes) is registered on the Record Date by check mailed
first-class, postage prepaid to such Person's address as it appears on the Note
Register on such Record Date, except that, unless Definitive Notes have been
issued pursuant to Section 2.12, with respect to Notes registered on the Record
Date in the name of the nominee of the Clearing Agency (initially, such nominee
to be Cede & Co.), payment will be made by wire transfer in immediately
available funds to the account designated by such nominee and except for the
final installment of principal payable with respect to such Note on a
Distribution Date or on the applicable Note Final Maturity Date which shall be
payable as provided below. The funds represented by any such checks returned
undelivered shall be held in accordance with Section 3.03.
(b) The principal of each Note shall be payable in
installments on each Distribution Date as provided in the form of the Class A-1
Note and the Class A-2 Note set forth in Exhibits A-1 and A-2, respectively.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable, if not previously paid, on the date on which an Event
of Default shall have occurred and be continuing, if the Indenture Trustee or
the holders of the Notes representing not less than a majority of the
Outstanding Amount of the Notes have declared the Notes to be immediately due
and payable in the manner provided in Section 5.02. All principal payments on
each class of Notes shall be made pro rata to the holders of the Notes entitled
thereto. The Indenture Trustee shall notify the Person in whose name a Note is
registered at the close of business on the Record Date preceding the
Distribution Date on which the Issuer expects that the final installment of
principal of and interest (and any Noteholders' Interest Index Carryover for
such Notes) on such Note will be paid. Such notice shall be mailed or
transmitted by facsimile prior to such final Distribution Date and shall specify
that such final installment will be payable only upon presentation and surrender
of such Note and shall specify the place where such Note may be presented and
surrendered for payment of such installment. Notices in connection with
redemptions of Notes shall be mailed to the holders of the Notes as provided in
Section 10.02.
(c) If the Issuer defaults in a payment of interest on the
Notes, the Issuer shall pay defaulted interest (plus interest on such defaulted
interest to the extent lawful) at the applicable Note Interest Rate in any
lawful manner. The Issuer may pay such defaulted interest
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<PAGE> 14
to the persons who are holders of the Notes on a subsequent special record date,
which date shall be at least five Business Days prior to the payment date. The
Issuer shall fix or cause to be fixed any such special record date and payment
date, and, at least 15 days before any such special record date, the Issuer
shall mail to each holder of the Notes a notice that states the special record
date, the payment date and the amount of defaulted interest to be paid.
(d) The Noteholders' Interest Index Carryover for each
Distribution Date (including all unpaid Noteholders' Interest Index Carryover
for such Notes for prior Distribution Dates and interest accrued thereon at the
applicable Note Interest Rate for each applicable Interest Period) shall be
payable to each class of such Notes, pro rata based on the amount of
Noteholders' Interest Index Carryover then owing on each class of such Notes, on
each Distribution Date solely to the extent of funds required and available to
be distributed to the holders of the Notes by the Indenture Trustee pursuant to
Section 5.05(c)(ix) or 5.06(e) of the Sale and Servicing Agreement. Any
Noteholders' Interest Index Carryover payable on any Distribution Date shall be
paid to the Person in whose name such Note (or one or more Predecessor Notes) is
registered on the applicable Record Date by check mailed first-class postage
prepaid to such Person's address as it appears on the Note Register on such
Record Date, except that, unless Definitive Notes have been issued pursuant to
Section 2.12, with respect to the Notes registered on the Record Date in the
name of the nominee of the Clearing Agency (initially, such nominee to be Cede &
Co.), payment will be made by wire transfer in immediately available funds to
the account designated by such nominee. The funds represented by any such checks
returned undelivered shall be held in accordance with Section 3.03.
SECTION 2.08. CANCELLATION. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly cancelled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly cancelled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes cancelled as provided in this Section, except as expressly permitted
by this Indenture. All cancelled Notes may be held or disposed of by the
Indenture Trustee in accordance with its standard retention or disposal policy
as in effect at the time, unless the Issuer shall direct by an Issuer Order that
they be returned to it and so long as such Issuer Order is timely and the Notes
have not been previously disposed of by the Indenture Trustee.
SECTION 2.09. RELEASE OF COLLATERAL. Subject to Section 11.01
and the terms of the Basic Documents, the Indenture Trustee shall release
property from the lien of this Indenture only upon receipt of an Issuer Request
accompanied by an Officers' Certificate of the Issuer, an Opinion of Counsel and
Independent Certificates in accordance with TIA [] [] 314(c) and
314(d)(l) or an Opinion of Counsel in lieu of such Independent Certificates to
the effect that the TIA does not require any such Independent Certificates.
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SECTION 2.10. BOOK-ENTRY NOTES. The Notes, upon original
issuance, will be issued in the form of typewritten Notes representing the
Book-Entry Notes, to be delivered to The Depository Trust Company, the initial
Clearing Agency, by, or on behalf of, the Issuer. Such Notes shall initially be
registered on the Note Register in the name of Cede & Co., the nominee of the
initial Clearing Agency, and no Note Owner will receive a Definitive Note (as
defined below) representing such Note Owner's interest in such Note, except as
provided in Section 2.12. Unless and until definitive, fully registered Notes
(the "Definitive Notes") have been issued to Note Owners pursuant to Section
2.12:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Note Registrar and the Indenture Trustee may deal
with the Clearing Agency for all purposes (including the payment of
principal of and interest and other amounts on the Notes) as the
authorized representative of the Note Owners;
(iii) to the extent that the provisions of this Section
conflict with any other provisions of this Indenture, the provisions of
this Section shall control;
(iv) the rights of Note Owners shall be exercised only through
the Clearing Agency and shall be limited to those established by law
and agreements between such Note Owners and the Clearing Agency and/or
the Clearing Agency Participants pursuant to the Note Depository
Agreements. Unless and until Definitive Notes are issued pursuant to
Section 2.12, the initial Clearing Agency will make book-entry
transfers among the Clearing Agency Participants and receive and
transmit payments of principal of and interest and other amounts on the
Notes to such Clearing Agency Participants; and
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of the holders of the Notes
evidencing a specified percentage of the Outstanding Amount of the
Notes, the Clearing Agency shall be deemed to represent such percentage
only to the extent that it has received instructions to such effect
from Note Owners and/or Clearing Agency Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to the
Indenture Trustee.
SECTION 2.11. NOTICES TO CLEARING AGENCY. Whenever a notice or
other communication to the holders of the Notes is required under this
Indenture, unless and until Definitive Notes shall have been issued to Note
Owners pursuant to Section 2.12, the Indenture Trustee shall give all such
notices and communications specified herein to be given to the holders of the
Notes to the Clearing Agency.
SECTION 2.12. DEFINITIVE NOTES. If (i) the Administrator
advises the Indenture Trustee in writing that the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Notes, and the Administrator is unable to locate a qualified
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successor, (ii) the Administrator at its option advises the Indenture Trustee in
writing that it elects to terminate the book-entry system through the Clearing
Agency or (iii) after the occurrence of an Event of Default, a Servicer Default
or an Administrator Default, Note Owners representing beneficial interests
aggregating at least a majority of the Outstanding Amount of the Notes advise
the Clearing Agency (which shall then notify the Indenture Trustee) in writing
that the continuation of a book-entry system through the Clearing Agency is no
longer in the best interests of the Note Owners, then the Indenture Trustee will
cause the Clearing Agency to notify all Note Owners, through the Clearing
Agency, of the occurrence of any such event and of the availability of
Definitive Notes to Note Owners requesting the same. Upon surrender to the
Indenture Trustee of the typewritten Notes representing the Book-Entry Notes by
the Clearing Agency, accompanied by registration instructions, the Issuer shall
execute and the Indenture Trustee shall authenticate the Definitive Notes in
accordance with the instructions of the Clearing Agency. None of the Issuer, the
Note Registrar or the Indenture Trustee shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Notes, the Indenture Trustee shall recognize the holders of the Definitive Notes
as the holders of the Notes.
ARTICLE III
COVENANTS
SECTION 3.01. PAYMENT TO NOTEHOLDERS. The Issuer will duly and
punctually pay the principal of (subject to the parenthetical in the following
sentence), interest, if any, on and any Noteholders' Interest Index Carryover
(but only to the extent provided in Sections 2.07(d) and 8.02(c)) with respect
to each class of Notes in accordance with the terms of such Notes and this
Indenture. Without limiting the foregoing, subject to Section 8.02(c), the
Issuer will cause to be distributed to the holders of the Class A-1 Notes and to
the holders of the Class A-2 Notes that portion of the amounts on deposit in the
Trust Accounts on a Distribution Date (other than any Eligible Investments
deposited therein that will mature on the Business Day preceding a subsequent
Distribution Date), to which the holders of the Notes are entitled to receive
pursuant to the Sale and Servicing Agreement. Amounts properly withheld under
the Code by any Person from a payment to any holder of the Notes of interest
(including any Noteholders' Interest Index Carryover) and/or principal shall be
considered as having been paid by the Issuer to such holder of the Notes for all
purposes of this Indenture.
SECTION 3.02. MAINTENANCE OF OFFICE OR AGENCY. The Issuer will
maintain in the Borough of Manhattan, The City of New York, an office or agency
where Notes may be surrendered for registration of transfer or exchange, and
where notices and demands to or upon the Issuer in respect of the Notes and this
Indenture may be served. The Issuer hereby initially appoints the Indenture
Trustee to serve as its agent for the foregoing purposes. The Issuer will give
prompt written notice to the Indenture Trustee of the location, and of any
change in the location, of any such office or agency. If at any time the Issuer
shall fail to maintain any such
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office or agency or shall fail to furnish the Indenture Trustee with the address
thereof, such surrenders, notices and demands may be made or served at the
Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee as
its agent to receive all such surrenders, notices and demands.
SECTION 3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST. As
provided in Section 8.02(a) and (b), all payments of amounts due and payable
with respect to any Notes that are to be made from amounts distributed from the
Collection Account or any other Trust Account pursuant to Section 8.02(c) shall
be made on behalf of the Issuer by the Indenture Trustee or by another Paying
Agent, and no amounts so distributed from the Collection Account for payments of
Notes shall be paid over to the Issuer except as provided in this Section.
On or before the Business Day next preceding each Distribution
Date and Redemption Date, the Issuer shall distribute or cause to be distributed
to the Indenture Trustee (or any other Paying Agent) an aggregate sum sufficient
to pay the amounts then becoming due under the Notes and/or Certificates, such
sum to be held in trust for the benefit of the Persons entitled thereto and
(unless the Paying Agent is the Indenture Trustee) shall promptly notify the
Indenture Trustee of its action or failure so to act.
The Issuer will cause each Paying Agent other than the
Indenture Trustee to execute and deliver to the Indenture Trustee an instrument
in which such Paying Agent shall agree with the Indenture Trustee (and if the
Indenture Trustee acts as Paying Agent, it hereby so agrees), subject to the
provisions of this Section, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Indenture Trustee notice of any default by the
Issuer of which it has actual knowledge (or any other obligor upon the
Notes) in the making of any payment required to be made with respect to
the Notes;
(iii) at any time during the continuance of any such default,
upon the written request of the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to
the Indenture Trustee all sums held by it in trust for the payment of
Notes if at any time it ceases to meet the standards required to be met
by a Paying Agent at the time of its appointment; and
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(v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Notes of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds,
any money held by the Indenture Trustee or any Paying Agent in trust for the
payment of any amount due with respect to any Note and remaining unclaimed for
two years after such amount has become due and payable shall be discharged from
such trust and be paid to the Issuer on Issuer Request; and the holder of the
Notes thereof shall thereafter, as an unsecured general creditor, look only to
the Issuer for payment thereof (but only to the extent of the amounts so paid to
the Issuer), and all liability of the Indenture Trustee or such Paying Agent
with respect to such trust money shall thereupon cease; PROVIDED, HOWEVER, that
the Indenture Trustee or such Paying Agent, before being required to make any
such repayment, shall at the expense and direction of the Issuer cause to be
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in The City of New
York, notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the Issuer.
The Indenture Trustee shall also adopt and employ, at the expense of the Issuer,
any other reasonable means of notification of such repayment (including mailing
notice of such repayment to the holders of the Notes whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in moneys due and payable but not claimed is determinable from the
records of the Indenture Trustee or of any Paying Agent, at the last address of
record for each such holder of the Notes).
SECTION 3.04. EXISTENCE. The Issuer will keep in full effect
its existence, rights and franchises as a trust under the laws of the State of
New York (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other State or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Collateral and each other
instrument or agreement included in the Indenture Trust Estate.
SECTION 3.05. PROTECTION OF INDENTURE TRUST ESTATE. The Issuer
will from time to time execute and deliver all such supplements and amendments
hereto and all such financing
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statements, continuation statements, instruments of further assurance and other
instruments, and will take such other action necessary or advisable to:
(i) maintain or preserve the lien and security interest (and
the priority thereof) of this Indenture or carry out more effectively
the purposes hereof;
(ii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iii) enforce any of the Collateral; or
(iv) preserve and defend title to the Indenture Trust Estate
and the rights of the Indenture Trustee and the holders of the Notes in
such Indenture Trust Estate against the claims of all persons and
parties.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section.
SECTION 3.06. OPINIONS AS TO INDENTURE TRUST ESTATE. (a) On
the Closing Date, the Issuer shall furnish to the Indenture Trustee an Opinion
of Counsel either stating that, in the opinion of such counsel, such action has
been taken with respect to the recording and filing of this Indenture, any
indentures supplemental hereto, and any other requisite documents, and with
respect to the execution and filing of any financing statements and continuation
statements, as are necessary to perfect and make effective the lien and security
interest of this Indenture and reciting the details of such action, or stating
that, in the opinion of such counsel, no such action is necessary to make such
lien and security interest effective.
(b) On or before April 30 in each calendar year, beginning in
2000, the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel
either stating that, in the opinion of such counsel, such action has been taken
with respect to the recording, filing, re-recording and refiling of this
Indenture, any indentures supplemental hereto and any other requisite documents
and with respect to the execution and filing of any financing statements and
continuation statements as is necessary to maintain the lien and security
interest created by this Indenture and reciting the details of such action or
stating that in the opinion of such counsel no such action is necessary to
maintain such lien and security interest. Such Opinion of Counsel shall also
describe the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and the
execution and filing of any financing statements and continuation statements
that will, in the opinion of such counsel, be required to maintain the lien and
security interest of this Indenture until April 30 in the following calendar
year.
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SECTION 3.07. PERFORMANCE OF OBLIGATIONS; SERVICING OF
FINANCED STUDENT LOANS. (a) The Issuer will not take any action and will use its
best efforts not to permit any action to be taken by others that would release
any Person from any of such Person's material covenants or obligations under any
instrument or agreement included in the Indenture Trust Estate or that would
result in the amendment, hypothecation, subordination, termination or discharge
of, or impair the validity or effectiveness of, any such instrument or
agreement, except as expressly provided in this Indenture, the Sale and
Servicing Agreement, the Supplemental Sale and Servicing Agreement or such other
instrument or agreement.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officers' Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Initially, the
Issuer has contracted with each Servicer and the Administrator to assist the
Issuer in performing its duties under this Indenture.
(c) The Issuer will punctually perform and observe all its
obligations and agreements contained in this Indenture, the other Basic
Documents and in the instruments and agreements included in the Indenture Trust
Estate, including filing or causing to be filed all UCC financing statements and
continuation statements required to be filed by the terms of this Indenture and
the Sale and Servicing Agreement in accordance with and within the time periods
provided for herein and therein. Except as otherwise expressly provided therein,
the Issuer shall not waive, amend, modify, supplement or terminate any Basic
Document or any provision thereof without the consent of the Indenture Trustee
or the holders of at least a majority of the Outstanding Amount of the Notes.
(d) If the Issuer shall have knowledge of the occurrence of a
Servicer Default or an Administrator Default under the Sale and Servicing
Agreement, the Issuer shall promptly notify the Indenture Trustee and the Rating
Agencies thereof, and shall specify in such notice the action, if any, the
Issuer is taking with respect to such default. If a Servicer Default shall arise
from the failure of a Servicer to perform any of its duties or obligations under
the Sale and Servicing Agreement or the Supplemental Sale and Servicing
Agreement, or an Administrator Default shall arise from the failure of the
Administrator to perform any of its duties or obligations under the Sale and
Servicing Agreement, the Supplemental Sale and Servicing Agreement or the
Administration Agreement, as the case may be, with respect to the Financed
Student Loans, the Issuer shall take all reasonable steps available to it to
enforce its rights under the Basic Documents in respect of such failure.
(e) As promptly as possible after the giving of notice of
termination to a Servicer of such Servicer's rights and powers, or to the
Administrator of the Administrator's rights and powers, pursuant to Section 8.01
of the Sale and Servicing Agreement, the Issuer shall appoint a successor
servicer (the "Successor Servicer"), or a successor administrator (the
"Successor Administrator"), and such Successor Servicer or Administrator, as the
case may be, shall accept its appointment by a written assumption in a form
acceptable to the Indenture Trustee. In the
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event that a Successor Servicer or Administrator has not been appointed and
accepted its appointment at the time when a Servicer or Administrator, as the
case may be, ceases to act as Servicer or Administrator, as the case may be, the
Indenture Trustee without further action shall automatically be appointed a
Successor Servicer or Administrator, as the case may be. The Indenture Trustee
may resign as a Servicer or the Administrator by giving written notice of such
resignation to the Issuer and in such event will be released from such duties
and obligations, such release not to be effective until the date a new servicer
or a new administrator enters into an agreement with the Issuer as provided
below; PROVIDED, HOWEVER, that nothing herein shall require or permit the
Indenture Trustee to act as Servicer, or otherwise service Financed Student
Loans, in violation of the Higher Education Act. Upon delivery of any such
notice to the Issuer, the Issuer shall obtain a new servicer or a new
administrator as a Successor Servicer or Administrator under the Sale and
Servicing Agreement. Any Successor Servicer or Administrator, as the case may
be, other than the Indenture Trustee shall (i) be an established institution (A)
that satisfies any requirements of the Higher Education Act applicable to
servicers and (B) whose regular business includes the servicing or
administration of student loans and (ii) enter into a servicing agreement or an
administration agreement with the Issuer having substantially the same
provisions as the provisions of the Sale and Servicing Agreement and the
Supplemental Sale and Servicing Agreement applicable to the predecessor Servicer
or the provisions of the Sale and Servicing Agreement, the Supplemental Sale and
Servicing Agreement and the Administration Agreement applicable to the
Administrator. If within 30 days after the delivery of the notice referred to
above, the Issuer shall not have obtained such a new servicer or administrator,
as the case may be, the Indenture Trustee may appoint, or may petition a court
of competent jurisdiction to appoint, a Successor Servicer or Administrator;
PROVIDED, HOWEVER, that such right to appoint or to petition for the appointment
of any such successor shall in no event relieve the Indenture Trustee from any
obligations otherwise imposed on it under the Basic Documents until such
successor has in fact assumed such appointment. In connection with any such
appointment, the Indenture Trustee may make such arrangements for the
compensation of such successor as it and such successor shall agree, subject to
the limitations set forth below and in the Sale and Servicing Agreement, and in
accordance with Section 8.02 of the Sale and Servicing Agreement, the Issuer
shall enter into an agreement with such successor for the servicing or
administration of the Financed Student Loans (such agreement to be in form and
substance satisfactory to the Indenture Trustee). If the Indenture Trustee shall
succeed as provided herein to a Servicer's duties with respect to Financed
Student Loans or the Administrator's duties with respect to the Issuer and the
Financed Student Loans, as the case may be, it shall do so in its individual
capacity and not in its capacity as Indenture Trustee and, accordingly, the
provisions of Article VI hereof shall be inapplicable to the Indenture Trustee
in its duties as the successor to a Servicer or the Administrator, as the case
may be, and the servicing or administration of the Financed Student Loans. In
case the Indenture Trustee shall become successor to a Servicer or the
Administrator, as the case may be, under the Sale and Servicing Agreement, the
Indenture Trustee shall be entitled to appoint as Servicer or as Administrator,
as the case may be, any one of its affiliates, provided that such appointment
shall not affect or alter in any way the liability of the Indenture Trustee as a
successor for the
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performance of the duties and obligations of such Servicer or the Administrator
in accordance with the terms hereof.
(f) Upon any termination of a Servicer's rights and powers
pursuant to the Sale and Servicing Agreement, or any termination of the
Administrator's rights and powers pursuant to the Sale and Servicing Agreement,
as the case may be, the Issuer shall promptly notify the Indenture Trustee. As
soon as a Successor Servicer or a Successor Administrator is appointed, the
Issuer shall notify the Indenture Trustee of such appointment, specifying in
such notice the name and address of such Successor Servicer or such Successor
Administrator.
(g) Without derogating from the absolute nature of the
assignment granted to the Indenture Trustee under this Indenture or the rights
of the Indenture Trustee hereunder, the Issuer agrees that it will not, without
the prior written consent of the Indenture Trustee or the holders of at least a
majority in Outstanding Amount of the Notes, amend, modify, waive, supplement,
terminate or surrender, or agree to any amendment, modification, supplement,
termination, waiver or surrender of, the terms of any Collateral or the Basic
Documents, except to the extent otherwise provided therein, or waive timely
performance or observance by any Servicer, the Administrator, the Seller, the
Issuer or the Eligible Lender Trustee under the Sale and Servicing Agreement and
the Supplemental Sale and Servicing Agreement; PROVIDED, HOWEVER, that no such
amendment shall (i) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, distributions that are required to be made
for the benefit of the holders of the Notes, or (ii) reduce the aforesaid
percentage of the Notes which are required to consent to any such amendment,
without the consent of the holders of all the Outstanding Notes. If any such
amendment, modification, supplement or waiver shall be so consented to by the
Indenture Trustee or such holders of the Notes, the Issuer agrees, promptly
following a request by the Indenture Trustee to do so, to execute and deliver,
in its own name and at its own expense, such agreements, instruments, consents
and other documents as the Indenture Trustee may deem necessary or appropriate
in the circumstances.
SECTION 3.08. NEGATIVE COVENANTS. So long as any Notes are
Outstanding, the Issuer shall not:
(i) except as expressly permitted by this Indenture or any
other Basic Document, sell, transfer, exchange or otherwise dispose of
any of the properties or assets of the Issuer, including those included
in the Indenture Trust Estate, unless directed to do so by the
Indenture Trustee;
(ii) claim any credit on, or make any deduction from the
principal or interest (including any Noteholders' Interest Index
Carryover) payable in respect of, the Notes (other than amounts
properly withheld from such payments under the Code or applicable state
law) or assert any claim against any present or former holder of the
Notes by reason of the payment of the taxes levied or assessed upon any
part of the Indenture Trust Estate; or
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(iii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations with
respect to the Notes under this Indenture except as may be expressly
permitted hereby, (B) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance (other than the lien of this
Indenture) to be created on or extend to or otherwise arise upon or
burden the Indenture Trust Estate or any part thereof or any interest
therein or the proceeds thereof (other than tax liens and other liens
that arise by operation of law, in each case arising solely as a result
of an action or omission of the related Obligor, and other than as
expressly permitted by the Basic Documents) or (C) permit the lien of
this Indenture not to constitute a valid first priority (other than
with respect to any such tax or other lien) security interest in the
Indenture Trust Estate.
SECTION 3.09. ANNUAL STATEMENT AS TO COMPLIANCE. The Issuer
will deliver to the Indenture Trustee, within 120 days after the end of each
fiscal year of the Issuer (commencing with the fiscal year 1999), an Officers'
Certificate of the Issuer stating that:
(i) a review of the activities of the Issuer during such year
and of performance under this Indenture has been made under such
Authorized Officers' supervision; and
(ii) to the best of such Authorized Officers' knowledge, based
on such review, the Issuer has complied with all conditions and
covenants under this Indenture throughout such year, or, if there has
been a default in the compliance of any such condition or covenant,
specifying each such default known to such Authorized Officers and the
nature and status thereof.
SECTION 3.10. ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN
TERMS. (a) The Issuer shall not consolidate or merge with or into any other
Person, unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any State
and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Indenture Trustee, in form satisfactory
to the Indenture Trustee, the due and punctual payment of the principal
of, interest on and any Noteholders' Interest Index Carryover, if any,
with respect to all Notes and the performance or observance of every
agreement and covenant of this Indenture on the part of the Issuer to
be performed or observed, all as provided herein;
(ii) immediately after giving effect to such transaction, no
Default shall have occurred and be continuing;
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\
(iii) the Rating Agency Condition shall have been satisfied
with respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse Federal
or Pennsylvania state tax consequence to the Issuer, any holder of the
Notes or any holder of the Certificates;
(v) any action as is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee
an Officers' Certificate of the Issuer and an Opinion of Counsel each
stating that such consolidation or merger and such supplemental
indenture comply with this Article III and that all conditions
precedent herein provided for relating to such transaction have been
complied with (including any filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer all or
substantially all its properties or assets, including those included in the
Indenture Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of which
is hereby restricted shall (A) be a United States citizen or a Person
organized and existing under the laws of the United States of America
or any State, (B) expressly assumes, by an indenture supplemental
hereto, executed and delivered to the Indenture Trustee, in form
satisfactory to the Indenture Trustee, the due and punctual payment of
the principal of, interest on and Noteholders' Interest Index
Carryover, if any, with respect to all Notes and the performance or
observance of every agreement and covenant of this Indenture on the
part of the Issuer to be performed or observed, all as provided herein,
(C) expressly agrees by means of such supplemental indenture that all
right, title and interest so conveyed or transferred shall be subject
and subordinate to the rights of holders of the Notes, (D) unless
otherwise provided in such supplemental indenture, expressly agrees to
indemnify, defend and hold harmless the Issuer against and from any
loss, liability or expense arising under or related to this Indenture
and the Notes and (E) expressly agrees by means of such supplemental
indenture that such Person (or if a group of Persons, then one
specified Person) shall make all filings with the Commission (and any
other appropriate Person) required by the Exchange Act in connection
with the Notes;
(ii) immediately after giving effect to such transaction, no
Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied
with respect to such transaction;
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(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse Federal
or Pennsylvania state tax consequence to the Issuer, any holder of the
Notes or any holder of the Certificates;
(v) any action as is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee
an Officers' Certificate of the Issuer and an Opinion of Counsel each
stating that such conveyance or transfer and such supplemental
indenture comply with this Article III and that all conditions
precedent herein provided for relating to such transaction have been
complied with (including any filing required by the Exchange Act).
SECTION 3.11. SUCCESSOR OR TRANSFEREE. (a) Upon any
consolidation or merger of the Issuer in accordance with Section 3.10(a), the
Person formed by or surviving such consolidation or merger (if other than the
Issuer) shall succeed to, and be substituted for, and may exercise every right
and power of, the Issuer under this Indenture with the same effect as if such
Person had been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and
properties of the Issuer pursuant to Section 3.10(b), KeyCorp Student Loan Trust
1999-A will be released from every covenant and agreement of this Indenture to
be observed or performed on the part of the Issuer with respect to the Notes
immediately upon the delivery by the Issuer of written notice to the Indenture
Trustee stating that KeyCorp Student Loan Trust 1999-A is to be so released.
SECTION 3.12. NO OTHER BUSINESS. The Issuer shall not engage
in any business other than financing, purchasing, owning, selling and managing
the Financed Student Loans and making Additional Fundings in the manner
contemplated by this Indenture and the other Basic Documents and activities
incidental thereto. After the Loan Purchase Termination Date, the Issuer shall
not fund the purchase of any Additional Student Loans, or make any other
Additional Fundings.
SECTION 3.13. NO BORROWING. The Issuer shall not issue, incur,
assume, guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
SECTION 3.14. OBLIGATIONS OF SERVICER AND ADMINISTRATOR. The
Issuer shall cause each Servicer to comply with Sections 4.08(a), 4.09, 4.10 and
4.11 of the Sale and Servicing Agreement and the Administrator to comply with
Sections 4.08(b) and (c), 4.09, 4.10 and 5.07 thereof.
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SECTION 3.15. GUARANTEES, LOANS, ADVANCES AND OTHER
LIABILITIES. Except as contemplated by the Sale and Servicing Agreement or this
Indenture, the Issuer shall not make any loan or advance or credit to, or
guarantee (directly or indirectly or by an instrument having the effect of
assuring another's payment or performance on any obligation or capability of so
doing or otherwise), endorse or otherwise become contingently liable, directly
or indirectly, in connection with the obligations, stocks or dividends of, or
own, purchase, repurchase or acquire (or agree contingently to do so) any stock,
obligations, assets or securities of, or any other interest in, or make any
capital contribution to, any other Person.
SECTION 3.16. CAPITAL EXPENDITURES. The Issuer shall not make
any expenditure (by long-term or operating lease or otherwise) for capital
assets (either realty or personalty).
SECTION 3.17. RESTRICTED PAYMENTS. The Issuer shall not,
directly or indirectly, (i) pay any dividend or make any distribution (by
reduction of capital or otherwise), whether in cash, property, securities or a
combination thereof, to the Eligible Lender Trustee or any owner of a beneficial
interest in the Issuer or otherwise with respect to any ownership or equity
interest or security in or of the Issuer or to any Servicer or the
Administrator, (ii) redeem, purchase, retire or otherwise acquire for value any
such ownership or equity interest or security or (iii) set aside or otherwise
segregate any amounts for any such purpose; PROVIDED, HOWEVER, that the Issuer
may make, or cause to be made, distributions to the Servicers, the Eligible
Lender Trustee, the Indenture Trustee, the holders of the Certificates, the
holders of the Notes, the Administrator and the Seller as contemplated by, and
to the extent funds are available for such purpose under, the Sale and Servicing
Agreement. The Issuer will not, directly or indirectly, make payments to or
distributions from the Collection Account except in accordance with this
Indenture and the other Basic Documents.
SECTION 3.18. NOTICE OF EVENTS OF DEFAULT. The Issuer shall
give the Indenture Trustee and the Rating Agencies prompt written notice of each
Event of Default hereunder and each default on the part of the Seller of its
obligations under the Sale and Servicing Agreement or the Supplemental Sale and
Servicing Agreement, a Servicer of its obligations under the Sale and Servicing
Agreement or the Supplemental Sale and Servicing Agreement or the Administrator
of its obligations under the Sale and Servicing Agreement, the Supplemental Sale
and Servicing Agreement or the Administration Agreement. In addition, the Issuer
shall deliver to the Indenture Trustee, within five days after the occurrence
thereof, written notice in the form of an Officers' Certificate of the Issuer of
any event which with the giving of notice and the lapse of time would become an
Event of Default under Section 5.01(iii), its status and what action the Issuer
is taking or proposes to take with respect thereto.
SECTION 3.19. FURTHER INSTRUMENTS AND ACTS. Upon request of
the Indenture Trustee, the Issuer will execute and deliver such further
instruments and do such further acts as may be reasonably necessary or proper to
carry out more effectively the purpose of this Indenture.
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ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.01. SATISFACTION AND DISCHARGE OF INDENTURE. This
Indenture shall cease to be of further effect with respect to the Notes except
as to (i) rights of registration of transfer and exchange, (ii) substitution of
mutilated, destroyed, lost or stolen Notes, (iii) rights of holders of the Notes
to receive payments of principal thereof and interest (including any
Noteholders' Interest Index Carryover) thereon, (iv) Sections 3.03, 3.04, 3.05,
3.08, 3.10, 3.12 and 3.13, (v) the rights, obligations and immunities of the
Indenture Trustee hereunder (including the rights of the Indenture Trustee under
Section 6.07 and the obligations of the Indenture Trustee under Section 4.02)
and (vi) the rights of holders of the Notes as beneficiaries hereof with respect
to the property so deposited with the Indenture Trustee payable to all or any of
them, and the Indenture Trustee, on demand of and at the expense of the Issuer,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture with respect to the Notes, when:
(A) either
(1) all Notes theretofore authenticated and delivered
(other than (i) Notes that have been destroyed, lost or stolen
and that have been replaced or paid as provided in Section
2.05 and (ii) Notes for whose payment money has theretofore
been deposited in trust or segregated and held in trust by the
Issuer and thereafter repaid to the Issuer or discharged from
such trust, as provided in Section 3.03) have been delivered
to the Indenture Trustee for cancellation; or
(2) all Notes not theretofore delivered to the
Indenture Trustee for cancellation
(i) have become due and payable,
(ii) will become due and payable at the
Class A-1 Final Maturity or the Class A-2 Final
Maturity Date, as the case may be, within one year,
or
(iii) are to be called for redemption within
one year under arrangements satisfactory to the
Indenture Trustee for the giving of notice of
redemption by the Indenture Trustee in the name, and
at the expense, of the Issuer,
and the Issuer, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be irrevocably deposited
with the Indenture Trustee cash or direct obligations of or
obligations guaranteed by the United States of America (which
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will mature prior to the date such amounts are payable), in
trust for such purpose, in an amount sufficient to pay and
discharge the entire indebtedness on such Notes not
theretofore delivered to the Indenture Trustee for
cancellation when due to the Class A-1 Final Maturity Date or
the Class A-2 Final Maturity Date, as the case may be;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee an
Officers' Certificate of the Issuer, an Opinion of Counsel and (if
required by the TIA or the Indenture Trustee) an Independent
Certificate from a firm of certified public accountants, each meeting
the applicable requirements of Section 11.01(a) and, subject to Section
11.02, each stating that all conditions precedent herein provided for
relating to the satisfaction and discharge of this Indenture have been
complied with.
SECTION 4.02. APPLICATION OF TRUST MONEY. All moneys deposited
with the Indenture Trustee pursuant to Section 4.01 hereof shall be held in
trust and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the holders of the particular Notes for the
payment or redemption of which such moneys have been deposited with the
Indenture Trustee, of all sums due and to become due thereon for principal and
interest (including any Noteholders' Interest Index Carryover); but such moneys
need not be segregated from other funds except to the extent required herein or
in the Sale and Servicing Agreement or required by law.
SECTION 4.03. REPAYMENT OF MONEYS HELD BY PAYING AGENT. In
connection with the satisfaction and discharge of this Indenture with respect to
the Notes, all moneys then held by any Paying Agent other than the Indenture
Trustee under the provisions of this Indenture with respect to such Notes shall,
upon demand of the Issuer, be paid to the Indenture Trustee to be held and
applied according to Section 3.03 and thereupon such Paying Agent shall be
released from all further liability with respect to such moneys.
SECTION 4.04. AUCTION OF FINANCED STUDENT LOANS. Any Financed
Student Loans remaining in the Trust as of the end of the Collection Period
immediately preceding the March 2009 Distribution Date will be offered for sale
by the Indenture Trustee. KeyCorp, its affiliates (other than the Seller),
PHEAA, TERI and unrelated third parties may offer bids to purchase such Financed
Student Loans on such Distribution Date. If at least two bids are received, the
Indenture Trustee will solicit and resolicit new bids from all participating
bidders until only one bid remains or the remaining bidders decline to resubmit
bids. The Indenture Trustee shall accept the highest of such remaining bids if
it is equal to or in excess of the Minimum Purchase Amount as of the end of the
Collection Period immediately preceding such Distribution Date. If at least two
bids are not received or the highest bid after the resolicitation
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process is completed is not equal to or in excess of the Minimum Purchase
Amount, the Indenture Trustee will not consummate such sale. In connection with
the determination of the Minimum Purchase Amount, the Indenture Trustee may
consult, and, at the direction of the Seller, shall consult, with a financial
advisor (which may be the Administrator) to determine if the fair market value
of the Financed Student Loans has been offered. The proceeds of any such sale
will be applied in the order of priority set forth in Section 5.04(b). If the
sale is not consummated in accordance with the foregoing, the Indenture Trustee
may, but shall not be under any obligation to, solicit bids to purchase the
Financed Student Loans on future Distribution Dates upon terms similar to those
described above.
ARTICLE V
REMEDIES
SECTION 5.01. EVENTS OF DEFAULT. "Event of Default", wherever
used herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) default in the payment of any interest (including, subject
to the limitations of Sections 2.07(d) and 8.02(c), any Noteholders'
Interest Index Carryover) on any Note when the same becomes due and
payable, and such default shall continue for a period of five days; or
(ii) default in the payment of the principal of any Note when
the same becomes due and payable; or
(iii) default in the observance or performance of any covenant
or agreement of the Issuer made in this Indenture (other than a
covenant or agreement, a default in the observance or performance of
which is elsewhere in this Section specifically dealt with), or any
representation or warranty of the Issuer made in this Indenture or in
any certificate or other writing delivered pursuant hereto or in
connection herewith proving to have been incorrect in any material
respect as of the time when the same shall have been made, and such
default shall continue or not be cured, or the circumstance or
condition in respect of which such misrepresentation or warranty was
incorrect shall not have been eliminated or otherwise cured, for a
period of 30 days after there shall have been given, by registered or
certified mail, to the Issuer by the Indenture Trustee or to the Issuer
and the Indenture Trustee by the holders of at least 25% of the
Outstanding Amount of the Notes, a written notice specifying such
default or incorrect representation or warranty and requiring it to be
remedied and stating that such notice is a notice of Default hereunder;
or
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(iv) the filing of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Issuer or any
substantial part of the Indenture Trust Estate in an involuntary case
under any applicable Federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Issuer or for any substantial part of the Indenture
Trust Estate, or ordering the winding-up or liquidation of the Issuer's
affairs, and such decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or
(v) the commencement by the Issuer of a voluntary case under
any applicable Federal or state bankruptcy, insolvency or other similar
law now or hereafter in effect, or the consent by the Issuer to the
entry of an order for relief in an involuntary case under any such law,
or the consent by the Issuer to the appointment or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Issuer or for any substantial part of the
Indenture Trust Estate, or the making by the Issuer of any general
assignment for the benefit of creditors, or the failure by the Issuer
generally to pay its debts as such debts become due, or the taking of
action by the Issuer in furtherance of any of the foregoing.
SECTION 5.02. ACCELERATION OF MATURITY; RESCISSION AND
ANNULMENT. If an Event of Default should occur and be continuing, then and in
every such case the Indenture Trustee or the holders of the Notes representing
not less than a majority of the Outstanding Amount of the Notes may declare all
the Notes to be immediately due and payable, by a notice in writing to the
Issuer (and to the Indenture Trustee if given by holders of the Notes), and upon
any such declaration the unpaid principal amount of such Notes, together with
accrued and unpaid interest thereon through the date of acceleration, shall
become immediately due and payable.
At any time after such declaration of acceleration of maturity
has been made and before a judgment or decree for payment of the money due has
been obtained by the Indenture Trustee as hereinafter in this Article V
provided, the holders of the Notes representing a majority of the Outstanding
Amount of the Notes, by written notice to the Issuer and the Indenture Trustee,
may rescind and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture
Trustee a sum sufficient to pay:
(A) all payments of principal of and interest on all
Notes and all other amounts that would then be due hereunder
or upon such Notes if the Event of Default giving rise to such
acceleration had not occurred; and
(B) all sums paid or advanced by the Indenture
Trustee hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee and its
agents and counsel; and
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(ii) all Events of Default, other than the nonpayment of the
principal of the Notes that has become due solely by such acceleration,
have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or
impair any right consequent thereto.
SECTION 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR
ENFORCEMENT BY INDENTURE TRUSTEE. (a) The Issuer covenants that if (i) default
is made in the payment of any interest (including, subject to the limitations of
Sections 2.07(d) and 8.02(c), any Noteholders' Interest Index Carryover) on any
Note when the same becomes due and payable, and such default continues for a
period of five days, or (ii) default is made in the payment of the principal of
or any installment of the principal of any Note when the same becomes due and
payable, the Issuer will, upon demand of the Indenture Trustee, pay to it, for
the benefit of the holders of the Notes, the whole amount then due and payable
on such Notes for principal and interest (and any Noteholders' Interest Index
Carryover), with interest upon the overdue principal, and, to the extent payment
at such rate of interest shall be legally enforceable, upon overdue installments
of interest (and any Noteholders' Interest Index Carryover), at the rate
specified in Section 2.07 and in addition thereto such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Indenture
Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such
amounts upon such demand, the Indenture Trustee, in its own name and as trustee
of an express trust, may institute a Proceeding for the collection of the sums
so due and unpaid, and may prosecute such Proceeding to judgment or final
decree, and may enforce the same against the Issuer or other obligor upon such
Notes and collect in the manner provided by law out of the property of the
Issuer or other obligor upon such Notes, wherever situated, the moneys adjudged
or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the
Indenture Trustee may, as more particularly provided in Section 5.04, in its
discretion, proceed to protect and enforce its rights and the rights of the
holders of the Notes, by such appropriate Proceedings as the Indenture Trustee
shall deem most effective to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in this Indenture or in
aid of the exercise of any power granted herein, or to enforce any other proper
remedy or legal or equitable right vested in the Indenture Trustee by this
Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or
any other obligor upon the Notes or any Person having or claiming an ownership
interest in the Indenture Trust Estate, Proceedings under Title 11 of the United
States Code or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
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appointed for or taken possession of the Issuer or its property or such other
obligor or Person, or in case of any other comparable judicial Proceedings
relative to the Issuer or other obligor upon the Notes, or to the creditors or
property of the Issuer or such other obligor, the Indenture Trustee,
irrespective of whether the principal of any Notes shall then be due and payable
as therein expressed or by declaration or otherwise and irrespective of whether
the Indenture Trustee shall have made any demand pursuant to the provisions of
this Section, shall be entitled and empowered, by intervention in such
proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount
of principal and interest (including any Noteholders' Interest Index
Carryover) owing and unpaid in respect of the Notes and to file such
other papers or documents as may be necessary or advisable in order to
have the claims of the Indenture Trustee (including any claim for
reasonable compensation to the Indenture Trustee and each predecessor
Indenture Trustee, and their respective agents, attorneys and counsel,
and for reimbursement of all expenses and liabilities incurred, and all
advances made, by the Indenture Trustee and each predecessor Indenture
Trustee, except as a result of negligence or bad faith) and of the
holders of the Notes allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to
vote on behalf of the holders of the Notes in any election of a
trustee, a standby trustee or Person performing similar functions in
any such Proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the holders of the Notes and of
the Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Indenture Trustee or the holders of the Notes allowed in any
judicial proceedings relative to the Issuer, its creditors and its
property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such holders of the Notes to
make payments to the Indenture Trustee, and, in the event that the Indenture
Trustee shall consent to the making of payments directly to such holders of the
Notes, to pay to the Indenture Trustee such amounts as shall be sufficient to
cover reasonable compensation to the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents, attorneys and counsel, and all
other expenses and liabilities incurred, and all advances made, by the Indenture
Trustee and each predecessor Indenture Trustee except as a result of negligence
or bad faith.
(e) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any holder of the Notes any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights
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of any holder of the Notes thereof or to authorize the Indenture Trustee to vote
in respect of the claim of any holder of the Notes in any such proceeding
except, as aforesaid, to vote for the election of a trustee in bankruptcy or
similar Person.
(f) All rights of action and of asserting claims under this
Indenture, or under any of the Notes, may be enforced by the Indenture Trustee
without the possession of any of the Notes or the production thereof in any
trial or other Proceedings relative thereto, and any such action or Proceedings
instituted by the Indenture Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment, subject to the payment of the
expenses, disbursements and compensation of the Indenture Trustee, each
predecessor Indenture Trustee and their respective agents and attorneys, shall
be for the ratable benefit of the holders of the Notes.
(g) In any Proceedings brought by the Indenture Trustee (and
also any Proceedings involving the interpretation of any provision of this
Indenture to which the Indenture Trustee shall be a party), the Indenture
Trustee shall be held to represent all the holders of the Notes, and it shall
not be necessary to make any holder of the Notes a party to any such
Proceedings.
SECTION 5.04. REMEDIES; PRIORITIES. (a) If an Event of Default
shall have occurred and be continuing, the Indenture Trustee may do one or more
of the following (subject to Section 5.05):
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the
Notes or under this Indenture with respect thereto, whether by
declaration or otherwise, enforce any judgment obtained, and collect
from the Issuer and any other obligor upon such Notes moneys adjudged
due;
(ii) institute Proceedings from time to time for the complete
or partial foreclosure of this Indenture with respect to the Indenture
Trust Estate;
(iii) exercise any remedies of a secured party under the UCC
and take any other appropriate action to protect and enforce the rights
and remedies of the Indenture Trustee and the holders of the Notes; and
(iv) sell the Indenture Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private sales
called and conducted in any manner permitted by law;
PROVIDED, HOWEVER, that the Indenture Trustee may not sell or otherwise
liquidate the Indenture Trust Estate following an Event of Default, other than
an Event of Default described in Section 5.01(i) or (ii), unless (i) the holders
of all outstanding Notes consent to such sale, (ii) the proceeds of such sale
are sufficient to pay in full the principal of and the accrued interest on the
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outstanding Notes at the date of such sale or (iii) the Indenture Trustee
determines that the collections on the Financed Student Loans would not be
sufficient on an ongoing basis to make all payments on the Notes as such
payments would have become due if such obligations had not been declared due and
payable, and the Indenture Trustee obtains the consent of the holders of 66 2/3%
of the aggregate principal amount of the Notes then outstanding; provided,
further, that the Indenture Trustee may not sell or otherwise liquidate the
Trust Estate following an Event of Default, other than an Event of Default
described in Section 5.01(i) or (ii) unless (i) the proceeds of the sale or
liquidation of the Trust Estate distributable to the holders of the Certificates
are sufficient to pay to the holders of the Certificates the outstanding
principal balance of the Certificates plus accrued and unpaid return thereon or
(ii) after receipt of notice from the Eligible Lender Trustee that the proceeds
of such sale or liquidation distributable to the holders of the Certificates
would not be sufficient to pay to the holders of the Certificates the
outstanding principal balance of the Certificates plus accrued and unpaid return
thereon, the holders of the Certificates of at least a majority of the
outstanding principal balance of the Certificates consent thereto[; provided,
further, that the Indenture Trustee may not sell or otherwise liquidate the
Trust Estate following an Event of Default, other than an Event of Default
described in Section 5.01(i) or (ii), unless proceeds of the sale or liquidation
of the Trust Estate distributable from such sale are sufficient (i) (a) to pay
to holders of the Notes, the outstanding principal balance of the Notes plus
accrued and unpaid interest thereon (other than the Noteholders' Interest Index
Carryover) and (b) to pay to holders of the Certificates the outstanding
principal balance of the Certificates plus accrued and unpaid interest thereon
(other than the Certificateholders' Interest Index Carryover) or (ii) after
receipt of notice from the Eligible Lender Trustee that the proceeds of such
sale or liquidation would not be sufficient (a) to pay to holders of the Notes,
the outstanding principal balance of the Notes (other than the Noteholders
Interest Index Carryover) and (b) to pay to the holders of the Certificates the
outstanding principal balance of the Certificates plus accrued and unpaid
interest thereon (other than the Certificateholders' Interest Index Carryover),
holders of __% of the aggregate principal amount of the Notes then outstanding
and holders of at least __% of the outstanding principal balance of the
Certificates consent thereto. In addition, notwithstanding anything herein to
the contrary, the Indenture Trustee's rights hereunder to sell the Financed
Student Loans shall be subject to the rights of PHEAA to submit a first offer
therefor in accordance with paragraph 8 of the Supplemental Sale and Servicing
Agreement.
(b) If the Indenture Trustee collects any money or property
pursuant to this Article V, it shall pay out the money or property in the
following order:
FIRST: to the Indenture Trustee for amounts due under Section
6.07;
SECOND: to the Servicers for due and unpaid Servicing Fees;
THIRD: to the holders of the Notes for amounts due and unpaid
on the Notes for interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for interest;
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FOURTH: to the holders of the Notes for amounts due and unpaid
on the Notes for principal, ratably, without preference or priority of
any kind, according to the amounts due and payable on the Notes for
principal;
FIFTH: to the Issuer for distribution of principal and
interest due and unpaid to the holders of the related Certificates;
SIXTH: [Reserved];
SEVENTH: to the Servicers, for any unpaid Excess Servicing
Fees;
EIGHTH: to the holders of the Notes for any unpaid
Noteholders' Interest Index Carryover, ratably, without preference or
priority of any kind, according to the amount of Noteholders' Interest
Index Carryover attributable to each Note;
NINTH: to the Issuer for distribution to the holders of the
Certificates for any unpaid Certificateholders' Interest Index
Carryover; and
TENTH: to the Issuer, for distribution in accordance with the
terms of the Sale and Servicing Agreement.
The Indenture Trustee may fix a record date and payment date
for any payment to the holders of the Notes pursuant to this Section. At least
15 days before such record date, the Issuer shall mail to each holder of the
Notes and the Indenture Trustee a notice that states the record date, the
payment date and the amount to be paid.
SECTION 5.05. OPTIONAL PRESERVATION OF THE FINANCED STUDENT
LOANS. If the Notes have been declared to be due and payable under Section 5.02
following an Event of Default and such declaration and its consequences have not
been rescinded and annulled, the Indenture Trustee may, but need not, elect to
maintain possession of the Indenture Trust Estate. It is the desire of the
parties hereto and the holders of the Notes that there be at all times
sufficient funds for the payment of principal of and interest (including any
Noteholders' Interest Index Carryover) on the Notes, and the Indenture Trustee
shall take such desire into account when determining whether or not to maintain
possession of the Indenture Trust Estate. In determining whether to maintain
possession of the Indenture Trust Estate, the Indenture Trustee may, but need
not, obtain and rely upon an opinion of an Independent investment banking or
accounting firm of national reputation as to the feasibility of such proposed
action and as to the sufficiency of the Indenture Trust Estate for such purpose.
SECTION 5.06. LIMITATION OF SUITS. No holder of the Notes
shall have any right to institute any Proceeding, judicial or otherwise, with
respect to this Indenture, or for the appointment of a receiver or trustee, or
for any other remedy hereunder, unless:
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(i) such holder of the Notes has previously given written
notice to the Indenture Trustee of a continuing Event of Default;
(ii) the holders of not less than 25% of the Outstanding
Amount of the Notes have made written request to the Indenture Trustee
to institute such Proceeding in respect of such Event of Default in its
own name as Indenture Trustee hereunder;
(iii) such holder of the Notes have offered to the Indenture
Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has failed to institute
such Proceeding; and
(v) no direction inconsistent with such written request has
been given to the Indenture Trustee during such 60-day period by the
holders of a majority of the Outstanding Amount of the Notes;
it being understood and intended that no one or more holders of the Notes shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other holders of the Notes or to obtain or to seek to obtain priority or
preference over any other holders of the Notes or to enforce any right under
this Indenture, except in the manner herein provided.
In the event the Indenture Trustee shall receive conflicting
or inconsistent requests and indemnity from two or more groups of holders of the
Notes, each representing less than a majority of the Outstanding Amount of the
Notes, the Indenture Trustee in its sole discretion may determine what action,
if any, shall be taken, notwithstanding any other provisions of this Indenture.
SECTION 5.07. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE
PRINCIPAL AND INTEREST. Notwithstanding any other provisions in this Indenture,
any holder of the Notes shall have the right, which is absolute and
unconditional, to receive payment of the principal of and interest, if any, on
such Note on or after the respective due dates thereof expressed in such Note or
in this Indenture (or, in the case of redemption, on or after the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
right shall not be impaired without the consent of such holder of the Notes.
SECTION 5.08. RESTORATION OF RIGHTS AND REMEDIES. If the
Indenture Trustee or any holder of the Notes has instituted any Proceeding to
enforce any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason or has been determined adversely to the
Indenture Trustee or to such holder of the Notes, then and in every
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such case the Issuer, the Indenture Trustee and the holders of the Notes shall,
subject to any determination in such Proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Indenture Trustee and the holders of the Notes shall continue as
though no such Proceeding had been instituted.
SECTION 5.09. RIGHTS AND REMEDIES CUMULATIVE. No right or
remedy herein conferred upon or reserved to the Indenture Trustee or to the
holders of the Notes is intended to be exclusive of any other right or remedy,
and every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 5.10. DELAY OR OMISSION NOT A WAIVER. No delay or
omission of the Indenture Trustee or any holder of the Notes to exercise any
right or remedy accruing upon any Default shall impair any such right or remedy
or constitute a waiver of any such Default or an acquiescence therein. Every
right and remedy given by this Article V or by law to the Indenture Trustee or
to the holders of the Notes may be exercised from time to time, and as often as
may be deemed expedient, by the Indenture Trustee or by the holders of the
Notes, as the case may be.
SECTION 5.11. CONTROL BY NOTEHOLDERS. The holders of a
majority of the Outstanding Amount of the Notes shall have the right to direct
the time, method and place of conducting any Proceeding for any remedy available
to the Indenture Trustee with respect to the Notes or exercising any trust or
power conferred on the Indenture Trustee; PROVIDED that
(i) such direction shall not be in conflict with any rule of
law or with this Indenture;
(ii) subject to the express terms of Section 5.04, any
direction to the Indenture Trustee to sell or liquidate the Indenture
Trust Estate shall be by the holders of not less than 100% of the
Outstanding Amount of the Notes;
(iii) if the conditions set forth in Section 5.05 have been
satisfied and the Indenture Trustee elects to retain the Indenture
Trust Estate pursuant to such Section, then any direction to the
Indenture Trustee by holders of less than 100% of the Outstanding
Amount of the Notes to sell or liquidate the Indenture Trust Estate
shall be of no force and effect; and
(iv) the Indenture Trustee may take any other action deemed
proper by the Indenture Trustee that is not inconsistent with such
direction;
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PROVIDED, HOWEVER, that, subject to Section 6.01, the Indenture Trustee need not
take any action that it determines might involve it in liability or might
materially adversely affect the rights of (i) any holders of the Notes not
consenting to such action.
SECTION 5.12. WAIVER OF PAST DEFAULTS. Prior to the time a
judgment or decree for payment of money due has been obtained as described in
Section 5.02, the holders of not less than a majority of the Outstanding Amount
of the Notes may waive any past Default and its consequences except a Default
(a) in payment when due of principal of or interest (including, subject to the
limitations of Sections 2.07(d) and 8.02(c), any Noteholders' Interest Index
Carryover) on any of the Notes or (b) in respect of a covenant or provision
hereof which cannot be modified or amended without the consent of each holder of
the Notes. In the case of any such waiver, the Issuer, the Indenture Trustee and
the holders of the Notes shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereto.
SECTION 5.13. UNDERTAKING FOR COSTS. All parties to this
Indenture agree, and each holder of the Notes by such Noteholder's acceptance of
any Note shall be deemed to have agreed, that any court may in its discretion
require, in any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Indenture Trustee for any action taken,
suffered or omitted by it as Indenture Trustee, the filing by any party litigant
in such suit of an undertaking to pay the costs of such suit, and that such
court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section shall not apply to (a) any suit instituted by
the Indenture Trustee, (b) any suit instituted by any holder of the Notes, or
group of holders of the Notes, in each case holding in the aggregate more than
10% of the Outstanding Amount of the Notes or (c) any suit instituted by any
holder of the Notes for the enforcement of the payment of principal of or
interest (including any Noteholders' Interest Index Carryover) on any Note on or
after the respective due dates expressed in such Note and in this Indenture (or,
in the case of redemption, on or after the Redemption Date).
SECTION 5.14. WAIVER OF STAY OR EXTENSION LAWS. The Issuer
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead or in any manner whatsoever, claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, that may affect the covenants or the performance of
this Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Indenture Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
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SECTION 5.15. ACTION ON NOTES. The Indenture Trustee's right
to seek and recover judgment on the Notes or under this Indenture shall not be
affected by the seeking, obtaining or application of any other relief under or
with respect to this Indenture. Neither the lien of this Indenture nor any
rights or remedies of the Indenture Trustee or the holders of the Notes shall be
impaired by the recovery of any judgment by the Indenture Trustee against the
Issuer or by the levy of any execution under such judgment upon any portion of
the Indenture Trust Estate or upon any of the assets of the Issuer. Any money or
property collected by the Indenture Trustee shall be applied in accordance with
Section 5.04(b).
SECTION 5.16. PERFORMANCE AND ENFORCEMENT OF CERTAIN
OBLIGATIONS. (a) Promptly following a request from the Indenture Trustee to do
so and at the Administrator's expense, the Issuer shall take all such lawful
action as the Indenture Trustee may request to compel or secure the performance
and observance by the Seller, the Administrator and the Servicers, as
applicable, of each of their obligations to the Issuer under or in connection
with the Sale and Servicing Agreement and the Supplemental Sale and Servicing
Agreement (and with respect to the Administrator only, the Administration
Agreement) in accordance with the terms thereof, and to exercise any and all
rights, remedies, powers and privileges lawfully available to the Issuer under
or in connection with the Sale and Servicing Agreement and the Supplemental Sale
and Servicing Agreement (and the Administration Agreement) to the extent and in
the manner directed by the Indenture Trustee, including the transmission of
notices of default on the part of the Seller, the Administrator or a Servicer
thereunder and the institution of legal or administrative actions or proceedings
to compel or secure performance by the Seller, the Administrator or the
Servicers of each of their obligations under the Sale and Servicing Agreement
and the Supplemental Sale and Servicing Agreement (and the Administration
Agreement).
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and at the direction (which direction shall be in writing
or by telephone (confirmed in writing promptly thereafter)) of the holders of
66-2/3% of the Outstanding Amount of the Notes shall, exercise all rights,
remedies, powers, privileges and claims of the Issuer against the Seller, the
Administrator or any Servicer under or in connection with the Sale and Servicing
Agreement and the Supplemental Sale and Servicing Agreement (and the
Administration Agreement), including the right or power to take any action to
compel or secure performance or observance by the Seller, the Administrator or
the Servicers of each of their obligations to the Issuer thereunder and to give
any consent, request, notice, direction, approval, extension or waiver under the
Sale and Servicing Agreement and the Supplemental Sale and Servicing Agreement
(and the Administration Agreement) and any right of the Issuer to take such
action shall be suspended.
ARTICLE VI
THE INDENTURE TRUSTEE
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SECTION 6.01. DUTIES OF INDENTURE TRUSTEE. (a) If an Event of
Default has occurred and is continuing, the Indenture Trustee shall exercise the
rights and powers vested in it by this Indenture and use the same degree of care
and skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture
and no implied covenants or obligations shall be read into this
Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; PROVIDED, HOWEVER, that the Indenture
Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability
for its own negligent action, its own negligent failure to act or its own
willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Indenture Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer unless it is
proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Indenture Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in accordance
with a direction received by it pursuant to Section 5.11.
(d) Every provision of this Indenture that in any way relates
to the Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this
Section 6.01.
(e) The Indenture Trustee shall not be liable for interest on
any money received by it except as the Indenture Trustee may agree in writing
with the Issuer.
(f) Money held in trust by the Indenture Trustee need not be
segregated from other funds except to the extent required by law or the terms of
this Indenture or the Sale and Servicing Agreement.
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(g) No provision of this Indenture shall require the Indenture
Trustee to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise of any of
its rights or powers, if it shall have reasonable grounds to believe that
repayments of such funds or adequate indemnity satisfactory to it against any
loss, liability or expense is not reasonably assured to it.
(h) Except as expressly provided in the Basic Documents, the
Indenture Trustee shall have no obligation to administer, service or collect the
Financed Student Loans or to maintain, monitor or otherwise supervise the
administration, servicing or collection of the Financed Student Loans.
(i) In the event that the Indenture Trustee is the Paying
Agent or the Note Registrar, the rights and protections afforded to the
Indenture Trustee pursuant to this Indenture shall also be afforded to the
Indenture Trustee in its capacity as Paying Agent or Note Registrar.
(j) Every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section 6.01.
(k) Notwithstanding any other provision in this Agreement or
the other Basic Documents, nothing in this Agreement or the other Basic
Documents shall be construed to limit the legal responsibility of the Indenture
Trustee to the U.S. Secretary of Education or a Guarantor for any violations of
statutory or regulatory requirements that may occur with respect to loans held
by the Indenture Trustee pursuant to the Higher Education Act or implementing
regulations.
SECTION 6.02. RIGHTS OF INDENTURE TRUSTEE. (a) The Indenture
Trustee may rely on any document believed by it to be genuine and to have been
signed or presented by the proper Person. The Indenture Trustee need not
investigate any fact or matter stated in such document.
(b) Before the Indenture Trustee acts or refrains from acting,
it may require an Officers' Certificate of the Issuer or an Opinion of Counsel.
The Indenture Trustee shall not be liable for any action it takes or omits to
take in good faith in reliance on such Officers' Certificate or Opinion of
Counsel.
(c) The Indenture Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents or attorneys or a custodian or nominee, and the Indenture Trustee
shall not be responsible for any misconduct or negligence on the part of, or for
the supervision of, any such agent, attorney, custodian or nominee appointed
with due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action
it takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; PROVIDED,
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HOWEVER, that the Indenture Trustee's conduct does not constitute willful
misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the
advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Notes shall be full and complete authorization and protection
from liability in respect to any action taken, omitted or suffered by it
hereunder in good faith and in accordance with the advice or opinion of such
counsel.
(f) In the event that the Person acting as Indenture Trustee
is also acting as securities intermediary all the rights, powers, immunities and
indemnities afforded to the Indenture Trustee under the Basic Documents shall
also be afforded to the securities intermediary.
SECTION 6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE. The
Indenture Trustee in its individual or any other capacity may become the owner
or pledgee of Notes and may otherwise deal with the Issuer or its Affiliates
with the same rights it would have if it were not Indenture Trustee. Any Paying
Agent, Note Registrar, co-registrar or co-paying agent may do the same with like
rights. However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.04. INDENTURE TRUSTEE'S DISCLAIMER. The Indenture
Trustee shall not be responsible for and makes no representation as to the
validity or adequacy of this Indenture or the Notes, it shall not be accountable
for the Issuer's use of the proceeds from the Notes, and it shall not be
responsible for any statement of the Issuer in the Indenture or in any document
issued in connection with the sale of the Notes or in the Notes other than the
Indenture Trustee's certificate of authentication.
SECTION 6.05. NOTICE OF DEFAULTS. If a Default occurs and is
continuing and if it is either actually known or written notice of the existence
thereof has been delivered to a Responsible Officer of the Indenture Trustee,
the Indenture Trustee shall mail to each holder of the Notes notice of the
Default within 90 days after it occurs. Except in the case of a Default in
payment of principal of or interest (including any Noteholders' Interest Index
Carryover) on any Note (including payments pursuant to the mandatory redemption
provisions of such Note), the Indenture Trustee may withhold the notice if and
so long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of holders of the Notes.
SECTION 6.06. REPORTS BY INDENTURE TRUSTEE TO NOTEHOLDERS. The
Indenture Trustee shall deliver to each holder of the Notes (and to each Person
who was a holder of the Notes at any time during the applicable calendar year)
such information as may be required to enable such holder to prepare its Federal
and state income tax returns. Within 60 days after each December 31 beginning
with the December 31 following the date of this Indenture,
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the Indenture Trustee shall mail to each holder of the Notes a brief report as
of such December 31 that complies with TIA [] 313(a) if required by said
section. The Indenture Trustee shall also comply with TIA [] 313(b). A copy of
each such report required pursuant to TIA [][] 313(a) or (b) shall, at the time
of such transmission to holders of the Notes, be filed by the Indenture Trustee
with the Commission and with each securities exchange, if any, upon which the
Notes are listed, provided that the Issuer has previously notified the Indenture
Trustee of such listing.
SECTION 6.07. COMPENSATION AND INDEMNITY. The Issuer shall
cause the Administrator to pay to the Indenture Trustee reasonable compensation
for its services in accordance with a separate agreement between the
Administrator and the Indenture Trustee and shall cause the Administrator to
reimburse the Indenture Trustee for all reasonable out-of-pocket expenses
incurred or made by it as provided in such separate agreement. The Indenture
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Issuer shall cause the Administrator to
indemnify the Indenture Trustee against any and all loss, liability or expense
(including attorneys' fees) incurred by it in connection with the administration
of this trust and the performance of its duties hereunder and under the other
Basic Documents. Without limiting the generality of the foregoing, it is
expressly understood that the foregoing indemnity, subject to the last sentence
of this paragraph, shall apply to any loss, liability or expense incurred by the
Indenture Trustee under Section 12(A) of the Supplemental Sale and Servicing
Agreement. The Indenture Trustee shall notify the Issuer and the Administrator
promptly of any claim for which it may seek indemnity. Failure by the Indenture
Trustee to so notify the Issuer and the Administrator shall not relieve the
Issuer or the Administrator of its obligations hereunder and under the other
Basic Documents. The Issuer shall cause the Administrator to defend the claim
and the Administrator shall not be liable for the legal fees and expenses of the
Indenture Trustee after it has assumed such defense; PROVIDED, HOWEVER, that, in
the event that there may be a conflict between the positions of the Indenture
Trustee and the Administrator in conducting the defense of such claim, the
Indenture Trustee shall be entitled to separate counsel the fees and expenses of
which shall be paid by the Administrator on behalf of the Issuer. Neither the
Issuer nor the Administrator need reimburse any expense or indemnify against any
loss, liability or expense incurred by the Indenture Trustee through the
Indenture Trustee's own willful misconduct, negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee
pursuant to this Section shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of a Default specified in
Section 5.01(iv) or (v) with respect to the Issuer, the expenses are intended to
constitute expenses of administration under Title 11 of the United States Code
or any other applicable Federal or state bankruptcy, insolvency or similar law.
SECTION 6.08. REPLACEMENT OF INDENTURE TRUSTEE. No resignation
or removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee
may resign at any time by so notifying the Issuer. The holders of a majority in
Outstanding Amount of the Notes may remove the Indenture Trustee by
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so notifying the Indenture Trustee and may appoint a successor Indenture
Trustee. The Issuer shall remove the Indenture Trustee if:
(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) an Insolvency Event occurs with respect to the Indenture
Trustee;
(iii) a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of
acting.
If the Indenture Trustee resigns or is removed or if a vacancy
exists in the office of Indenture Trustee for any reason (the Indenture Trustee
in such event being referred to herein as the retiring Indenture Trustee), the
Issuer shall promptly appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written
acceptance of its appointment to the retiring Indenture Trustee and to the
Issuer. Thereupon the resignation or removal of the retiring Indenture Trustee
shall become effective, and the successor Indenture Trustee shall have all the
rights, powers and duties of the Indenture Trustee under this Indenture. The
successor Indenture Trustee shall mail a notice of its succession to the holders
of the Notes. The retiring Indenture Trustee shall promptly transfer all
property held by it as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within
60 days after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the holders of a majority in Outstanding Amount
of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11,
any holder of the Notes may petition any court of competent jurisdiction for the
removal of the Indenture Trustee and the appointment of a successor Indenture
Trustee.
Notwithstanding the replacement of the Indenture Trustee
pursuant to this Section, the Issuer's and the Administrator's obligations under
Section 6.07 shall continue for the benefit of the retiring Indenture Trustee.
SECTION 6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER. If the
Indenture Trustee consolidates with, merges or converts into, or transfers all
or substantially all its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation without any further act shall be the successor Indenture Trustee;
provided that such corporation or banking association shall be otherwise
qualified and eligible under
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Section 6.11. The Indenture Trustee shall provide the Rating Agencies prior
written notice of any such transaction.
In case at the time such successor or successors by merger,
conversion or consolidation to the Indenture Trustee shall succeed to the trusts
created by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Indenture Trustee may adopt the certificate
of authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
SECTION 6.10. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
(a) Notwithstanding any other provisions of this Indenture, at any time, for the
purpose of meeting any legal requirement of any jurisdiction in which any part
of the Indenture Trust Estate may at the time be located, the Indenture Trustee
shall have the power and may execute and deliver all instruments to appoint one
or more Persons to act as a co-trustee or co-trustees, or separate trustee or
separate trustees, of all or any part of the Indenture Trust Estate, and to vest
in such Person or Persons, in such capacity and for the benefit of the holders
of the Notes, such title to the Indenture Trust Estate, or any part hereof, and,
subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Indenture Trustee may consider necessary
or desirable. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor trustee under Section 6.11 and no
notice to holders of the Notes of the appointment of any co-trustee or separate
trustee shall be required under Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon
and exercised or performed by the Indenture Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without the
Indenture Trustee joining in such act), except to the extent that under
any law of any jurisdiction in which any particular act or acts are to
be performed the Indenture Trustee shall be incompetent or unqualified
to perform such act or acts, in which event such rights, powers, duties
and obligations (including the holding of title to the Indenture Trust
Estate or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee,
but solely at the direction of the Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder; and
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(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the
Indenture Trustee shall be deemed to have been given to each of the then
separate trustees and co-trustees, as effectively as if given to each of them.
Every instrument appointing any separate trustee or co-trustee shall refer to
this Indenture and the conditions of this Article VI. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Indenture Trustee or separately, as may be provided therein,
subject to all the provisions of this Indenture, specifically including every
provision of this Indenture relating to the conduct of, affecting the liability
of, or affording protection to, the Indenture Trustee. Every such instrument
shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time
constitute the Indenture Trustee, its agent or attorney-in-fact with full power
and authority, to the extent not prohibited by law, to do any lawful act under
or in respect of this Indenture on its behalf and in its name. If any separate
trustee or co-trustee shall die, become incapable of acting, resign or be
removed, all its estates, properties, rights, remedies and trusts shall vest in
and be exercised by the Indenture Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.
SECTION 6.11. ELIGIBILITY; DISQUALIFICATION. The Indenture
Trustee shall at all times satisfy the requirements of TIA [] 310(a). The
Indenture Trustee shall have a combined capital and surplus of at least
$50,000,000 as set forth in its most recent published annual report of condition
and it shall have a long term debt rating of Baa3 or better by Moody's. The
Indenture Trustee shall comply with TIA [] 310(b), including the optional
provision permitted by the second sentence of TIA [] 310(b)(9); PROVIDED,
HOWEVER, that there shall be excluded from the operation of TIA [] 310(b)(1)
any indenture or indentures under which other securities of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA []
310(b)(1) are met.
SECTION 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST
ISSUER. The Indenture Trustee shall comply with TIA [] 311(a), excluding any
creditor relationship listed in TIA [] 311(b). An Indenture Trustee who has
resigned or been removed shall be subject to TIA [] 311(a) to the extent
indicated.
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND
ADDRESSES OF NOTEHOLDERS. The Issuer will furnish or cause to be furnished to
the Indenture Trustee (a) not
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more than five days after the earlier of (i) each Record Date and (ii) three
months after the last Record Date, a list, in such form as the Indenture Trustee
may reasonably require, of the names and addresses of the holders of the Notes
as of such Record Date, (b) at such other times as the Indenture Trustee may
request in writing, within 30 days after receipt by the Issuer of any such
request, a list of similar form and content as of a date not more than 10 days
prior to the time such list is furnished; PROVIDED, HOWEVER, that so long as the
Indenture Trustee is the Note Registrar, no such list shall be required to be
furnished.
SECTION 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
NOTEHOLDERS. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the holders of the Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.01 and the names and addresses of the holders of the Notes received
by the Indenture Trustee in its capacity as Note Registrar. The Indenture
Trustee may destroy any list furnished to it as provided in such Section 7.01
upon receipt of a new list so furnished.
(b) Holders of the Notes may communicate pursuant to TIA
[] 312(b) with other holders of the Notes with respect to their rights under
this Indenture or under the Notes. Upon receipt by the Indenture Trustee of any
request by a holder of the Notes to receive a copy of the current list of
holders of the Notes (whether or not made pursuant to TIA [] 312(b)), the
Indenture Trustee shall promptly notify the Administrator thereof by providing
to the Administrator a copy of such request and a copy of the list of holders of
the Notes produced in response thereto.
(c) The Issuer, the Indenture Trustee and the Note Registrar
shall have the protection of TIA [] 312(c).
(d) The Indenture Trustee shall furnish to the holders of the
Notes promptly upon receipt of a written request therefor, duplicates or copies
of all reports, notices, requests, demands, certificates, financial statements
and any other instruments furnished to the Indenture Trustee under the Basic
Documents.
SECTION 7.03. REPORTS BY ISSUER. (a) The Issuer shall:
(i) file with the Indenture Trustee, within 15 days after the
Issuer is required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may
from time to time by rules and regulations prescribe) which the Issuer
may be required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act;
(ii) file with the Indenture Trustee and the Commission in
accordance with rules and regulations prescribed from time to time by
the Commission such additional information, documents and reports with
respect to compliance by the Issuer with the
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conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations; and
(iii) supply to the Indenture Trustee (and the Indenture
Trustee shall transmit by mail to all holders of the Notes described in
TIA [] 313(c)) such summaries of any information, documents and
reports required to be filed by the Issuer pursuant to clauses (i) and
(ii) of this Section 7.03(a) as may be required by rules and
regulations prescribed from time to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of
the Issuer shall end on December 31 of each year.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.01. COLLECTION OF MONEY. Except as otherwise
expressly provided herein, the Indenture Trustee may demand payment or delivery
of, and shall receive and collect, directly and without intervention or
assistance of any fiscal agent or other intermediary, all money and other
property payable to or receivable by the Indenture Trustee pursuant to this
Indenture. The Indenture Trustee shall apply all such money received by it on
behalf of the holders of the Notes pursuant to the Sale and Servicing Agreement
as provided in this Indenture. Except as otherwise expressly provided in this
Indenture, if any default occurs in the making of any payment or performance
under any agreement or instrument that is part of the Indenture Trust Estate,
the Indenture Trustee may take such action as may be appropriate to enforce such
payment or performance, including the institution and prosecution of appropriate
Proceedings. Any such action shall be without prejudice to any right to claim a
Default under this Indenture and any right to proceed thereafter as provided in
Article V.
SECTION 8.02. TRUST ACCOUNTS. (a) On or prior to the Closing
Date, the Issuer shall cause the Administrator to establish and maintain, in the
name of the Indenture Trustee, for the benefit of the holders of the Notes and
the holders of the Certificates, the Trust Accounts as provided in Section 5.01
of the Sale and Servicing Agreement.
(b) On or before the Business Day preceding each Distribution
Date, all Available Funds with respect to the preceding Collection Period will
be deposited in the Collection Account as provided in Section 5.02 of the Sale
and Servicing Agreement. On or before each Distribution Date, the Noteholders'
Distribution Amount and any Noteholders' Interest Index Carryover, if any, with
respect to the preceding Collection Period will be distributed from the
Collection Account and any other Trust Account to the Indenture Trustee (or any
other Paying Agent) on behalf of the holders of the Notes as provided in
Sections 5.05 and 5.06 of the Sale and Servicing Agreement.
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(c) On each Distribution Date and Redemption Date, the
Indenture Trustee (or any other Paying Agent) shall distribute all amounts
received by it on behalf of the holders of the Notes pursuant to paragraph (b)
above to the holders of the Notes to the extent of amounts due and unpaid on the
Notes for principal, interest and any Noteholders' Interest Index Carryover in
the following amounts and in the following order of priority (except as
otherwise provided in Section 5.04(b)):
(i) the Noteholders' Interest Distribution Amount, to the
holders of the Class A-1 Notes and the holders of the Class A-2 Notes
in an amount equal to the accrued and unpaid interest on the Notes;
provided that if there are not sufficient funds received to pay the
entire amount of accrued and unpaid interest then due on the Notes, the
amounts so received shall be applied to the payment of such interest on
the Notes on a pro rata basis;
(ii) the Noteholders' Principal Distribution Amount, to the
holders of the Class A-1 Notes until the Outstanding Amount of the
Class A-1 Notes is reduced to zero, and then to the holders of the
Class A-2 Notes until the Outstanding Amount of the Class A-2 Notes is
reduced to zero; and
(iii) the Noteholders' Interest Index Carryover, if any, to
the holders of the Class A-1 Notes and the holders of the Class A-2
Notes; provided that if insufficient funds are received to pay the
entire Noteholders' Interest Index Carryover then outstanding, the
amounts so received shall be applied to the payment of such
Noteholders' Interest Index Carryover on a pro rata basis.
SECTION 8.03. GENERAL PROVISIONS REGARDING ACCOUNTS. (a) So
long as no Default shall have occurred and be continuing, all or a portion of
the funds in the Trust Accounts shall be invested in Eligible Investments and
reinvested by the Indenture Trustee upon Issuer Order, subject to the provisions
of Section 5.01(b) of the Sale and Servicing Agreement. All income or other gain
from investments of moneys deposited in the Trust Accounts shall be deposited by
the Indenture Trustee in the Collection Account, and any loss resulting from
such investments shall be charged to such Trust Account. The Issuer will not
direct the Indenture Trustee to make any investment of any funds or to sell any
investment held in any of the Trust Accounts unless the security interest
granted and perfected in such account will continue to be perfected in such
investment or the proceeds of such sale, in either case without any further
action by any Person, and, in connection with any direction to the Indenture
Trustee to make any such investment or sale, if requested by the Indenture
Trustee, the Issuer shall deliver to the Indenture Trustee an Opinion of
Counsel, acceptable to the Indenture Trustee, to such effect.
(b) Subject to Section 6.01(c), the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in any of the Trust
Accounts resulting from any loss on any Eligible Investment included therein
except for losses attributable to the Indenture Trustee's
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failure to make payments on such Eligible Investments issued by the Indenture
Trustee, in its commercial capacity as principal obligor and not as trustee, in
accordance with their terms.
(c) If (i) the Issuer shall have failed to give investment
directions for any funds on deposit in the Trust Accounts to the Indenture
Trustee by 10:00 a.m. Eastern Time (or such other time as may be agreed by the
Issuer and Indenture Trustee) on any Business Day; or (ii) a Default shall have
occurred and be continuing with respect to the Notes but the Notes shall not
have been declared due and payable pursuant to Section 5.02, or, if such Notes
shall have been declared due and payable following an Event of Default, amounts
collected or receivable from the Indenture Trust Estate are being applied in
accordance with Section 5.05 as if there had not been such a declaration; then
the Indenture Trustee shall, to the fullest extent practicable, invest and
reinvest funds in the Trust Accounts in one or more Eligible Investments.
SECTION 8.04. RELEASE OF INDENTURE TRUST ESTATE. (a) Subject
to the payment of its fees and expenses pursuant to Section 6.07, the Indenture
Trustee may, and when required by the provisions of this Indenture shall,
execute instruments to release property from the lien of this Indenture, or
convey the Indenture Trustee's interest in the same, in a manner and under
circumstances that are not inconsistent with the provisions of this Indenture.
No party relying upon an instrument executed by the Indenture Trustee as
provided in this Article VIII shall be bound to ascertain the Indenture
Trustee's authority, inquire into the satisfaction of any conditions precedent
or see to the application of any moneys.
(b) The Indenture Trustee shall, at such time as there are no
Notes Outstanding and all sums due the Indenture Trustee pursuant to Section
6.07 have been paid, release any remaining portion of the Indenture Trust Estate
that secured the Notes from the lien of this Indenture and release to the Issuer
or any other Person entitled thereto any funds then on deposit in the Trust
Accounts. The Indenture Trustee shall release property from the lien of this
Indenture pursuant to this Section 8.04(b) only upon receipt of an Issuer
Request accompanied by an Officers' Certificate of the Issuer, an Opinion of
Counsel and (if required by TIA) Independent Certificates in accordance with TIA
[][] 314(c) and 314(d)(1) and meeting the applicable requirements of
Section 11.01.
(c) Each holder of the Notes, by the acceptance of a Note,
acknowledges that from time to time during the Funding Period the Indenture
Trustee shall release the lien of this Indenture on those Financed Federal Loans
to be sold to the Seller and as to which the Seller will simultaneously deposit
the aggregate Purchase Amounts thereof into the Escrow Account in accordance
with, and subject to the terms and conditions of, Section 2.03 of the Sale and
Servicing Agreement, and each holder of the Notes consents to such release.
SECTION 8.05. OPINION OF COUNSEL. The Indenture Trustee shall
receive at least seven days' notice when requested by the Issuer to take any
action pursuant to Section 8.04(a), accompanied by copies of any instruments
involved, and the Indenture Trustee shall also require, except in connection
with any action contemplated by Section 8.04(c), as a condition to such
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action, an Opinion of Counsel, in form and substance satisfactory to the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with and such action
will not materially and adversely impair the security for the Notes or the
rights of the holders of the Notes in contravention of the provisions of this
Indenture; PROVIDED, HOWEVER, that such Opinion of Counsel shall not be required
to express an opinion as to the fair value of the Indenture Trust Estate.
Counsel rendering any such opinion may rely, without independent investigation,
on the accuracy and validity of any certificate or other instrument delivered to
the Indenture Trustee in connection with any such action.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
NOTEHOLDERS. (a) Without the consent of any holders of the Notes but with prior
notice to the Rating Agencies, the Issuer and the Indenture Trustee, when
authorized by an Issuer Order, at any time and from time to time, may enter into
one or more indentures supplemental hereto (which shall conform to the
provisions of the Trust Indenture Act as in force at the date of the execution
thereof), in form satisfactory to the Indenture Trustee, for any of the
following purposes:
(i) to correct or amplify the description of any property at
any time subject to the lien of this Indenture, or better to assure,
convey and confirm unto the Indenture Trustee any property subject or
required to be subjected to the lien of this Indenture, or to subject
to the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the benefit
of the holders of the Notes, or to surrender any right or power herein
conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture which may be
inconsistent with any other provision herein or in any supplemental
indenture or to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental
indenture; provided that such action shall not materially adversely
affect the interests of the holders of the Notes;
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(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI; or
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
Federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA.
The Indenture Trustee is hereby authorized to join in the
execution of any such supplemental indenture and to make any further appropriate
agreements and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by
an Issuer Order, may, also without the consent of any of the holders of the
Notes but with prior notice to the Rating Agencies, enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to, or
changing in any manner or eliminating any of the provisions of, this Indenture
or of modifying in any manner the rights of the holders of the Notes under this
Indenture; PROVIDED, HOWEVER, that such action shall not, as evidenced by an
Opinion of Counsel, adversely affect in any material respect the interests of
any holder of the Notes.
SECTION 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF
NOTEHOLDERS. The Issuer and the Indenture Trustee, when authorized by an Issuer
Order, also may, with prior notice to the Rating Agencies and with the consent
of the holders of not less than a majority of the Outstanding Amount of the
Notes, by Act of such holders of the Notes delivered to the Issuer and the
Indenture Trustee, enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the holders of the Notes under this Indenture; PROVIDED,
HOWEVER, that no such supplemental indenture shall, without the consent of the
holder of each Outstanding Note affected thereby:
(i) change the date of payment of any installment of principal
of or interest (including any Noteholders' Interest Index Carryover) on
any Note, or reduce the principal amount thereof, the interest rate
thereon or the Redemption Price with respect thereto, change the
provisions of this Indenture relating to the application of collections
on, or the proceeds of the sale of, the Indenture Trust Estate to
payment of principal of or interest (including any Noteholders'
Interest Index Carryover) on the Notes, or change any place of payment
where, or the coin or currency in which, any Note or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of the provisions of this Indenture requiring the
application of funds available therefor, as provided in Article V, to
the payment of any such amount due on the Notes on or after the
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respective due dates thereof (or, in the case of redemption, on or
after the Redemption Date);
(ii) reduce the percentage of the Outstanding Amount of the
Notes, the consent of the holders of the Notes of which is required for
any such supplemental indenture, or the consent of the holders of the
Notes of which is required for any waiver of compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences provided for in this Indenture;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(iv) reduce the percentage of the Outstanding Amount of the
Notes required to direct the Indenture Trustee to direct the Issuer to
sell or liquidate the Indenture Trust Estate pursuant to Section 5.04;
(v) modify any provision of this Section except to increase
any percentage specified herein or to provide that certain additional
provisions of this Indenture or the other Basic Documents cannot be
modified or waived without the consent of the holder of each
Outstanding Note affected thereby;
(vi) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of any payment of
interest (including any Noteholders' Interest Index Carryover) or
principal due on any Note on any Distribution Date (including the
calculation of any of the individual components of such calculation) or
to affect the rights of the holders of the Notes to the benefit of any
provisions for the mandatory redemption of the Notes contained herein;
or
(vii) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Indenture Trust Estate or, except as otherwise permitted or
contemplated herein, terminate the lien of this Indenture on any
property at any time subject hereto or deprive any holder of any Note
of the security provided by the lien of this Indenture.
The Indenture Trustee may in its discretion determine whether
or not any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee may request, and rely upon, an Opinion of Counsel in making any such
determination, and shall not be liable for any such determination made in good
faith.
It shall not be necessary for any Act of holders of the Notes
under this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
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Promptly after the execution by the Issuer and the Indenture
Trustee of any supplemental indenture pursuant to this Section, the Indenture
Trustee shall mail to the holders of the Notes to which such amendment or
supplemental indenture relates a notice setting forth in general terms the
substance of such supplemental indenture. Any failure of the Indenture Trustee
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture.
SECTION 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES. In
executing, or permitting the additional trusts created by, any supplemental
indenture permitted by this Article IX or the modifications thereby of the
trusts created by this Indenture, the Indenture Trustee shall be entitled to
receive, and subject to Sections 6.01 and 6.02, shall be fully protected in
relying upon, an Opinion of Counsel stating that the execution of such
supplemental indenture is authorized or permitted by this Indenture. The
Indenture Trustee may, but shall not be obligated to, enter into any such
supplemental indenture that affects the Indenture Trustee's own rights, duties,
liabilities or immunities under this Indenture or otherwise.
SECTION 9.04. EFFECT OF SUPPLEMENTAL INDENTURE. Upon the
execution of any supplemental indenture pursuant to the provisions hereof, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the holders of the Notes
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
SECTION 9.05. CONFORMITY WITH TRUST INDENTURE ACT. Every
amendment of this Indenture and every supplemental indenture executed pursuant
to this Article IX shall conform to the requirements of the Trust Indenture Act
as then in effect so long as this Indenture shall then be qualified under the
Trust Indenture Act.
SECTION 9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article IX may, and if required by the Indenture
Trustee shall, bear a notation in form approved by the Indenture Trustee as to
any matter provided for in such supplemental indenture. If the Issuer or the
Indenture Trustee shall so determine, new Notes so modified as to conform, in
the opinion of the Indenture Trustee and the Issuer, to any such supplemental
indenture may be prepared and executed by the Issuer and authenticated and
delivered by the Indenture Trustee in exchange for Outstanding Notes.
ARTICLE X
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REDEMPTION OF NOTES
SECTION 10.01. REDEMPTION. (a) (i) In the event that on the
Special Determination Date the Subsequent Pool Pre-Funded Amount, after giving
effect to the purchase of any Subsequent Pool Student Loans on such date is
greater than $10,000,000, each class of Notes will be redeemed in part, on a pro
rata basis, in an aggregate principal amount equal to the Noteholders'
Percentage of such Subsequent Pool Pre-Funded Amount on the following
Distribution Date. In the event that on the Special Determination Date the
Subsequent Pool Pre-Funded Amount, after giving effect to the purchase of any
Subsequent Pool Student Loans on such date is greater than zero but less than or
equal to $10,000,000, the Class A-1 Notes will be redeemed in an amount equal to
such Subsequent Pool Pre-Funded Amount.
(ii) In the event that on the Distribution Date on which the
Funding Period ends (or on the Distribution Date immediately following the last
day of the Funding Period, if the Funding Period does not end on a Distribution
Date) any amount remains on deposit in the Pre-Funding Account after giving
effect to the making of all Additional Fundings during the Funding Period,
including any such Additional Fundings on such Redemption Date, the Class A-1
Notes will be redeemed until the principal amount thereof is reduced to zero,
and then the Class A-2 Notes will be redeemed in part to the extent of any
remaining funds, in each case on a pro rata basis, in an aggregate principal
amount equal to the amount then on deposit in the Pre-Funding Account.
(b) In the event that the assets of the Trust are sold
pursuant to Section 9.02 of the Trust Agreement, that portion of the amounts on
deposit in the Trust Accounts to be distributed to the holders of the Notes
shall be paid to the holders of the Notes up to the Outstanding Amount of the
Notes and all accrued and unpaid interest thereon and any accrued Noteholders'
Interest Index Carryover with respect thereto (but only to the extent provided
by Sections 2.07(d) and 8.02(c)). If amounts are to be paid to holders of the
Notes pursuant to this Section 10.01(b), the Servicers, the Administrator or the
Issuer shall, to the extent practicable, furnish notice of such event to the
Indenture Trustee not later than 25 days prior to the Redemption Date whereupon
all such amounts shall be payable on the Redemption Date.
SECTION 10.02. FORM OF REDEMPTION NOTICE. Notice of redemption
under Section 10.01 shall be given by the Indenture Trustee by first-class mail,
postage prepaid, or by facsimile, mailed or transmitted on or prior to the
applicable Redemption Date to each holder of the Notes, as of the close of
business on the Record Date preceding the applicable Redemption Date, at such
Noteholder's address or facsimile number appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
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(ii) the Redemption Price; and
(iii) the place where such Notes are to be surrendered for
payment of the Redemption Price (which shall be the office or agency of
the Issuer to be maintained as provided in Section 3.02).
Notice of redemption of the Notes shall be given by the
Indenture Trustee in the name and at the expense of the Issuer. Failure to give
notice of redemption, or any defect therein, to any holder of any Note shall not
impair or affect the validity of the redemption of any other Note.
SECTION 10.03. NOTES PAYABLE ON REDEMPTION DATE. The Notes or
portions thereof to be redeemed shall on the Redemption Date become due and
payable at the Redemption Price and (unless the Issuer shall default in the
payment of the Redemption Price) no interest shall accrue on the Redemption
Price for any period after the date to which accrued interest is calculated for
purposes of calculating the Redemption Price.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC. (a)
Upon any application or request by the Issuer to the Indenture Trustee to take
any action under any provision of this Indenture, the Issuer shall furnish to
the Indenture Trustee (i) an Officers' Certificate of the Issuer stating that
all conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, (ii) an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with and (iii) (if required by the TIA) an Independent Certificate from
a firm of certified public accountants meeting the applicable requirements of
this Section, except that, in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
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(iii) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for
the release of any property or securities subject to the lien of this
Indenture, the Issuer shall, in addition to any obligation imposed in
Section 11.01(a) or elsewhere in this Indenture, furnish to the
Indenture Trustee an Officers' Certificate of the Issuer certifying or
stating the opinion of each person signing such certificate as to the
fair value (within 90 days of such deposit) to the Issuer of the
Collateral or other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officers' Certificate of the Issuer certifying or
stating the opinion of any signer thereof as to the matters described
in clause (i) above, the Issuer shall also deliver to the Indenture
Trustee an Independent Certificate as to the same matters, if the fair
value to the Issuer of the securities to be so deposited and of all
other such securities made the basis of any such withdrawal or release
since the commencement of the then-current fiscal year of the Issuer,
as set forth in the certificates delivered pursuant to clause (i) above
and this clause (ii), is 10% or more of the Outstanding Amount of the
Notes, but such a certificate need not be furnished with respect to any
securities so deposited, if the fair value thereof to the Issuer as set
forth in the related Officers' Certificate is less than $25,000 or less
than one percent of the Outstanding Amount of the Notes.
(iii) Other than any property released as contemplated by
clause (v) below, whenever any property or securities are to be
released from the lien of this Indenture, the Issuer shall also furnish
to the Indenture Trustee an Officers' Certificate of the Issuer
certifying or stating the opinion of each person signing such
certificate as to the fair value (within 90 days of such release) of
the property or securities proposed to be released and stating that in
the opinion of such person the proposed release will not impair the
security under this Indenture in contravention of the provisions
hereof.
(iv) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officers' Certificate of the Issuer certifying or
stating the opinion of any signer thereof as to the matters described
in clause (iii) above, the Issuer shall also furnish to the Indenture
Trustee an Independent Certificate as to the same matters if the fair
value of the property or securities and of all other property, other
than property as contemplated by clause (v) below, or securities
released from the lien of this Indenture since the commencement of
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the then-current calendar year, as set forth in the certificates
required by clause (iii) above and this clause (iv), equals 10% or more
of the Outstanding Amount of the Notes, but such certificate need not
be furnished in the case of any release of property or securities if
the fair value thereof as set forth in the related Officers'
Certificate is less than $25,000 or less than one percent of the then
Outstanding Amount of the Notes.
(v) Notwithstanding Section 2.09 or any other provision of
this Section, the Issuer may, without compliance with the requirements
of the other provisions of this Section, (A) collect, liquidate, sell
or otherwise dispose of Financed Student Loans as and to the extent
permitted or required by the Basic Documents, (B) make cash payments
out of the Trust Accounts as and to the extent permitted or required by
the Basic Documents and (C) convey to the Seller, in order to allow the
Seller to make Consolidation Loans, those specified Financed Student
Loans as and to the extent permitted or required by and in accordance
with Section 8.04(c) hereof and Section 2.03 of the Sale and Servicing
Agreement, so long as the Issuer shall deliver to the Indenture Trustee
every six months, commencing April 1, 1999, an Officers' Certificate of
the Issuer stating that all the dispositions of Collateral described in
clauses (A), (B) or (C) above that occurred during the immediately
preceding six calendar months were in the ordinary course of the
Issuer's business and that the proceeds thereof were applied in
accordance with the Basic Documents.
SECTION 11.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE
TRUSTEE. In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the
Issuer may be based, insofar as it relates to legal matters, upon a certificate
or opinion of, or representations by, counsel, unless such officer knows, or in
the exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
any Servicer, the Seller, the Issuer or the Administrator, stating that the
information with respect to such factual matters is in the possession of such
Servicer, the Seller, the Issuer or the Administrator, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
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Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
Whenever in this Indenture, in connection with any application
or certificate or report to the Indenture Trustee, it is provided that the
Issuer shall deliver any document as a condition of the granting of such
application, or as evidence of the Issuer's compliance with any term hereof, it
is intended that the truth and accuracy, at the time of the granting of such
application or at the effective date of such certificate or report (as the case
may be), of the facts and opinions stated in such document shall in such case be
conditions precedent to the right of the Issuer to have such application granted
or to the sufficiency of such certificate or report. The foregoing shall not,
however, be construed to affect the Indenture Trustee's right to rely upon the
truth and accuracy of any statement or opinion contained in any such document as
provided in Article VI.
SECTION 11.03. ACTS OF NOTEHOLDERS. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by holders of the Notes may be embodied in
and evidenced by one or more instruments of substantially similar tenor signed
by such holders of the Notes in person or by agents duly appointed in writing;
and except as herein otherwise expressly provided such action shall become
effective when such instrument or instruments are delivered to the Indenture
Trustee, and, where it is hereby expressly required, to the Issuer. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the holders of the
Notes signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 6.01) conclusive in favor of
the Indenture Trustee and the Issuer, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any person of any
such instrument or writing may be proved in any manner that the Indenture
Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the holder of any Notes shall bind the holder
of every Note issued upon the registration thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
SECTION 11.04. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER AND
RATING AGENCIES. Any request, demand, authorization, direction, notice, consent,
waiver or Act of holders of the Notes or other documents provided or permitted
by this Indenture shall be in writing and if such
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request, demand, authorization, direction, notice, consent, waiver or act of
holders of the Notes is to be made upon, given or furnished to or filed with:
(a) the Indenture Trustee by any holder of the Notes or by the
Issuer shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Indenture Trustee at its
Corporate Trust Office, or
(b) the Issuer by the Indenture Trustee or by any holder of
the Notes shall be sufficient for every purpose hereunder if in writing
and mailed, first-class, postage prepaid, to the Issuer addressed to:
KeyCorp Student Loan Trust 1999-A, in care of The First National Bank
of Chicago, One First National Plaza, Suite 0126, Chicago, Illinois
60670, Attention: Corporate Trust Administration; with a copy to the
Administrator, 800 Superior Avenue, Fourth Floor, Cleveland, Ohio
44114, Attention: KeyCorp Education Resources, KeyCorp Student Loan
Trust 1999-A, or at any other address previously furnished in writing
to the Indenture Trustee by the Issuer or the Administrator. The Issuer
shall promptly transmit any notice received by it from the holders of
the Notes to the Indenture Trustee.
Notices required to be given to the Rating Agencies by the
Issuer, the Indenture Trustee or the Eligible Lender Trustee shall be in
writing, personally delivered or mailed by certified mail, return receipt
requested, to (i) in the case of Moody's, at the following address: Moody's
Investors Service, Inc., ABS Monitoring Department, 99 Church Street, New York,
New York 10007; (ii) in the case of Standard & Poor's, at the following address:
Standard & Poor's Rating Services, 25 Broadway (20th Floor), New York, New York
10004, Attention of Asset Backed Surveillance Department; and (iii) Fitch IBCA,
Inc., Municipal Structured Finance Group, One State Street Plaza, New York, New
York, 10004; or as to each of the foregoing, at such other address as shall be
designated by written notice to the other parties.
SECTION 11.05. NOTICES TO NOTEHOLDERS; WAIVER. Where this
Indenture provides for notice to holders of the Notes of any event, such notice
shall be sufficiently given (unless otherwise herein expressly provided) if in
writing and mailed, first-class, postage prepaid to each holder of the Notes
affected by such event, at his address as it appears on the Note Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. In any case where notice to holders of the Notes
is given by mail, neither the failure to mail such notice nor any defect in any
notice so mailed to any particular holder of the Notes shall affect the
sufficiency of such notice with respect to other holders of the Notes, and any
notice that is mailed in the manner herein provided shall conclusively be
presumed to have been duly given.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by holders of the Notes
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shall be filed with the Indenture Trustee but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such a
waiver.
In case, by reason of the suspension of regular mail service
as a result of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event to holders of the Notes when such notice
is required to be given pursuant to any provision of this Indenture, then any
manner of giving such notice as shall be satisfactory to the Indenture Trustee
shall be deemed to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating
Agencies, failure to give such notice shall not affect any other rights or
obligations created hereunder, and shall not under any circumstance constitute a
Default.
SECTION 11.06. ALTERNATE PAYMENT AND NOTICE PROVISIONS.
Notwithstanding any provision of this Indenture or any of the Notes to the
contrary, the Issuer may enter into any agreement with any holder of the Notes
providing for a method of payment, or notice by the Indenture Trustee or any
Paying Agent to such holder of the Notes, that is different from the methods
provided for in this Indenture for such payments or notices. The Issuer will
furnish to the Indenture Trustee a copy of each such agreement and the Indenture
Trustee will cause payments to be made and notices to be given in accordance
with such agreements.
SECTION 11.07. CONFLICT WITH TRUST INDENTURE ACT. If any
provision hereof limits, qualifies or conflicts with another provision hereof
that is required to be included in this Indenture by any of the provisions of
the Trust Indenture Act, such required provision shall control.
The provisions of TIA [][] 310 through 317 that impose
duties on any Person (including the provisions automatically deemed included
herein unless expressly excluded by this Indenture) are a part of and govern
this Indenture, whether or not physically contained herein.
SECTION 11.08. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 11.09. SUCCESSORS AND ASSIGNS. All covenants and
agreements in this Indenture and the Notes by the Issuer shall bind its
successors and assigns, whether so expressed or not. All agreements of the
Indenture Trustee in this Indenture shall bind the successors, co-trustees and
agents (excluding any legal representatives or accountants) of the Indenture
Trustee.
SECTION 11.10. SEPARABILITY. In case any provision in this
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality, and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
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SECTION 11.11. BENEFITS OF INDENTURE. Nothing in this
Indenture or in the Notes, express or implied, shall give to any Person, other
than the parties hereto and their successors hereunder, and the holders of the
Notes, and any other party secured hereunder, and any other Person with an
ownership interest in any part of the Indenture Trust Estate, any benefit or any
legal or equitable right, remedy or claim under this Indenture.
SECTION 11.12. LEGAL HOLIDAYS. In any case where the date on
which any payment is due shall not be a Business Day, then (notwithstanding any
other provision of the Notes or this Indenture) payment need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.13. GOVERNING LAW. This Indenture shall be
construed in accordance with the laws of the State of New York, without
reference to its conflict of law provisions, and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance with such
laws.
SECTION 11.14. COUNTERPARTS. This Indenture may be executed in
any number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.15. RECORDING OF INDENTURE. If this Indenture is
subject to recording in any appropriate public recording offices, such recording
is to be effected by the Issuer and at its expense accompanied by an Opinion of
Counsel (which may be counsel to the Indenture Trustee or any other counsel
reasonably acceptable to the Indenture Trustee) to the effect that such
recording is necessary either for the protection of the holders of the Notes or
any other Person secured hereunder or for the enforcement of any right or remedy
granted to the Indenture Trustee under this Indenture.
SECTION 11.16. TRUST OBLIGATIONS. No recourse may be taken,
directly or indirectly, with respect to the obligations of the Issuer, the
Seller, the Administrator, any Servicer, the Eligible Lender Trustee or the
Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Seller, the Administrator, any Servicer, the Indenture Trustee or the Eligible
Lender Trustee in its individual capacity or (ii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Seller, the
Administrator, any Servicer, the Indenture Trustee or the Eligible Lender
Trustee in its individual capacity, any holder or owner of a beneficial interest
in the Issuer, the Eligible Lender Trustee or the Indenture Trustee or of any
successor or assign of the Seller, the Administrator, any Servicer, the
Indenture Trustee or the Eligible Lender Trustee in its individual capacity,
except as any such Person may have expressly agreed (it being understood that
the Indenture Trustee and the Eligible Lender Trustee have no such obligations
in their individual capacity) and except that any such partner, owner or
beneficiary shall be fully
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liable, to the extent provided by applicable law, for any unpaid consideration
for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity. For all purposes of this Indenture, in the performance of
any duties or obligations of the Issuer hereunder, the Eligible Lender Trustee
shall be subject to, and entitled to the benefits of, the terms and provisions
of Article VI, VII and VIII of the Trust Agreement.
SECTION 11.17. NO PETITION. The Indenture Trustee, by entering
into this Indenture, and each holder of the Notes, by accepting a Note, hereby
covenant and agree that they will not at any time institute against the Seller
or the Issuer, or join in any institution against the Seller or the Issuer of,
any bankruptcy, reorganization, arrangement, insolvency, receivership or
liquidation proceedings, or other proceedings under any United States Federal or
state bankruptcy or similar law in connection with any obligations relating to
the Notes, this Indenture or any of the other Basic Documents.
SECTION 11.18. INSPECTION. The Issuer agrees that, on
reasonable prior notice, it will permit any representative of the Indenture
Trustee, during the Issuer's normal business hours, to examine all the books of
account, records, reports, and other papers of the Issuer, to make copies and
extracts therefrom, to cause such books to be audited by Independent certified
public accountants, and to discuss the Issuer's affairs, finances and accounts
with the Issuer's officers, employees, and Independent certified public
accountants, all at such reasonable times and as often as may be reasonably
requested. The Indenture Trustee shall and shall cause its representatives to
hold in confidence all such information obtained from such examination or
inspection except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its obligations hereunder.
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STATE OF NEW YORK, )
) ss.:
COUNTY OF NEW YORK, )
BEFORE ME, the undersigned authority, a Notary Public in and
for said county and state, on this day personally appeared __________, known to
me to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said KEYCORP
STUDENT LOAN TRUST 1999-A, a New York trust, and that such person executed the
same as the act of said trust for the purpose and consideration therein
expressed, and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this _____ day of
February, 1999.
------------------------------
Notary Public in and for
the State of New York.
My commission expires:
- ------------------------
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STATE OF NEW YORK, )
) ss.:
COUNTY OF NEW YORK, )
BEFORE ME, the undersigned authority, a Notary Public in and
for said county and state, on this day personally appeared _________, known to
me to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said BANKERS
TRUST COMPANY, a New York banking corporation, and that such person executed the
same as the act of said corporation for the purpose and consideration therein
expressed, and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ___ day of
February, 1999.
------------------------------
Notary Public in and for
the State of New York.
My commission expires:
- ------------------------
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this
Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.
KEYCORP STUDENT LOAN TRUST 1999-A,
By: THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity but
solely as Eligible Lender Trustee,
By:
------------------------------------
Name:
Title:
BANKERS TRUST COMPANY, not in its individual
capacity but solely as Indenture Trustee,
By:
------------------------------------
Name:
Title:
Acknowledged and accepted as to
the Granting Clause as of the
day and year first above written:
THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual
capacity but solely as
Eligible Lender Trustee,
By:
------------------------------------
Name:
Title:
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STATE OF NEW YORK, )
) ss.:
COUNTY OF NEW YORK, )
BEFORE ME, the undersigned authority, a Notary Public in and
for said county and state, on this day personally appeared _________, known to
me to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said FIRST
NATIONAL BANK OF CHICAGO, a national banking association, and that such person
executed the same as the act of said association for the purpose and
consideration therein expressed, and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ___ day of
February, 1999.
------------------------------
Notary Public in and for
the State of New York.
My commission expires:
- ------------------------
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APPENDIX A
DEFINITIONS AND USAGE
USAGE
The following rules of construction and usage shall be
applicable to any instrument that is governed by this Appendix:
(a) All terms defined in this Appendix shall have the defined
meanings when used in any instrument governed hereby and in any certificate or
other document made or delivered pursuant thereto unless otherwise defined
therein.
(b) As used herein, in any instrument governed hereby and in
any certificate or other document made or delivered pursuant thereto, accounting
terms not defined in this Appendix or in any such instrument, certificate or
other document, and accounting terms partly defined in this Appendix or in any
such instrument, certificate or other document to the extent not defined, shall
have the respective meanings given to them under generally accepted accounting
principles as in effect on the date of such instrument. To the extent that the
definitions of accounting terms in this Appendix or in any such instrument,
certificate or other document are inconsistent with the meanings of such terms
under generally accepted accounting principles, the definitions contained in
this Appendix or in any such instrument, certificate or other document shall
control.
(c) The words "hereof," "herein," "hereunder" and words of
similar import when used in an instrument refer to such instrument as a whole
and not to any particular provision or subdivision thereof; references in an
instrument to "Article," "Section" or another subdivision or to an attachment
are, unless the context otherwise requires, to an article, section or
subdivision of or an attachment to such instrument; and the term "including"
means "including without limitation."
(d) The definitions contained in this Appendix are equally
applicable to both the singular and plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms.
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(e) Any agreement, instrument or statute defined or referred
to below or in any agreement or instrument that is governed by this Appendix
means such agreement or instrument or statute as from time to time amended,
modified or supplemented, including (in the case of agreements or instruments)
by waiver or consent and (in the case of statutes) by succession of comparable
successor statutes and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein.
References to a Person are also to its permitted successors and assigns.
DEFINITIONS
"ACCRUED EXPECTED EXPENSE PAYMENT" means for any Transfer Date
on which Other Student Loans are transferred to the Trust an amount equal to (x)
the product of (i) the applicable Expected Rate multiplied by (ii) the sum of
principal balances of the Notes and Certificates as of such Transfer Date
divided by (y) a fraction the numerator of which is the number of days between
such Transfer Date and the last day of the preceding Collection Period and the
denominator of which is 365 (or 366 in the case of a leap year).
"ACT" has the meaning specified in Section 11.03(a) of the
Indenture.
"ADDITIONAL FUNDING" means those expenditures made on behalf
of the Issuer from the Pre-Funding Account and the Escrow Account and made with
Available Loan Purchase Funds on Transfer Dates during the Funding Period and
from the Escrow Account and Available Loan Purchase Funds on Transfer Dates
during the period which begins on the day following the end of the Funding
Period and ends on the Loan Purchase Termination Date, in each case consisting
of amounts paid to the Seller to acquire Additional Student Loans as of the
applicable Subsequent Cutoff Dates and to pay Guarantee Fee Advances.
"ADDITIONAL STUDENT LOANS" means the Subsequent Pool Student
Loans, the Other Subsequent Student Loans and the Other Student Loans.
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"ADMINISTRATION AGREEMENT" means the Administration Agreement
dated as of January 1, 1999, among the Issuer, the Indenture Trustee and the
Administrator.
"ADMINISTRATION FEE" has the meaning specified in Section 3 of
the Administration Agreement.
"ADMINISTRATOR" means Key Bank USA, National Association, a
national banking association, in its capacity as administrator of the Issuer and
the Financed Student Loans.
"ADMINISTRATOR DEFAULT" has the meaning specified in Section
8.01(b) of the Sale and Servicing Agreement.
"ADMINISTRATOR'S CERTIFICATE" means an Officers' Certificate
of the Administrator delivered pursuant to Section 4.08(c) of the Sale and
Servicing Agreement, substantially in the form of Exhibit C thereto.
"AFFILIATE" means, with respect to any specified Person, any
other Person controlling or controlled by or under common control with such
specified Person. For the purposes of this definition, "control" when used with
respect to any specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"ASA" means the Massachusetts Higher Education Assistance
Corporation now doing business as American Student Assistance Corporation, a
Massachusetts non-profit corporation.
"ASSIGNED AGREEMENTS" means the following agreements, as the
same may be amended and restated from time to time, (i) the Deposit Agreement
dated as of January 28, 1992, between TERI and the Seller (as successor to
Ameritrust Company National Association), (ii) the Security Agreement dated as
of January 28, 1992, between TERI and the Seller (as successor to Ameritrust
Company National Association), (iii) the Letter Agreement dated as of January
28, 1992, between LSAS and the Seller (as successor to Ameritrust Company
National Association), (iv) the Trust Agreement dated as of July 14, 1992 and
restated as of July 1, 1994, among the Seller, LSAS and First Bank (N.A.),
Milwaukee,
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Wisconsin, as trustee, (v) the LAL/BEL Guarantee Agreements dated as of January
28, 1992 and December 21, 1992, between the Seller and TERI, and (vi) the
Private Guarantee Agreement dated as of March 23, 1995, among the Seller, TERI,
Society National Bank, Indiana and Wilmington Trust Company, (vii) Consolidated
Deposit Agreement and Consolidated Security Agreement each dated November 1,
1995 between TERI and Society National Bank, (viii) Alternative DEAL Surety Bond
Numbers 1994-A, 1994-B, 1995-A and 1996-A, dated February 23, 1994, October 4,
1994, July 1, 1995 and July 1, 1996, respectively, issued by HICA to KeyBank of
Maine, Society National Bank and Seller, respectively; and (ix) Pledged
Collateral Account Control Agreement dated ____________ among TERI, Seller and
McDonald Investments Inc., A KeyCorp Company, to the extent necessary to permit
the Trust to realize its rights and benefits under the assignment of the
agreements referred to in clauses (i) through (x) above.
"ASSIGNED RIGHTS" has the meaning specified in Section 2.01 of
the Sale and Servicing Agreement.
"AUCTION PURCHASE AMOUNT" with respect to the Financed Student
Loans means the aggregate unpaid principal balance owed by the applicable
borrowers thereon plus accrued interest thereon to the date of purchase less the
amount on deposit in the Reserve Account as of such date.
"AUTHORIZED OFFICER" means (i) with respect to the Issuer, any
officer of the Eligible Lender Trustee who is authorized to act for the Eligible
Lender Trustee in matters relating to the Issuer pursuant to the Basic Documents
and who is identified on the list of Authorized Officers delivered by the
Eligible Lender Trustee to the Indenture Trustee on the Closing Date (as such
list may be modified or supplemented from time to time thereafter), (ii) with
respect to the Administrator, any officer of the Administrator or any of its
Affiliates who is authorized to act for the Administrator in matters relating to
itself or to the Issuer and to be acted upon by the Administrator pursuant to
the Basic Documents and who is identified on the list of Authorized Officers
delivered by the Administrator to the Indenture Trustee on the Closing Date (as
such list may be modified or supplemented from time to time thereafter), (iii)
with respect to the Seller, any officer of the Seller or any of its Affiliates
who is authorized to act for the Seller in matters relating to or to be acted
upon by the Seller pursuant to
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the Basic Documents and who is identified on the list of Authorized Officers
delivered by the Seller to the Indenture Trustee on the Closing Date (as such
list may be modified or supplemented from time to time thereafter) and (iv) with
respect to the Servicer, any officer of the Servicer who is authorized to act
for the Servicer in matters relating to or to be acted upon by the Servicer
pursuant to the Basic Documents and who is identified on the list of Authorized
Officers delivered by the Servicer to the Indenture Trustee on the Closing Date
(as such list may be modified or supplemented from time to time thereafter).
"AVAILABLE FUNDS" means, with respect to a Distribution Date
or any Monthly Servicing Payment Date, the sum of the following amounts received
with respect to the then elapsed portion of the related Collection Period to the
extent not previously distributed:
(i) all collections received by the Servicers on the Financed
Student Loans (including any Guarantee Payments received with respect
to such Financed Student Loans), but net of (x), any Federal
Origination Fee and Federal Consolidation Loan Rebate payable to the
Department on Federal Consolidation Loans disbursed after October 1,
1993, and (y) any collections in respect of principal on the Financed
Student Loans applied by the Trust to repurchase guaranteed loans from
the Guarantors in accordance with the Guarantee Agreements;
(ii) any Interest Subsidy Payments and Special Allowance
Payments received by the Eligible Lender Trustee during the then
elapsed portion of such Collection Period with respect to the Financed
Federal Loans;
(iii) all Liquidation Proceeds and all recoveries in respect
of Liquidated Student Loans which were written off in prior Collection
Periods or prior months of such Collection Period;
(iv) the aggregate Purchase Amounts received for those
Financed Student Loans repurchased by the Seller or purchased by a
Servicer under an obligation which arose during the elapsed portion of
such Collection Period;
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(v) the aggregate amounts, if any, received from the Seller or
a Servicer, as the case may be, as reimbursement of non-guaranteed
interest amounts, or, lost Interest Subsidy Payments and Special
Allowance Payments, with respect to the Financed Federal Student Loans
pursuant to Section 3.02 or 4.06, respectively of the Sale and
Servicing Agreement;
(vi) amounts deposited by the Seller into the Collection
Account in connection with the making of Consolidation Loans pursuant
to Section 2.03 of the Sale and Servicing Agreement;
(vii) with respect to the first Distribution Date, the portion
of the Negative Carry Initial Deposit transferred from the Subsequent
Pool Pre-Funding Subaccount to the Collection Account;
(viii) Investment Earnings for such Distribution Date;
(ix) amounts withdrawn from the Reserve Account in excess of
the Specified Reserve Account Balance and deposited into the Collection
Account;
(x) amounts withdrawn from the Escrow Account and deposited
into the Collection Account; and
(xi) with respect to the Distribution Date on or immediately
after the end of the Funding Period, the amount transferred from the
Pre-Funding Account to the Collection Account.
provided, however, that Available Funds will exclude (A) all payments
and proceeds (including Liquidation Proceeds) of any Financed Student
Loans, the Purchase Amount of which has been included in Available
Funds for a prior Distribution Date and (B) following the end of the
Funding Period and prior to the Loan Purchase Termination Date, amounts
withdrawn from the Collection Account to purchase Other Student Loans
or pay Guarantee Fee Advances pursuant to Sections 2.02A and 5.05(d) of
the Sale and Servicing Agreement during the period following the
preceding Distribution Date and ending on or prior to such Distribution
Date; provided, further, that if on any Distribution Date there would
not be sufficient funds, after application of Available Funds and
amounts available
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from the Reserve Account and the Pre-Funding Account (1) to pay any of
the items specified in clauses (i) through (iii) of Section 5.05(c) of
the Sale and Servicing Agreement for such Distribution Date and (2) if
the principal balance of the Notes (after giving effect to any
distributions thereon on such Distribution Date) is less than or equal
to the Note Collateralization Amount, to pay the Certificateholders'
Interest Distribution Amount for such Distribution Date, then Available
Funds for such Distribution Date will include, in addition to the
Available Funds amounts on deposit in the Collection Account on the
Determination Date relating to such Distribution Date which would have
constituted Available Funds for the Distribution Date succeeding such
Distribution Date up to the amount necessary to pay, in the case of
clause (1) above such items and in the case of clause (2) above such
Certificateholders' Interest Distribution Amount, and the Available
Funds for such succeeding Distribution Date will be adjusted
accordingly.
"AVAILABLE LOAN PURCHASE FUNDS" means with respect to any
Collection Period and any Transfer Date after the Funding Period, the excess of
Available Funds (without giving effect to the second proviso thereof) for the
Collection Period relating to the Distribution Date next succeeding such
Transfer Date that are on deposit in the Collection Account on such Transfer
Date (before giving effect to any application thereof) over the Accrued Expected
Expense Payment for such Distribution Date.
"BASIC DOCUMENTS" means the Trust Agreement, the Indenture,
the Sale and Servicing Agreement, the Supplemental Sale and Servicing Agreement,
the Administration Agreement, the Certificate Depository Agreement, the Note
Depository Agreement, the Guarantee Agreements and other documents and
certificates delivered in connection with any thereof.
["BAR EXAM LOAN" means a Bar Examination Loan made by the
Seller to an eligible borrower pursuant to the Programs.]
"BENEFIT PLAN" has the meaning specified in Section 3.04 of
the Trust Agreement.
"BOOK-ENTRY CERTIFICATE" means a beneficial interest in the
Certificates, ownership and transfers of which shall be made
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through book entries by a Clearing Agency as described in Section 3.11 of the
Trust Agreement.
"BOOK-ENTRY NOTE" means a beneficial interest in the Notes,
ownership and transfers of which shall be made through book entries by a
Clearing Agency as described in Section 2.10 of the Indenture.
"BUSINESS DAY" means any day other than a Saturday, a Sunday
or a day on which banking institutions or trust companies in New York, New York
or Cleveland, Ohio, are authorized or obligated by law, regulation or executive
order to remain closed.
"CERTIFICATE" means a Floating Rate Asset Backed Certificate
issued pursuant to the Trust Agreement, substantially in the Form of Exhibit A
thereto.
"CERTIFICATE BALANCE" means as of the Closing Date the Initial
Certificate Balance for the Certificates and, thereafter, the Initial
Certificate Balance for the Certificates, reduced by all amounts allocable to
principal previously distributed to the holders of the Certificates.
"CERTIFICATE DEPOSITORY AGREEMENT" means the agreement dated
as of the Closing Date among the Trust, the Eligible Lender Trustee, the
Administrator and The Depository Trust Company, as the initial Clearing Agency,
substantially in the form of Exhibit B to the Trust Agreement.
"CERTIFICATE OWNER" means, with respect to a Book-Entry
Certificate, the Person who is the beneficial owner of such Book-Entry
Certificate, as reflected on the books of the Clearing Agency, or on the books
of a Person maintaining an account with such Clearing Agency (directly as a
Clearing Agency Participant or as an indirect participant, in each case in
accordance with the rules of such Clearing Agency).
"CERTIFICATE PAYING AGENT" means any paying agent or co-paying
agent appointed pursuant to Section 3.09 of the Trust Agreement, which shall
initially be the Eligible Lender Trustee.
"CERTIFICATE RATE" means, with respect to any Interest Period,
the interest rate per annum [(computed on the basis of the actual number of days
elapsed in such Interest Period over a
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year of 365 days (or 366 in a leap year)] [(computed on the basis of the actual
number of days elapsed in the related Interest Period divided by 360)] equal to
the lesser of (i) [the weighted average of the T-Bill Rates within such Interest
Period] [Three-Month LIBOR for such Interest Period] plus ___% and (ii) the
Student Loan Rate for such Interest Period.
"CERTIFICATE REGISTER" and "CERTIFICATE REGISTRAR" means the
register mentioned and the registrar appointed pursuant to Section 3.04 of the
Trust Agreement.
"CERTIFICATE UNDERWRITING AGREEMENT" means the Certificate
Underwriting Agreement dated as of January ___, 1999 between the Seller and the
Underwriters.
"CERTIFICATEHOLDER" means a Person in whose name a Certificate
is registered in the Certificate Register.
"CERTIFICATEHOLDERS' AVAILABLE INTEREST DISTRIBUTION AMOUNT"
means for the Certificates on any Distribution Date, an amount equal to (x) the
sum of (1) Available Funds for such Distribution Date, (2) the amount, if any,
withdrawn from the Pre-Funding Account pursuant to Section 5.08(d) of the Sale
and Servicing Agreement on such Distribution Date, and (3) the amounts withdrawn
from the Reserve Account pursuant to Section 5.06(b)(vi) of the Sale and
Servicing Agreement on such Distribution Date minus (y) the amount required to
be distributed pursuant to clauses (i) through (iii) of Section 5.05(c) of the
Sale and Servicing Agreement, including any Noteholders' Priority Principal
Distribution Amount actually distributed.
"CERTIFICATEHOLDERS' AVAILABLE PRINCIPAL DISTRIBUTION AMOUNT"
means on the Final Maturity Date for the Certificates, an amount equal to (x)
the sum of (1) the Available Funds for such Distribution Date, and (2) the
amounts withdrawn from the Reserve Account pursuant to Section 5.06(b)(ix) of
the Sale and Servicing Agreement minus (y) the amounts required to be
distributed pursuant to clauses (i) through (vii) of Section 5.05(c) of the Sale
and Servicing Agreement.
"CERTIFICATEHOLDERS' DISTRIBUTION AMOUNT" means, with respect
to any Distribution Date, the Certificateholders' Interest Distribution Amount
for such Distribution Date plus, for each Distribution Date on and after which
the Notes have been paid in
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full, the Certificateholders' Principal Distribution Amount for such
Distribution Date.
"CERTIFICATEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, with
respect to any Distribution Date, the excess of (i) the Certificateholders'
Interest Distribution Amount on the preceding Distribution Date over (ii) the
amount of interest actually distributed to the holders of the Certificates on
such preceding Distribution Date, plus interest on the amount of such excess
interest due to the holders of the Certificates, to the extent permitted by law,
at the applicable Certificate Rate from such preceding Distribution Date to the
current Distribution Date.
"CERTIFICATEHOLDERS' INTEREST DISTRIBUTION AMOUNT" means, with
respect to any Distribution Date, the sum of (i) the amount of interest accrued
at the applicable Certificate Rate for the related Interest Period on the
outstanding Certificate Balance on the immediately preceding Distribution Date,
after giving effect to all distributions of principal to holders of the
Certificates on such Distribution Date (or, in the case of the first
Distribution Date, on the Closing Date) and (ii) the Certificateholders'
Interest Carryover Shortfall for such Distribution Date; PROVIDED, HOWEVER, that
the Certificateholders' Interest Distribution Amount will not include any
Certificateholders' Interest Index Carryover.
"CERTIFICATEHOLDERS' INTEREST INDEX CARRYOVER" means, with
respect to any Distribution Date as to which the Certificate Rate for such
Distribution Date is based on the Student Loan Rate, the amount equal to the
excess, if any, of (a) the amount of interest on the Certificates that would
have accrued in respect of the related Interest Period had interest been
calculated based on [the T-Bill Rate, if such Certificates are T-Bill Indexed
Securities] [and/or] [Three-Month LIBOR if such Certificates are LIBOR Indexed
Securities] over (b) the amount of interest on such Certificates actually
accrued in respect of such Interest Period based on the Student Loan Rate,
together with the unpaid portion of any such excess from prior Distribution
Dates (and interest accrued thereon, to the extent permitted by law, calculated
based on [the T-Bill Rate in the case of T-Bill Indexed Securities] or
[Three-Month LIBOR, in the case of LIBOR Indexed Securities]); PROVIDED,
HOWEVER, that, on the Final Maturity Date, the Certificateholders' Interest
Index Carryover will be equal to the lesser of (i) the Certificateholders'
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Interest Index Carryover on such date determined as described above and (ii) the
amount of funds, if any, required and available to be distributed to the holders
of the Certificates on such date pursuant to Sections 5.05(c)(x) of the Sale and
Servicing Agreement.
"CERTIFICATEHOLDERS' PERCENTAGE" means, a fraction, expressed
as a percentage, the numerator of which is the principal balance of the
Certificates issued on the Closing Date and the denominator of which is the sum
of the principal amount of the Notes issued on the Closing Date and the
principal balance of the Certificates issued on the Closing Date.
"CERTIFICATEHOLDERS' PRINCIPAL DISTRIBUTION AMOUNT" means, on
each Distribution Date on and after which the principal balance of the Notes has
been paid in full, the Principal Distribution Amount for such Distribution Date
(or, in the case of the Distribution Date on which the principal balance of the
Notes is paid in full, any remaining Principal Distribution Amount not otherwise
distributed to the holders of such Notes on such Distribution Date); PROVIDED,
HOWEVER, that the Certificateholders' Principal Distribution Amount for the
Certificates will in no event exceed the Certificate Balance for the
Certificates. In addition, on the Final Maturity Date for the Certificates, the
principal required to be distributed to the holders of the Certificates will
include the amount required to reduce the outstanding principal balance of the
Certificates to zero.
"CLASS A-1 NOTE" means a Floating Rate Class A-1 Asset Backed
Note issued pursuant to the Indenture, substantially in the form of Exhibit A-1
thereto.
"CLASS A-2 NOTE" means a Floating Rate Class A-2 Asset Backed
Note issued pursuant to the Indenture, substantially in the form of Exhibit A-2
thereto.
"CLEARING AGENCY" means an organization registered as a
"clearing agency" pursuant to Section 17A of the Exchange Act.
"CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank,
other financial institution or other Person for whom from time to time a
Clearing Agency effects book-entry transfers and pledges of securities deposited
with the Clearing Agency.
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"CLOSING DATE" means February ___, 1999.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and Treasury Regulations promulgated thereunder.
"COLLATERAL" has the meaning specified in the Granting Clause
of the Indenture.
"COLLECTION ACCOUNT" means the account designated as such,
established and maintained pursuant to Section 5.01 of the Sale and Servicing
Agreement.
"COLLECTION PERIOD" means, with respect to the first
Distribution Date, the period beginning on the Cutoff Date and ending on May 31,
1999 and with respect to each subsequent Distribution Date, the Collection
Period means the three calendar months immediately following the end of the
previous Collection Period.
"COMMISSION" means the Securities and Exchange Commission.
"CONSOLIDATION LOANS" means Federal Consolidation Loans and
Private Consolidation Loans, collectively.
"CORPORATE TRUST OFFICE" means (i) with respect to the
Indenture Trustee, the principal office of the Indenture Trustee at which at any
particular time its corporate trust business shall be administered, which office
at the Closing Date is located at Four Albany Street, New York, New York 10006,
Attention: Corporate Trust and Agency Group, Structured Finance Team (telephone:
(212) 250-6652; facsimile: (212) 250-6439) or at such other address as the
Indenture Trustee may designate from time to time by notice to the Noteholders
and the Seller, or the principal corporate trust office of any successor
Indenture Trustee (the address of which the successor Indenture Trustee will
notify the Noteholders and the Seller) and (ii) with respect to the Eligible
Lender Trustee, the principal corporate trust office of the Eligible Lender
Trustee located at One First National Plaza, Suite 0126, Chicago, Illinois
60670, Attention: Corporate Trust Administration (telephone: (312) 407-1892;
facsimile: (312) 407-1708); or at such other address as the
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Eligible Lender Trustee may designate by notice to the Certificateholders and
the Seller, or the principal corporate trust office of any successor Eligible
Lender Trustee (the address of which the successor Eligible Lender Trustee will
notify the Certificateholders and the Seller).
"CUTOFF DATE" means January 1, 1999.
"DEFAULT" means any occurrence that is, or with notice or the
lapse of time or both would become, an Event of Default.
"DEFINITIVE CERTIFICATES" has the meaning specified in Section
3.11 of the Trust Agreement.
"DEFINITIVE NOTES" has the meaning specified in Section 2.10
of the Indenture.
"DELIVERY" or "DELIVER" when used with respect to Trust
Account Property means the following and such additional or alternative
procedures as may hereafter become appropriate to effect the complete transfer
of ownership of any such Collateral to the Indenture Trustee, free and clear of
any adverse claims, consistent with changes in applicable law or regulations or
the interpretation thereof:
(a) with respect to bankers' acceptances, commercial paper, negotiable
certificates of deposit and other obligations that constitute instruments and
are susceptible of physical delivery ("Physical Property"):
(i) transfer of possession thereof to the Indenture Trustee
endorsed to, or registered in the name of, the Indenture Trustee, or
its nominee or endorsed in blank;
(b) with respect to a certificated security:
(i) delivery thereof in bearer form to the Indenture Trustee;
or
(ii) delivery thereof in registered form to the Indenture
Trustee and
(A) the certificate is endorsed to the Indenture Trustee or in
blank by effective endorsement; or
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(B) the certificate is registered in the name of the Indenture
Trustee, upon original issue or registration of transfer by the issuer;
(c) with respect to an uncertificated security:
(i) the delivery of the uncertificated security to the
Indenture Trustee; or
(ii) the issuer has agreed that it will comply with
instructions originated by the Indenture Trustee, without further
consent by the registered owner;
(d) with respect to any security issued by the U.S. Treasury, the
Federal Home Loan Mortgage Corporation or by the Federal National Mortgage
Association that is a book-entry security held through the Federal Reserve
System pursuant to Federal book-entry regulations:
(i) a Federal Reserve Bank by book entry credits the
book-entry security to the securities account (as defined in 31 CFR
Part 357) of a participant (as defined in 31 CFR Part 357) which is
also a securities intermediary; and
(ii) the participant indicates by book entry that the
book-entry security has been credited to the Indenture Trustee's
securities account, as applicable;
(e) with respect to a security entitlement:
(i) the Indenture Trustee, becomes the entitlement holder; or
(ii) the securities intermediary has agreed that it will
comply with entitlement orders originated by the Indenture Trustee;
(f) without further consent by the entitlement holder for the purpose
of clauses (b) and (c) hereof "delivery" means:
(i) with respect to a certificated security:
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(A) the Indenture Trustee, acquires possession
thereof;
(B) another person (other than a securities
intermediary) either acquires possession thereof on behalf of
the Indenture Trustee or, having previously acquired
possession thereof, acknowledges that it holds for the
Indenture Trustee; or
(C) a securities intermediary acting on behalf of the
Indenture Trustee acquires possession of thereof, only if the
certificate is in registered form and has been specially
endorsed to the Indenture Trustee by an effective endorsement;
(ii) with respect to an uncertificated security:
(A) the issuer registers the Indenture Trustee as the
registered owner, upon original issue or registration of
transfer; or
(B) another person (other than a securities
intermediary) either becomes the registered owner thereof on
behalf of the Indenture Trustee, or, having previously become
the registered owner, acknowledges that it holds for the
Indenture Trustee;
(g) for purposes of this definition, except as otherwise indicated, the
following terms shall have the meaning assigned to each such term in the UCC:
(i) "certificated security"
(ii) "effective endorsement"
(iii) "entitlement holder"
(iv) "instrument"
(v) "securities account"
(vi) "securities entitlement"
(vii) "securities intermediary"
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(viii)"uncertificated security"
(h) in each case of Delivery contemplated herein, the Indenture Trustee
shall make appropriate notations on its records, and shall cause same to be made
of the records of its nominees, indicating that securities are held in trust
pursuant to and as provided in this Agreement.
"DEPARTMENT" means the United States Department of Education,
an agency of the Federal government.
"DEPOSITOR" means the Seller in its capacity as Depositor
under the Trust Agreement.
"DEPOSITORY" has the meaning specified in Section 2.04 of the
Indenture.
"DETERMINATION DATE" means, with respect to any Monthly
Servicing Payment Date or Distribution Date, as the case may be, the third
Business Day preceding such Monthly Servicing Payment Date or Distribution Date.
"DISTRIBUTION DATE" means, with respect to each Collection
Period, the twenty-seventh day of each March, June, September and December or,
if such day is not a Business Day, the immediately following Business Day,
commencing on June 28, 1999.
"DTC" means the Depository Trust Company, a New York
Corporation.
"ECMC" means Educational Credit Management Corporation.
"EFS" means EFS Services, Inc., a wholly-owned subsidiary of
EFS, Inc. of Indiana.
"ELIGIBLE DEPOSIT ACCOUNT" means either (a) a segregated
account with an Eligible Institution or (b) a segregated trust account with the
corporate trust department of a depository institution organized under the laws
of the United States of America or any one of the States (or any domestic branch
of a foreign bank), having corporate trust powers and acting as trustee for
funds deposited in such account, so long as any of the securities of such
depository institution have a
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credit rating from at least two nationally recognized Rating Agencies in one of
their respective generic rating categories which signifies investment grade.
"ELIGIBLE INSTITUTION" means a depository institution (which
may be the Seller (or any Affiliate of the Seller), the Eligible Lender Trustee
(or any Affiliate of the Eligible Lender Trustee) or the Indenture Trustee)
organized under the laws of the United States of America or any one of the
States (or any domestic branch of a foreign bank), (a) which has (i) a
short-term senior unsecured debt rating of P-1 or better by Moody's, or any
other long-term, short-term or certificate of deposit rating acceptable to the
Rating Agencies and (ii) if rated by Fitch (A) a long term senior unsecured debt
rating of AAA by Fitch and (B) short-term senior of F-1+ by Fitch and (b) whose
deposits are insured by the FDIC. If so qualified, the Seller, any Affiliate of
the Seller, the Eligible Lender Trustee, or any Affiliate of the Eligible Lender
Trustee or Indenture Trustee may be considered an Eligible Institution.
"ELIGIBLE INVESTMENTS" mean book-entry securities, negotiable
instruments or securities represented by instruments in bearer or registered
form which evidence:
(a) direct obligations of, and obligations fully guaranteed as
to timely payment by, the United States of America;
(b) demand deposits, time deposits or certificates of deposit
of any depository institution or trust company incorporated under the
laws of the United States of America or any State (or any domestic
branch of a foreign bank) and subject to supervision and examination by
Federal or state banking or depository institution authorities
(including depository receipts issued by any such institution or trust
company as custodian with respect to any obligation referred to in
clause (a) above or portion of such obligation for the benefit of the
holders of such depository receipts); PROVIDED, HOWEVER, that at the
time of the investment or contractual commitment to invest therein
(which shall be deemed to be made again each time funds are reinvested
following each Distribution Date, as the case may be), the commercial
paper or other short-term senior unsecured debt obligations (other than
such obligations the rating of which
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is based on the credit of a Person other than such depository
institution or trust company) thereof shall have a credit rating from
Moody's in the highest investment category granted thereby and, if
rated by Fitch, in the highest investment category granted by Fitch;
(c) commercial paper having, at the time of the investment or
contractual commitment to invest therein, a rating from Moody's in the
highest investment category granted thereby and, if rated by Fitch, in
the highest investment category granted by Fitch;
(d) investments in money market funds (including funds for
which the Indenture Trustee or the Eligible Lender Trustee or any of
their respective Affiliates or any of Seller's Affiliates is an
investment manager or advisor) having a rating from Moody's of Aaa and
if rated by Fitch from Fitch of AAA;
(e) bankers' acceptances issued by any depository institution
or trust company referred to in clause (b) above;
(f) repurchase obligations with respect to any security that
is a direct obligation of, or fully guaranteed by, the United States of
America or any agency or instrumentality thereof the obligations of
which are backed by the full faith and credit of the United States of
America, in either case entered into with (i) a depository institution
or trust company (acting as principal) described in clause (b) above;
and
(g) any other investment permitted by each of the Rating
Agencies as set forth in writing delivered to the Indenture Trustee.
"ELIGIBLE LENDER TRUSTEE" means The First National Bank of
Chicago, a national banking association, not in its individual capacity but
solely as eligible lender trustee under the Trust Agreement.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
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"ESCROW ACCOUNT" means the account designated as such,
established and maintained pursuant to Section 5.01 of the Sale and Servicing
Agreement.
"EVENT OF DEFAULT" has the meaning specified in Section 5.01
of the Indenture.
"EXCESS SERVICING FEE" has the meaning specified in Schedule C
to the Sale and Servicing Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXECUTIVE OFFICER" means, with respect to any corporation,
the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
President, any Executive Vice President, any Senior Vice President, any Vice
President, the Secretary or the Treasurer of such corporation; and with respect
to any partnership, any general partner thereof.
"EXPECTED INTEREST COLLECTIONS" means, with respect to any
Collection Period, the sum of (i) the amount of interest accrued, net of amounts
required by the Higher Education Act to be paid to the Department or to be
repaid to borrowers, with respect to the Financed Student Loans for such
Collection Period (whether or not such interest is actually paid), (ii) all
Interest Subsidy Payments and Special Allowance Payments expected to be received
by the Eligible Lender Trustee for such Collection Period (whether or not
actually received) with respect to the Financed Student Loans and (iii)
Investment Earnings for such Collection Period.
"EXPECTED RATE" means with respect to any Transfer Dates after
the end of the Funding Period on which Other Student Loans are transferred to
the Trust, the sum of the weighted average of the Note Interest Rates and the
Certificate Rate for the Notes and Certificates, respectively, as of the first
day of the related Collection Period plus ____%.
"EXPENSES" means any and all liabilities, obligations, losses,
damages, taxes, claims, actions and suits, and any and all reasonable costs,
expenses and disbursements (including reasonable legal fees and expenses) of any
kind and nature whatsoever which may at any time be imposed on, incurred by, or
asserted against the Eligible Lender Trustee or any of its
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officers, directors or agents in any way relating to or arising out of the Trust
Agreement, the other Basic Documents, the Trust Estate, the administration of
the Trust Estate or the action or inaction of the Eligible Lender Trustee under
the Trust Agreement or the other Basic Documents.
"FDIC" means the Federal Deposit Insurance Corporation.
"FEDERAL CONSOLIDATION LOAN" means a loan made by the Seller
to an eligible borrower that represents the refinancing of Financed Federal
Loans of such borrower in accordance with the applicable terms and conditions of
the Program and the Higher Education Act.
"FEDERAL CONSOLIDATION LOAN REBATE" means the monthly fee
payable to the Department by the holder of Federal Consolidation Loans made (x)
on or after October 1, 1993, but prior to October 1, 1998 equal to 1.05% per
annum and (y) on or after October 1, 1998 equal to .62% per annum, in each case
on the outstanding balance of such Federal Consolidation Loan.
"FEDERAL GUARANTOR" means PHEAA, ASA, ECMC and NSLP.
"FEDERAL ORIGINATION FEE" means the origination fee payable to
the Department by the lender with respect to any Financed Federal Loan
(including Federal Consolidation Loans) made on or after October 1, 1993, equal
to 0.50% of the initial principal balance of such loan.
"52 WEEK T-BILL RATE" means, on any date of determination, the
bond equivalent rate of 52-week Treasury bills auctioned at the final auction
held prior to the preceding June 1.
"FINAL MATURITY DATE" means (i) for the Class A-1 Notes, the
_______ ______ Distribution Date, (ii) for the Class A-2 Notes the _______
______ Distribution Date and (iii) for the Certificates, the _______ ______
Distribution Date.
"FINAL SUBSEQUENT TRANSFER DATE" means the last Transfer Date
on which Subsequent Pool Student Loans are transferred to the Trust but no later
than the Special Determination Date.
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"FINANCED FEDERAL LOANS" means those Financed Student Loans
that are guaranteed as to the payment of principal and interest by PHEAA, ASA,
ECMC or NSLP and are reinsured by the Department and are listed on Schedule A to
the Sale and Servicing Agreement, as such Schedule may be supplemented from time
to time.
"FINANCED PRIVATE LOANS" means those Financed Student Loans
that are guaranteed as to the payment of principal and interest by TERI or HICA
and are not reinsured by the Department or any other governmental entity and are
listed on Schedule A to the Sale and Servicing Agreement, as such Schedule may
be supplemented from time to time.
"FINANCED STUDENT LOAN" means any law school, medical school,
dental school, graduate business school or other graduate school student loan
listed on Schedule A of the Sale and Servicing Agreement as such Schedule may be
supplemented from time to time.
"FINANCED STUDENT LOAN FILES" means the documents specified in
Section 3.03 of the Sale and Servicing Agreement.
"FITCH" means Fitch IBCA, Inc.
"FUNDING PERIOD" means the period beginning on the Closing
Date and ending on the first to occur of (a) the date on which an Event of
Default, a Servicer Default or an Administrator Default occurs, (b) the date on
which an Insolvency Event occurs with respect to the Seller, (c) the first date
on which the amounts on deposit in each Pre-Funding Account is zero, and (d) the
close of business on the last day of the Collection Period preceding the March
2001 Distribution Date.
"GRADUATE LOAN PROGRAMS" means [TO COME FROM KEY BANK].
["GRADUATE SCHOOL LOAN" means a Graduate [School] Loan made by
the Seller to an eligible borrower pursuant to the Programs.]
"GRANT" means mortgage, pledge, bargain, sell, warrant,
alienate, remise, release, convey, assign, transfer, create, and grant a lien
upon and a security interest in and right of set-off against, deposit, set over
and confirm pursuant to the Indenture.
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A Grant of the Collateral or of any other agreement or instrument shall include
all rights, powers and options (but none of the obligations) of the Granting
party thereunder, including the immediate and continuing right to claim for,
collect, receive and give receipt for principal and interest payments in respect
of the Collateral and all other moneys payable thereunder, to give and receive
notices and other communications, to make waivers or other agreements, to
exercise all rights and options, to bring Proceedings in the name of the
Granting party or otherwise and generally to do and receive anything that the
Granting party is or may be entitled to do or receive thereunder or with respect
thereto.
"GUARANTEE AGREEMENTS" means (i) in the case of PHEAA, the
National Guaranty Agreement and the Lender Participation Agreement for
Consolidation Loans, in each case dated as of June 13, 1998, between PHEAA and
the Eligible Lender Trustee on behalf of the Issuer, (ii) in the case of ASA,
the Holder Guarantee Agreement dated as of July 13, 1998, between ASA and the
Eligible Lender Trustee on behalf of the Issuer, (iii) in the case of ECMC, the
Holder Agreement for Payment on Guarantee dated as of the Closing Date, between
ECMC and the Eligible Lender Trustee on behalf of the Issuer, (iv) in the case
of NSLP, the Lender Agreement for Guaranteed Educational Loans With Federal
Reinsurance and the Lender Agreement for Guarantee of Federal Consolidation
Loans with Federal Reinsurance, each dated as of July 13, 1998 between NSLP and
the Eligible Lender Trustee on behalf of the Issuer, (v) in the case of TERI,
the Guarantee Agreement dated as of July 13, 1998, among TERI, the Seller and
the Eligible Lender Trustee on behalf of the Issuer and (vi) in the case of
HICA, the Endorsement to Alternative Dental Educational Assistance Loan Surety
Bond Numbers 1994-A, 1994-B, 1995-A and 1996-A dated as of July 13, 1998 and
executed by HICA, relative to such Surety Bonds which were assigned by the
Seller to the Eligible Lender Trustee on behalf of the Issuer.
"GUARANTEE FEE ADVANCE" means a loan made by the Seller to a
borrower of a Financed Private Loan, at the borrower's option, at the time such
borrower commences repayment of such Financed Private Loan to finance the cost
of the fee imposed with respect to such loan at such time.
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"GUARANTEE PAYMENT" means any payment made by a Guarantor
pursuant to a Guarantee Agreement in respect of a Financed Student Loan.
"GUARANTORS" means PHEAA, ASA, ECMC, NSLP, TERI and HICA.
"HICA" means HEMAR Insurance Company of America, a South
Dakota corporation.
"HIGHER EDUCATION ACT" means the Higher Education Act of 1965,
as amended, together with any rules, regulations and interpretations thereunder.
"INDENTURE" means the Indenture dated as of January 1, 1999,
between the Issuer and the Indenture Trustee.
"INDENTURE TRUSTEE" means Bankers Trust Company, a New York
banking corporation, not in its individual capacity but solely as Indenture
Trustee under the Indenture.
"INDENTURE TRUST ESTATE" means all money, instruments, rights
and other property that are subject or intended to be subject to the lien and
security interest of the Indenture for the benefit of the Noteholders (including
all property and interests granted to the Indenture Trustee), including all
proceeds thereof.
"INDEPENDENT" means, when used with respect to any specified
Person, that the Person (a) is in fact independent of the Issuer, any other
obligor upon the Notes, the Seller and any Affiliate of any of the foregoing
Persons, (b) does not have any direct financial interest or any material
indirect financial interest in the Issuer, any such other obligor, the Seller or
any Affiliate of any of the foregoing Persons and (c) is not connected with the
Issuer, any such other obligor, the Seller or any Affiliate of any of the
foregoing Persons as an officer, employee, promoter, underwriter, trustee,
partner, director or person performing similar functions.
"INDEPENDENT CERTIFICATE" means a certificate or opinion to be
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.01 of the
Indenture, made
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by an Independent appraiser or other expert appointed by an Issuer Order and
approved by the Indenture Trustee in the exercise of reasonable care, and such
opinion or certificate shall state that the signer has read the definition of
"Independent" in the Indenture and that the signer is Independent within the
meaning thereof.
"INDEX MATURITY" shall have the meaning set forth in the
definition of "Three-Month LIBOR".
"INITIAL CERTIFICATE BALANCE" means $__________.
"INITIAL FINANCED STUDENT LOANS" has the meaning specified in
Section 2.01 of the Sale and Servicing Agreement.
"INITIAL POOL BALANCE" means, the sum of the Pool Balance as
of the Cutoff Date, which is $________, plus as of each Subsequent Cutoff Date
the principal balance of each Subsequent Pool Student Loan sold to the Eligible
Lender Trustee on behalf of the Issuer on each Transfer Date during the Funding
Period.
"INSOLVENCY EVENT" means, with respect to a specified Person,
(a) the filing of a decree or order for relief by a court having jurisdiction in
the premises in respect of such Person or any substantial part of its property
in an involuntary case under any applicable Federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or
ordering the winding-up or liquidation of such Person's affairs, and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or (b) the commencement by such Person of a voluntary case under any
applicable Federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by such Person to the entry of an order for
relief in an involuntary case under any such law, or the consent by such Person
to the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or the making by such Person of any general
assignment for the benefit of creditors, or the failure by such Person generally
to
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pay its debts as such debts become due, or the taking of action by such
Person in furtherance of any of the foregoing.
"INTEREST COLLECTIONS" shall have the meaning specified in
Section 5.03 of the Sale and Servicing Agreement.
"INTEREST PERIOD" means, with respect to a Distribution Date,
the period from and including the Closing Date or the most recent Distribution
Date on which interest on the Notes or the Certificates, as the case may be, has
been distributed to but excluding the current Distribution Date.
"INTEREST SUBSIDY PAYMENTS" means payments, designated as
such, consisting of interest subsidies by the Department in respect of the
Financed Federal Loans to the Eligible Lender Trustee on behalf of the Trust in
accordance with the Higher Education Act.
"INVESTMENT EARNINGS" means, with respect to any Distribution
Date, the investment earnings (net of losses and investment expenses) on amounts
on deposit in the Trust Accounts to be deposited into the Collection Account on
or prior to such Distribution Date pursuant to Section 5.01(b) of the Sale and
Servicing Agreement.
"ISSUER" means KeyCorp Student Loan Trust 1999-A (formerly
named KeyCorp Student Loan Trust 1998-A) until a successor replaces it and,
thereafter, means the successor.
"ISSUER ORDER" and "ISSUER REQUEST" means a written order or
request signed in the name of the Issuer by any one of its Authorized Officers
and delivered to the Indenture Trustee.
["LAW LOAN" means a Law School Loan made by the Seller to an
eligible borrower pursuant to the Programs.]
"LIBOR DETERMINATION DATE" means the second Business Day prior
to the commencement of each Interest Period. For purposes of this definition a
"Business Day" is any day on which banks in London and New York City are open
for the transaction of business.
"LIBOR INDEXED SECURITIES" means _______________.
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"LIEN" means a security interest, lien, charge, pledge, equity
or encumbrance of any kind, other than tax liens and any other liens, if any,
which attach to the respective Financed Student Loan by operation of law as a
result of any act or omission by the related Obligor.
"LIQUIDATED STUDENT LOAN" means any defaulted Financed Student
Loan liquidated by the Servicer which services such Financed Student Loan (which
shall not include any Financed Student Loan on which Guarantee Payments are
received) or which such Servicer has, after using all reasonable efforts to
realize upon such Financed Student Loan, determined to charge off.
"LIQUIDATION PROCEEDS" means, with respect to any Liquidated
Student Loan, the moneys collected in respect thereof from whatever source,
other than Recoveries, net of the sum of any amounts expended by the Servicer
which serviced such Liquidated Student Loan in connection with such liquidation
and any amounts required by law to be remitted to the borrower on such
Liquidated Student Loan.
"LOAN PURCHASE TERMINATION DATE" means the first to occur of
(i) the date on which an Event of Default occurs under the Indenture, a Servicer
Default occurs under the Sale and Servicing Agreement or an Administrator
Default occurs under the Sale and Servicing Agreement or the Administration
Agreement, (ii) the date on which an Insolvency Event with respect to the Seller
occurs, or (iii) the last day of the Collection Period preceding the March 2002
Distribution Date.
"LOCK-IN PERIOD" means the period of days preceding any
Distribution Date during which the Note Interest Rates or Certificate Rates, as
applicable, in effect on the first day of such period shall remain in effect
until the end of the Interest Period related to such Distribution Date.
"MAXIMUM TERI PAYMENTS AMOUNT" means an amount equal to 19% of
the Initial Pool Balance.
"MINIMUM PURCHASE AMOUNT" means the greatest of (i) the
Auction Purchase Amount, (ii) the fair market value of the Financed Student
Loans as of the end of the Collection Period immediately preceding such
Distribution Date, and (iii) the aggregate unpaid principal amount of the Notes
and unpaid
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principal balance of the Certificates plus, in each case, accrued and unpaid
interest thereon on the related Distribution Date and any amount to be paid
pursuant to Section 5.04(b) FIRST and SECOND of the Indenture.
"MONTHLY SERVICING PAYMENT DATE" means the twenty-seventh day
of each calendar month, or, if such day is not a Business Day, the immediately
following Business Day, commencing on March 1, 1999.
"MOODY'S" means Moody's Investors Service, Inc.
"91-DAY TREASURY BILLS" means direct obligations of the United
States with a maturity of thirteen weeks.
"NEGATIVE CARRY INITIAL DEPOSIT" means $____________.
"NET GOVERNMENT RECEIVABLE" means, with respect to any
Distribution Date, the sum of the amount of Interest Subsidy Payments and
Special Allowance Payments due from the Department less the amount owed to the
Department for Federal Origination Fee and Federal Consolidation Loan Rebate as
of the end of the related Collection Period.
"NOTE COLLATERALIZATION AMOUNT" means, with respect to any
Distribution Date, the sum of (i) the Pool Balance as of the end of the related
Collection Period, (ii) the Pre-Funded Amount as of the end of the related
Collection Period, (iii) the amount on deposit in the Reserve Account after
giving effect to distributions on such Distribution Date, and (iv) the Net
Government Receivable.
"NOTE DEPOSITORY AGREEMENT" means the agreement dated as of
the Closing Date relating to the Notes, substantially in the form of Exhibit B
to the Indenture, among the Issuer, the Indenture Trustee, the Administrator and
The Depository Trust Company, as the initial Clearing Agency.
"NOTE INTEREST RATE" means, with respect to any Interest
Period, (w) in the case of the Class A-1 Notes, the interest rate per annum
[(computed on the basis of the actual number of days elapsed in such Interest
Period over a year of 365 days (or 366 in a leap year)] [(computed on the basis
of the actual number of days elapsed in the related Interest Period
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divided by 360)] equal to the lesser of (i) [the weighted average of the T-Bill
Rates within such Interest Period] [Three-Month LIBOR] plus ___% and (ii) the
Student Loan Rate for such Interest Period, (x) in the case of the Class A-2
Notes, the interest rate per annum [(computed on the basis of the actual number
of days elapsed in such Interest Period over a year of 365 days (or 366 in a
leap year)] [(computed on the basis of the actual number of days elapsed in the
related Interest Period divided by 360)] equal to the lesser of (i) [the
weighted average of the T-Bill Rates within such Interest Period] [Three-Month
LIBOR] plus ___% and (ii) the Student Loan Rate for such Interest Period.
"NOTE OWNER" means, with respect to a Book-Entry Note, the
Person who is the owner of such Book-Entry Note, as reflected on the books of
the Clearing Agency, or on the books of a Person maintaining an account with
such Clearing Agency (directly as a Clearing Agency Participant or as an
indirect participant, in each case in accordance with the rules of such Clearing
Agency).
"NOTE REGISTER" and "NOTE REGISTRAR" have the respective
meanings specified in Section 2.04 of the Indenture.
"NOTE UNDERWRITING AGREEMENT" means the Note Underwriting
Agreement dated as of January __, 1999 between the Seller and the Underwriters.
"NOTEHOLDER" means the Person in whose name a Note is
registered in the Note Register.
"NOTEHOLDERS' AVAILABLE INTEREST DISTRIBUTION AMOUNT" means on
any Distribution Date, an amount equal to (x) the sum of (1) Available Funds for
such Distribution Date, (2) the amounts withdrawn from the Pre-Funding Account
pursuant to Section 5.08(d) of the Sale and Servicing Agreement on such
Distribution Date, and (3) the amounts withdrawn from the Reserve Account
pursuant to Section 5.06(b)(v) of the Sale and Servicing Agreement on such
Distribution Date minus (y) the amount required to be distributed pursuant to
clauses (i) and (ii) of Section 5.05(c) of the Sale and Servicing Agreement,
including any Noteholders' Priority Principal Distribution Amount actually
distributed.
"NOTEHOLDERS' AVAILABLE PRINCIPAL DISTRIBUTION AMOUNT" means
on the Final Maturity Date for each class of Notes, an
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amount equal to (x) the sum of (1) the Available Funds for such Distribution
Date and (2) the amount, if any, withdrawn from the Reserve Account pursuant to
Sections 5.06(b)(vii) or (viii) of the Sale and Servicing Agreement minus (y)
the amounts required to be distributed pursuant to clauses (i) through (v) of
Section 5.05(c) of the Sale and Servicing Agreement, including the Noteholders'
Priority Principal Distribution Amount for such class of Notes actually
distributed.
"NOTEHOLDERS' DISTRIBUTION AMOUNT" means, with respect to any
Distribution Date, the sum of the Noteholders' Interest Distribution Amount and
the Noteholders' Principal Distribution Amount for such Distribution Date.
"NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, with
respect to any Distribution Date, the excess of (i) the sum of the Noteholders'
Interest Distribution Amount on the preceding Distribution Date over (ii) the
amount of interest actually distributed to the holders of the Notes on such
preceding Distribution Date, plus interest on the amount of such excess interest
due to the holders of the Notes, to the extent permitted by law, at the weighted
average of the Note Interest Rates for the Notes from such preceding
Distribution Date to the current Distribution Date.
"NOTEHOLDERS' INTEREST DISTRIBUTION AMOUNT" means, with
respect to any Distribution Date, the sum of (i) the aggregate amount of
interest accrued at the applicable Note Interest Rate for the related Interest
Period on the outstanding principal balance of each class of Notes on the
immediately preceding Distribution Date after giving effect to all principal
distributions to Noteholders of such class on such date (or, in the case of the
first Distribution Date, on the Closing Date) and (ii) the Noteholders' Interest
Carryover Shortfall for such Distribution Date; provided, that the Noteholders'
Interest Distribution Amount will not include any Noteholders' Interest Index
Carryover.
"NOTEHOLDERS' INTEREST INDEX CARRYOVER" means, with respect to
any Distribution Date as to which the Note Interest Rate for the Notes for such
Distribution Date is based on the Student Loan Rate, the amount equal to the
excess, if any, of (a) the amount of interest on such Notes that would have
accrued in respect of the related Interest Period had interest been
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calculated based on [the T-Bill Rate, if such Notes are T-Bill Indexed
Securities] or [Three-Month LIBOR if such Notes are LIBOR Indexed Securities],
over (b) the amount of interest on such Notes actually accrued in respect of
such Interest Period based on the Student Loan Rate, together with the unpaid
portion of any such excess from prior Distribution Dates (and interest accrued
thereon, to the extent permitted by law, at the applicable rate calculated based
on [the T-Bill Rate, in the case of T-Bill Indexed Securities] or [Three-Month
LIBOR, in the case of LIBOR Indexed Securities]); PROVIDED, HOWEVER, that on the
Final Maturity Date for such Notes, the Noteholders' Interest Index Carryover
for such Notes will be equal to the lesser of (i) the Noteholders' Interest
Index Carryover on such date determined as described above and (ii) the amount
of funds, if any, required and available to be distributed to the holders for
such Notes on such date pursuant to Sections 5.05(c)(ix) and 5.06(e) of the Sale
and Servicing Agreement.
"NOTEHOLDERS' PERCENTAGE" means a fraction, expressed as a
percentage, the numerator of which is the principal amount of the Notes issued
on the Closing Date and the denominator of which is the sum of the principal
amount of the Notes issued on the Closing Date and the principal balance of the
Certificates issued on the Closing Date.
"NOTEHOLDERS' PRINCIPAL DISTRIBUTION AMOUNT" means, with
respect to any Distribution Date, the Principal Distribution Amount for such
Notes for such Distribution Date; PROVIDED, HOWEVER, that the Noteholders'
Principal Distribution Amount for the Notes will not exceed the outstanding
principal balance of the Notes. In addition, (i) on the Final Maturity Date for
each related class of Notes, the principal required to be distributed to such
class of Notes will include the amount required to reduce the outstanding
principal balance of such class of Notes to zero, and (ii) on the related
Distribution Date following a sale of the Financed Student Loans pursuant to
Section 9.01(a) or (c) of the Sale and Servicing Agreement, the principal
required to be distributed to the holders of Class A-2 Notes will include the
amount required to reduce the outstanding principal balance of the Class A-2
Notes to zero. In the event that the outstanding balance of the Notes is in
excess of the Note Collateralization Amount, the Noteholders' Principal
Distribution Amount will be reduced by the amount of any Noteholders' Priority
Principal Distribution Amount.
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"NOTEHOLDERS' PRIORITY PRINCIPAL DISTRIBUTION AMOUNT" means,
with respect to any Distribution Date, the excess of (i) the aggregate
outstanding principal balance of the Notes (after giving effect to any
distributions on such Distribution Date) over (ii) the Note Collateralization
Amount.
"NOTES" means the Class A-1 Notes and Class A-2 Notes.
"OBLIGOR" on a Financed Student Loan means the borrower or
co-borrowers of such Financed Student Loan and any other Person who owes
payments in respect of such Financed Student Loan, including the Guarantor
thereof and, with respect to any Interest Subsidy Payment or Special Allowance
Payment, if any, thereon, the Department.
"OFFICERS' CERTIFICATE" means (i) in the case of the Issuer, a
certificate signed by any two Authorized Officers of the Eligible Lender
Trustee, under the circumstances described in, and otherwise complying with, the
applicable requirements of Section 11.01 of the Indenture, and delivered to the
Indenture Trustee, (ii) in the case of the Seller or the Administrator, a
certificate signed by any two Authorized Officers of the Seller or the
Administrator, as appropriate and (iii) in the case of the Servicer, a
certificate signed by any two Authorized Officers of the Servicer.
"OPINION OF COUNSEL" means (i) with respect to the Issuer, one
or more written opinions of counsel who may, except as otherwise expressly
provided in the Indenture, be employees of or counsel to the Issuer and who
shall be satisfactory to the Indenture Trustee, and which opinion or opinions
shall be addressed to the Indenture Trustee as Indenture Trustee, shall comply
with any applicable requirements of Section 11.01 of the Indenture, and shall be
in form and substance satisfactory to the Indenture Trustee and (ii) with
respect to the Seller, the Administrator or a Servicer, one or more written
opinions of counsel who may be an employee of or counsel to the Seller, the
Administrator or such Servicer, which counsel shall be acceptable to the
Indenture Trustee, the Eligible Lender Trustee or the Rating Agencies, as
applicable.
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"OTHER ADDITIONAL PRE-FUNDED AMOUNT" means, with respect to
any Distribution Date, the amount on deposit in the Other Additional Pre-Funding
Subaccount.
"OTHER ADDITIONAL PRE-FUNDING SUBACCOUNT" has the meaning set
forth in Section 5.08 of the Sale and Servicing Agreement.
"OTHER STUDENT LOANS" means the Serial Loans (including
Consolidation Loans) made by the Seller to an eligible borrower who has one or
more existing loans under the Programs that are Financed Student Loans and are
transferred or to be transferred to the Eligible Lender Trustee on behalf of the
Issuer during the period which begins after the Funding Period and ends on the
Loan Purchase Termination Date pursuant to Section 2.02A of the Sale and
Servicing Agreement, each of which shall be identified on Schedule A, to the
related Transfer Agreement which Schedule A may be in the form of microfiche or
computer tape.
"OTHER SUBSEQUENT STUDENT LOANS" means the Serial Loans
(including Consolidation Loans but not including Subsequent Pool Student Loans)
made by the Seller to an eligible borrower who has one or more existing loans
under the Programs that are Financed Student Loans and are transferred or to be
transferred to the Eligible Lender Trustee on behalf of the Issuer during the
Funding Period pursuant to Section 2.02 of the Sale and Servicing Agreement,
each of which shall be identified on Schedule A, to the related Transfer
Agreement which Schedule A may be in the form of microfiche or computer tape.
"OUTSTANDING" means, as of the date of determination, all
Notes theretofore authenticated and delivered under the Indenture except:
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in
the necessary amount has been theretofore deposited with the Indenture
Trustee or any Paying Agent in trust for the Noteholders thereof
(PROVIDED, HOWEVER, that if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to the Indenture); and
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(iii) Notes in exchange for or in lieu of other Notes which
have been authenticated and delivered pursuant to the Indenture unless
proof satisfactory to the Indenture Trustee is presented that any such
Notes are held by a bona fide purchaser;
PROVIDED that in determining whether the Noteholders of the requisite
Outstanding Amount of the Notes have given any request, demand, authorization,
direction, notice, consent or waiver hereunder or under any other Basic
Document, Notes owned by the Issuer, any other obligor upon the Notes, the
Seller or any Affiliate of any of the foregoing Persons shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the Indenture
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes that a
Responsible Officer of the Indenture Trustee either actually knows to be so
owned or has received written notice thereof shall be so disregarded. Notes so
owned that have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Indenture Trustee the pledgee's
right so to act with respect to such Notes and that the pledgee is not the
Issuer, any other obligor upon the Notes, the Seller or any Affiliate of any of
the foregoing Persons.
"OUTSTANDING AMOUNT" means the aggregate principal amount of
all Notes Outstanding at the date of determination.
"PAYING AGENT" means the Indenture Trustee or any other Person
that meets the eligibility standards for the Indenture Trustee specified in
Section 6.11 of the Indenture and is authorized by the Issuer to make the
payments to and distributions from the Collection Account and payments of
principal of and interest and any other amounts owing on the Notes on behalf of
the Issuer.
"PERSON" means any individual, corporation, estate,
partnership, joint venture, association, joint stock company, trust (including
any beneficiary thereof), unincorporated organization or government or any
agency or political subdivision thereof.
"PHEAA" means the Pennsylvania Higher Education Assistance
Agency, an agency of the Commonwealth of Pennsylvania.
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"PHYSICAL PROPERTY" has the meaning assigned to such term in
the definition of "Delivery" above.
"POOL BALANCE" means, at any time, the aggregate principal
balance of the Financed Student Loans at the end of the preceding Collection
Period (including accrued interest thereon for such Collection Period to the
extent such interest will be capitalized upon commencement of repayment), after
giving effect to the following without duplication: (i) all payments received by
the Trust related to the Financed Student Loans during such Collection Period
from or on behalf of borrowers, Guarantors and the Department, (ii) all Purchase
Amounts received by the Trust related to the Financed Student Loans for such
Collection Period from the Seller or the Servicers, (iii) all Additional
Fundings made from the applicable Escrow Account and the applicable Pre-Funding
Account or the Available Loan Purchase Funds with respect to such Collection
Period and (iv) all losses realized on Financed Student Loans liquidated during
such Collection Period.
"POOL FACTOR" means as of the close of business on a
Distribution Date (i) for the Class A-1 Notes, a seven-digit decimal figure
equal to the outstanding principal balance of the Class A-1 Notes divided by the
original outstanding principal balance of the Class A-1 Notes, (ii) for the
Class A-2 Notes, a seven-digit decimal figure equal to the outstanding principal
balance of the Class A-2 Notes divided by the original outstanding principal
balance of the Class A-2 Notes and (iii) for the Certificates, a seven-digit
decimal figure equal to the Certificate Balance of the Certificates divided by
the Initial Certificate Balance of the Certificates. The Pool Factor for each
class of Securities will be 1.0000000 as of the Closing Date; thereafter, the
Pool Factor for each class of Securities will decrease to reflect reductions in
the outstanding principal balance of such classes of Securities.
"PREDECESSOR NOTE" means, with respect to any particular Note,
every previous Note evidencing all or a portion of the same debt as that
evidenced by such particular Note; and, for the purpose of this definition, any
Note authenticated and delivered under Section 2.05 of the Indenture and in lieu
of a mutilated, lost, destroyed or stolen Note shall be deemed to evidence the
same debt as the mutilated, lost, destroyed or stolen Note.
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"PRE-FUNDED AMOUNT" means, with respect to any Distribution
Date, the amount on deposit in the Pre-Funding Account.
"PRE-FUNDING ACCOUNT" means the account designated as such,
established and maintained pursuant to Section 5.01 of the Sale and Servicing
Agreement (including, unless otherwise expressly stated, the Subsequent Pool
Pre-Funding Subaccount and the Other Additional Pre-Funding Subaccount).
"PRINCIPAL DISTRIBUTION AMOUNT" means, with respect to any
Distribution Date, the amount by which the sum of the outstanding principal
balance of the Notes and the Certificates exceeds the Specified Collateral
Balance for such Distribution Date.
"PRIVATE CONSOLIDATION GUARANTEE FEE" means, with respect to
each Private Consolidation Loan, a fee charged to the borrower to discharge the
underlying Financed Private Loans and included in the original principal amount
of such Private Consolidation Loan.
"PRIVATE CONSOLIDATION LOAN" means a loan made by the Seller
to an eligible borrower that represents the refinancing of Private Financed
Loans of such borrower in accordance with the terms of the Programs.
"PROCEEDING" means any suit in equity, action at law or other
judicial or administrative proceeding.
"PROGRAMS" means the Graduate Loan Programs, as in effect from
time to time.
"PURCHASE AMOUNT" means, as of the close of business on the
last day of a Collection Period, ________% of the amount required to prepay in
full the respective Financed Student Loan, if it is an Initial Financed Student
Loan, ________% of the amount required to prepay in full the respective Financed
Student Loan, if it is a Subsequent Pool Student Loan and 100% of the amount
required to prepay in full the respective Financed Student Loan if it is an
Other Subsequent Student Loan or an Other Student Loan, in each case under the
terms thereof including all
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accrued interest thereon and any lost Interest Subsidy Payments and Special
Allowance Payments with respect thereto.
"PURCHASE PRICE" means, with respect to any Financed Student
Loan, (i) in the case of any Initial Financed Student Loan, an amount equal to
________% of the aggregate principal balance of such Initial Financed Student
Loan as of the Cutoff Date (ii) in the case of any Student Loan in the
Subsequent Pool, an amount equal to ________% of the aggregate principal balance
of such Student Loan as of the related Subsequent Cutoff Date, and (iii) in the
case of any Other Subsequent Student Loan or Other Student Loan, 100% of the
aggregate principal balance thereof as the related Subsequent Cutoff Date. For
purposes of the foregoing calculation, the aggregate principal balance of each
Financed Student Loan includes accrued interest thereon from the date of
origination to, with respect to each Initial Financed Student Loan, the Cutoff
Date, and to, with respect to each Additional Student Loan, the related
Subsequent Cutoff Date, in each case expected to be capitalized upon repayment.
"PURCHASED STUDENT LOAN" means a Financed Student Loan
purchased as of the close of business on the last day of a Collection Period by
a Servicer pursuant to Section 4.06 of the Sale and Servicing Agreement or
repurchased by the Seller pursuant to Section 3.02 of the Sale and Servicing
Agreement.
"RATING AGENCY" means each of Moody's and Fitch. If any such
organization or successor is no longer in existence, "Rating Agency" shall be a
nationally recognized statistical rating organization or other comparable Person
designated by the Seller, notice of which designation shall be given to the
Indenture Trustee, the Eligible Lender Trustee and the Servicer.
"RATING AGENCY CONDITION" means, with respect to any action,
that each Rating Agency shall have been given 10 days' prior notice thereof (or
such shorter period as shall be acceptable to the Rating Agencies) and that none
of the Rating Agencies shall have notified the Seller, the Servicers, the
Eligible Lender Trustee and the Indenture Trustee in writing that such action
will in and of itself result in a reduction or withdrawal of the then current
rating of the Notes or the Certificates.
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"REALIZED LOSSES" means the excess of the aggregate principal
balance of any Liquidated Student Loan plus accrued but unpaid interest thereon
over Liquidation Proceeds to the extent allocable to principal.
"RECORD DATE" means, with respect to a Distribution Date or
Redemption Date, the close of business on the twenty-sixth day of the calendar
month in which such Distribution Date or Redemption Date occurs.
"RECOVERIES" means, with respect to any Liquidated Student
Loan, moneys collected in respect thereof, from whatever source, during any
Collection Period following the Collection Period in which such Financed Student
Loan became a Liquidated Student Loan, net of the sum of any amounts expended by
the Servicer for the account of any Obligor and any amounts required by law to
be remitted to the Obligor.
"REDEMPTION DATE" means (a) in the case of a redemption of
Notes pursuant to Section 10.01(a) of the Indenture, the Distribution Date on
which the Funding Period ends (or the Distribution Date on or immediately
following the last day of the Funding Period, if the Funding Period does not end
on a Distribution Date) or (b) in the case of a payment to Noteholders pursuant
to Section 10.01(b) of the Indenture, the Distribution Date specified by the
Administrator or the Issuer pursuant to Section 10.01(b) of the Indenture.
"REDEMPTION PRICE" means [(a) in the case of a redemption of
the Notes pursuant to Section 10.01(a) of the Indenture, an amount equal to the
unpaid principal amount of the Notes, plus accrued and unpaid interest thereon
at the applicable Note Interest Rate to but excluding the Redemption Date and
the amount of the Noteholders' Interest Index Carryover with respect thereto, or
(b) in the case of a payment made to Noteholders pursuant to Section 10.01(b) of
the Indenture, the amount to be so paid, but not in excess of the amount
specified in clause (a) above.]
"REFERENCE BANK" means a leading bank (i) engaged in
transactions in Eurodollar deposits in the international Eurocurrency market,
(ii) not controlling, controlled by or under common control with the
Administrator and (iii) having an established place of business in London.
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"RESERVE ACCOUNT" means the account designated as such,
established and maintained pursuant to Section 5.01 of the Sale and Servicing
Agreement.
"RESERVE ACCOUNT INITIAL DEPOSIT" means $_________.
"RESPONSIBLE OFFICER" means, with respect to the Indenture
Trustee, any officer within the Corporate Trust Office of the Indenture Trustee,
including any Vice President, Assistant Vice President, Secretary, Assistant
Secretary, or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers,
with direct responsibility for the administration of the Indenture and the other
Basic Documents on behalf of the Indenture Trustee and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
"SALE AND SERVICING AGREEMENT" means the Sale and Servicing
Agreement dated as of January 1, 1999 among the Issuer, the Seller, the
Administrator, the Eligible Lender Trustee and the Servicers.
"SCHEDULES OF FINANCED STUDENT LOANS" means the listing of the
Financed Student Loans set forth in Schedules A and B to the Sale and Servicing
Agreement and to the Indenture (which Schedules may be in the form of
microfiche), as amended or supplemented on each Transfer Date to reflect the
sale to the Eligible Lender Trustee on behalf of the Trust of the Additional
Student Loans.
"SECURITIES" means the Class A-1 Notes, Class A-2 Notes and
the Certificates.
"SELLER" means Key Bank USA, National Association, a national
banking association.
"SERIAL LOANS" means additional student loans, including
Consolidation Loans, which are made under the Programs to a borrower who is also
a borrower under at least one Initial Financed Student Loan or Subsequent Pool
Student Loan.
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"SERVICER" means PHEAA, in its capacity as servicer of the
Financed Student Loans it services or EFS, as servicer of the Financed Student
Loans it services, as applicable.
"SERVICER DEFAULT" means an event specified in Section 8.01(a)
of the Sale and Servicing Agreement.
"SERVICER'S REPORT" means any report of a Servicer delivered
pursuant to Section 4.08(a) or (b) of the Sale and Servicing Agreement,
substantially in the form acceptable to the Administrator.
"SERVICING FEE" has the meaning specified in Schedule C to the
Sale and Servicing Agreement.
"SLS LOAN" means a Financed Federal Loan designated as such
that is made under the Federal Supplemental Loans for Students Program pursuant
to the Higher Education Act.
"SPECIAL ALLOWANCE PAYMENTS" means payments, designated as
such, consisting of effective interest subsidies by the Department in respect of
the Financed Federal Loans to the Eligible Lender Trustee on behalf of the Trust
in accordance with the Higher Education Act.
"SPECIAL DETERMINATION DATE" means June 15, 1999.
"SPECIFIED COLLATERAL BALANCE" means, with respect to any
Distribution Date, the sum of (a) the Pool Balance as of the last day of the
related Collection Period plus (b) the Pre-Funded Amount, as of the last day of
the related Collection Period for such Distribution Date. In the event that the
Financed Student Loans are not sold pursuant to Section 9.01(c) of the Sale and
Servicing Agreement with respect to any Distribution Date occurring on or after
the March 2009 Distribution Date, the Specified Collateral Balance will be zero.
"SPECIFIED RESERVE ACCOUNT BALANCE" means _________.
"STAFFORD LOAN" means a Financed Federal Loan designated as
such that is made under the Federal Stafford Loan Program in accordance with the
Higher Education Act.
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<PAGE> 107
"STATE" means any one of the 50 States of the United States of
America or the District of Columbia.
"STATISTICAL CUTOFF DATE" means January 1, 1999.
"STUDENT LOAN RATE" means for any class of Securities for any
Interest Period a rate equal to the product of (a) the quotient obtained by
dividing (i) 365 (or 366 in a leap year) by (ii) the actual number of days
elapsed in such Interest Period and (b) the percentage equivalent of a fraction,
(i) the numerator of which is equal to Expected Interest Collections for the
Collection Period relating to such Interest Period less the Servicing Fees and
the Administration Fee payable on the related Distribution Date and any
Servicing Fees paid on the two preceding Monthly Servicing Payment Dates during
the related Collection Period and (ii) the denominator of which is the
outstanding principal balance of the Securities as of the first day of such
Interest Period.
"SUBSEQUENT CUTOFF DATE" means the day as of which principal
and interest accruing with respect to an Additional Student Loan are transferred
to the Eligible Lender Trustee on behalf of the Issuer pursuant to Section 2.02
and 2.02A of the Sale and Servicing Agreement.
"SUBSEQUENT POOL PRE-FUNDED AMOUNT" means, with respect to any
Distribution Date, the amount on deposit in the Subsequent Pool Pre-Funding
Subaccount other than the Negative Carry Initial Deposit or any portion thereof.
"SUBSEQUENT POOL PRE-FUNDING SUBACCOUNT" has the meaning set
forth in Section 5.08 of the Sale and Servicing Agreement.
"SUBSEQUENT POOL STUDENT LOANS" means any law school, medical
school, dental school, graduate business school and other graduate school
student loans listed on the Schedule of Subsequent Pool Student Loans on the
Closing Date as set forth in Schedule B to the Sale and Servicing Agreement
(which Schedules may be in the form of microfiche), which student loans the
Seller intends to transfer to the Eligible Lender Trustee on behalf of the
Issuer pursuant to Section 2.02 of the Sale and Servicing Agreement, each of
which shall be identified on Schedule A to the related Transfer Agreement.
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<PAGE> 108
"SUCCESSOR ADMINISTRATOR" has the meaning specified in Section
3.07(e) of the Indenture.
"SUCCESSOR SERVICER" has the meaning specified in Section
3.07(e) of the Indenture.
"SUPPLEMENTAL SALE AND SERVICING AGREEMENT" means the
Supplemental Sale and Servicing Agreement dated as of January 1, 1999, among the
Seller, the Administrator, the Trust, the Eligible Lender Trustee, the Indenture
Trustee and the Servicers.
"T-BILL INDEXED SECURITIES" means __________________.
"T-BILL RATE" means, on any day, the weighted average per
annum discount rate (expressed on a bond equivalent basis and applied on a daily
basis) for 91-day Treasury Bills sold at the most recent 91-day Treasury Bill
auction prior to such date as reported by the U.S. Treasury Department. In the
event that the results of the auctions of 91-day Treasury Bills cease to be
published or reported as provided above, or that no such auction is held in a
particular week, then the "T-Bill Rate" in effect as a result of the last such
publication or report shall remain in effect until such time, if any, as the
results of auctions of 91-day Treasury Bills shall again be so published or
reported or such an auction is held, as the case may be. The T-Bill Rate shall
be subject to a Lock-In Period of six Business Days.
"TELERATE PAGE 3750" means the display page so designated on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices).
"TERI" means The Education Resources Institute, Inc., a
Massachusetts non-profit corporation.
"THREE-MONTH LIBOR" means the London interbank offered rate
for deposits in U.S. dollars having a maturity of three months commencing on the
related LIBOR Determination Date (the "Index Maturity") which appears on
Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR Determination
Date. If such rate does not appear on Telerate Page 3750, the rate for that day
will be determined on the basis of the rates at which deposits in U.S. dollars,
having the Index Maturity and in a principal amount of not less than U.S.
$1,000,000, are offered at approximately 11:00
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<PAGE> 109
a.m., London time, on such LIBOR Determination Date to prime banks in the London
interbank market by the Reference Banks. The Administrator will request the
principal London office of each of such Reference Banks to provide a quotation
of its rate. If at least two such quotations are provided, the rate for that day
will be the arithmetic mean of the quotations. If fewer than two quotations are
provided, the rate for that day will be the arithmetic mean of the rates quoted
by major banks in New York City, selected by the Administrator, at approximately
11:00 a.m., New York City time, on such LIBOR Determination Date for loans in
U.S. dollars to leading European banks having the Index Maturity and in a
principal amount equal to an amount of not less than U.S. $1,000,000; provided
that if the banks selected as aforesaid are not quoting as mentioned in this
sentence, Three-Month LIBOR in effect for the applicable Interest Period will be
Three-Month LIBOR in effect for the previous Interest Period.
"TIA" means the Trust Indenture Act of 1939, as amended.
"TRANSFER AGREEMENT" has the meaning specified in Section
2.02(b) of the Sale and Servicing Agreement.
"TRANSFER DATE" means the Closing Date, the fifteenth day (or,
if such day is not a Business Day, the next succeeding Business Day) of any
month or any other date designated by the Seller as a date on which Additional
Student Loans will be conveyed to the Eligible Lender Trustee on behalf of the
Trust prior to the Loan Purchase Termination Date pursuant to Section 2.02 or
2.02A of the Sale and Servicing Agreement.
"TRANSFERRED BALANCE" has the meaning assigned to such term in
Sections 5.05(d) and 5.08 of the Sale and Servicing Agreement.
"TREASURY REGULATIONS" means regulations, including proposed
or temporary regulations, promulgated under the Code. References in any document
or instrument to specific provisions of proposed or temporary regulations shall
include analogous provisions of final Treasury Regulations or other successor
Treasury Regulations.
"TRUST" means the Issuer, established pursuant to the Trust
Agreement.
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<PAGE> 110
"TRUST ACCOUNTS" means the Collection Account, the Escrow
Account, the Pre-Funding Account and the Reserve Account.
"TRUST ACCOUNT PROPERTY" means the Trust Accounts, all amounts
and investments held from time to time in any Trust Account (whether in the form
of deposit accounts, Physical Property, book-entry securities, uncertificated
securities or otherwise), including the Reserve Account Initial Deposit and the
Pre-Funded Amount and all proceeds of the foregoing.
"TRUST AGREEMENT" means the Amended and Restated Trust
Agreement dated as of January 1, 1999, between the Depositor and the Eligible
Lender Trustee.
"TRUST CERTIFICATE" means a Certificate.
"TRUST ESTATE" means all right, title and interest of the
Trust (or the Eligible Lender Trustee on behalf of the Trust) in and to the
property and rights assigned to the Trust pursuant to Article II of the Sale and
Servicing Agreement, all funds on deposit from time to time in the Trust
Accounts and all other property of the Trust from time to time, including any
rights of the Eligible Lender Trustee and the Trust pursuant to the Sale and
Servicing Agreement, the Supplemental Sale and Servicing Agreement and the
Administration Agreement.
"TRUST INDENTURE ACT" or "TIA" means the Trust Indenture Act
of 1939 as in force on the date hereof, unless otherwise specifically provided.
"UCC" means, unless the context otherwise requires, the
Uniform Commercial Code, as in effect in the relevant jurisdiction, as amended
from time to time.
"UNDERWRITERS" shall mean Credit Suisse First Boston
Corporation and McDonald Investments Inc., a KeyCorp company.
"UNDERWRITING AGREEMENT" shall mean the Note Underwriting
Agreement or the Certificate Underwriting Agreement, as applicable.
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<PAGE> 111
SCHEDULE A
TO THE INDENTURE
SCHEDULE OF INITIAL FINANCED STUDENT LOANS
Delivered to Indenture Trustee.
<PAGE> 112
SCHEDULE B
TO THE INDENTURE
SCHEDULE OF SUBSEQUENT POOL STUDENT LOANS
Delivered to Indenture Trustee.
B-1
<PAGE> 113
SCHEDULE C
TO THE INDENTURE
LOCATION OF FINANCED STUDENT LOAN FILES - PHEAA
Documents relating to the Financed Student Loans (including original notes) are
stored at PHEAA's facility at [1200 North 7th Street, Harrisburg, Pennsylvania
17102.]
LOCATION OF FINANCED STUDENT LOAN FILES - EFS
Documents relating to the Financed Student Loans (including original notes)
which are serviced by EFS are stored at EFS's facility at ____________________.
C-1
<PAGE> 114
EXHIBIT A-1
TO THE INDENTURE
[FORM OF CLASS A-1 NOTE]
SEE REVERSE FOR CERTAIN DEFINITIONS
Unless this Note is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Issuer
(as defined below) or its agent for registration of transfer, exchange or
payment, and any Note issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE AS SET FORTH IN THE
INDENTURE AND THE SALE AND SERVICING AGREEMENT. ACCORDINGLY, THE OUTSTANDING
PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON
THE FACE HEREOF. THIS NOTE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL
AGENCY.
REGISTERED CUSIP NO.
$__________ 1/
No. R -
KEYCORP STUDENT LOAN TRUST 1999-A
FLOATING RATE CLASS A-1 ASSET BACKED NOTES
KeyCorp Student Loan Trust 1999-A, a trust organized and
existing under the laws of the State of New York (herein referred to as the
"Issuer"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of ________ DOLLARS no later than on the
_______________ Distribution Date (the "Final Maturity Date").
- --------------------------------
1/ Denominations of $1,000 and integral multiples of $1,000 in excess thereof.
A-1-1
<PAGE> 115
The Issuer will pay interest on this Note at the rate per
annum equal to the Note Interest Rate (as defined on the reverse hereof) for the
Class A-1 Notes, on each Distribution Date until the principal of this Note is
paid or made available for payment, on the principal amount of this Note
outstanding on the preceding Distribution Date (after giving effect to all
payments of principal made on the preceding Distribution Date), subject to
certain limitations contained in Section 3.01 of the Indenture. Interest on this
Note will accrue for each Distribution Date from the most recent Distribution
Date on which interest has been paid to but excluding such Distribution Date or,
if no interest has yet been paid, from the Closing Date). Such principal of and
interest on this Note shall be paid in the manner specified on the reverse
hereof.
The principal of and interest on this Note are payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts. All payments made by the
Issuer with respect to this Note shall be applied first to interest due and
payable on this Note as provided above and then to the unpaid principal of this
Note.
Reference is made to the further provisions of this Note set
forth on the reverse hereof, which shall have the same effect as though fully
set forth on the face of this Note.
Unless the certificate of authentication hereon has been
executed by the Indenture Trustee whose name appears below by manual signature,
this Note shall not be entitled to any benefit under the Indenture referred to
on the reverse hereof, or be valid or obligatory for any purpose.
A-1-2
<PAGE> 116
IN WITNESS WHEREOF, the Issuer has caused this instrument to
be duly executed, manually or in facsimile, as of the date set forth below.
KEYCORP STUDENT LOAN TRUST 1999-A
By: THE FIRST NATIONAL BANK OF CHICAGO, not in
its individual capacity but solely as
Eligible Lender Trustee under the
Trust Agreement,
By: ____________________________________
Authorized Signatory
Date: _______________, 1999
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
BANKERS TRUST COMPANY, not in its individual
capacity but solely as Indenture Trustee,
By: ____________________________________
Authorized Signatory
Date: _______________, 1999
A-1-3
<PAGE> 117
[REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the
Issuer, designated as its Floating Rate Class A-1 Asset Backed Notes (herein
called the "Class A-1 Notes"), all issued under the Indenture, to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights and obligations thereunder of the Issuer, the
Indenture Trustee and the holders of the Notes. The Class A-1 Notes are subject
to all terms of the Indenture. Capitalized but undefined terms shall have the
meanings set forth in the Indenture dated as of January 1, 1999 between KeyCorp
Student Loan Trust 1999-A and Bankers Trust Company as Trustee including
Appendix A to the Indenture.
The Class A-1 Notes and the Issuer's Floating Rate Class A-2
Asset Backed Notes (the "Class A-2 Notes" and, with the Class A-1 Notes, the
"Notes") are and will be equally and ratably secured by the collateral pledged
as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Distribution
Date to the extent set forth in the Sale and Servicing Agreement and the
Indenture. "Distribution Date" means the twenty-seventh day of each March, June,
September and December, or, if any such date is not a Business Day, the next
succeeding Business Day, commencing March 29, 1999.
As described on the face hereof, the entire unpaid principal
amount of this Note shall be due and payable on its Final Maturity Date.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable on the date on which (i) an Event of Default shall have
occurred and be continuing and (ii) the Indenture Trustee or the holders of the
Notes representing not less than a majority of the Outstanding Amount of the
Notes shall have declared the Notes to be immediately due and payable in the
manner provided in Section 5.02 of the Indenture. All principal payments on the
Notes of the same class shall be made pro rata to the holders of such Notes
entitled thereto.
Interest on the Notes will be payable on each Distribution
Date on the principal amount outstanding of each class of Notes until the
principal amount thereof is paid in full, at a rate per annum equal to the Note
Interest Rate for such class of Notes.
The "Note Interest Rate" means, with respect to any Interest
Period, (x) in the case of the Class A-1 Notes, the interest rate per annum
[(computed on the basis of the actual number of days elapsed in such Interest
Period over a year of 365 days (or 366 in a leap year)] [(computed on the basis
of the actual number of days elapsed in the related Interest Period divided by
360)] equal to the lesser of (i) [the weighted average of the T-Bill Rates
within such Interest Period] [Three-Month LIBOR] plus ___% and (ii) the Student
Loan Rate for such Interest Period, (y) in the case of the Class A-2 Notes, the
interest rate per annum [(computed on the basis of the actual number of days
elapsed
A-1-4
<PAGE> 118
in such Interest Period over a year of 365 days (or 366 in a leap year)]
[(computed on the basis of the actual number of days elapsed in the related
Interest Period divided by 360)] equal to the lesser of (i) [the weighted
average of the T-Bill Rates within such Interest Period] [Three-Month LIBOR]
plus ___% and (ii) the Student Loan Rate for such Interest Period.
The "Student Loan Rate" means for any class of Securities for
any Interest Period will equal the product of (a) the quotient obtained by
dividing (i) 365 (or 366 in a leap year) by (ii) the actual number of days
elapsed in such Interest Period and (b) the percentage equivalent of a fraction,
(i) the numerator of which is equal to Expected Interest Collections for the
Collection Period relating to such Interest Period less the Servicing Fees and
the Administration Fee payable on the related Distribution Date and any
Servicing Fees paid on the two preceding Monthly Servicing Payment Dates during
the related Collection Period and (ii) the denominator of which is the
outstanding principal balance of the Securities as of the first day of such
Interest Period.
Pursuant to the Sale and Servicing Agreement, the
Administrator shall determine the [T-Bill Rate] [and Three-Month LIBOR] for
purposes of calculating the Note Interest Rates for each given Interest Period.
[The "T-Bill Rate" means, on any day, the weighted average per annum discount
rate (expressed on a bond equivalent basis and applied on a daily basis) for
91-day Treasury Bills sold at the most recent 91-day Treasury Bill auction prior
to such date as reported by the U.S. Treasury Department. In the event that the
results of the auctions of 91-day Treasury Bills cease to be published or
reported as provided above, or that no such auction is held in a particular
week, then the "T-Bill Rate" in effect as a result of the last such publication
or report shall remain in effect until such time, if any, as the results of
auctions of 91-day Treasury Bills shall again be so published or reported or
such an auction is held, as the case may be. The T-Bill Rate shall be subject to
a Lock-In Period of six Business Days.] ["Three-Month LIBOR" means the London
interbank offered rate for deposits in U.S. dollars having a maturity of three
months commencing on the related LIBOR Determination Date (the "Index Maturity")
which appears on Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR
Determination Date. If such rate does not appear on Telerate Page 3750, the rate
for that day will be determined on the basis of the rates at which deposits in
U.S. dollars, having the Index Maturity and in a principal amount of not less
than U.S. $1,000,000, are offered at approximately 11:00 a.m., London time, on
such LIBOR Determination Date to prime banks in the London interbank market by
the Reference Banks. The Administrator will request the principal London office
of each of such Reference Banks to provide a quotation of its rate. If at least
two such quotations are provided, the rate for that day will be the arithmetic
mean of the quotations. If fewer than two quotations are provided, the rate for
that day will be the arithmetic mean of the rates quoted by major banks in New
York City, selected by the Administrator, at approximately 11:00 a.m., New York
City time, on such LIBOR Determination Date for loans in the U.S. dollars to
leading European banks having the Index Maturity and in a principal amount equal
to an amount of not less than U.S. $1,000,000; provided that if the banks
selected as aforesaid are not quoting as mentioned in this sentence, Three-Month
LIBOR in effect for
A-1-5
<PAGE> 119
the applicable Interest Period will be Three-Month LIBOR in effect for the
previous Interest Period. For purposes of calculating Three-Month LIBOR,
a Business Day is any day on which banks in London and New York City are open
for the transaction of business. Interest due for any Interest Period will be
determined based on the actual number of days in such Interest Period over a
360 day year.]
["Reference Bank" means a leading bank (i) engaged in
transactions in Eurodollar deposits in the international Eurocurrency market,
(ii) not controlling, controlled by or under common control with the
Administrator and (iii) having an established place of business in London.]
["LIBOR" Determination Date" means the second Business Day
prior to the commencement of each Interest Period.] For purposes of this
definition, a "Business Day" is any day on which banks in London and New York
City are open for the transaction of business.
Any Noteholders' Interest Index Carryover that may exist on
any Distribution Date attributable to each class of Notes shall be payable to
the holders of such classes of Notes on a pro rata basis, based on the amount of
Noteholders' Interest Index Carryover then owing on each class of Notes, on that
Distribution Date and any succeeding Distribution Dates solely out of the funds
available and required to be applied thereto pursuant to the Sale and Servicing
Agreement.
Payments of interest on this Note due and payable on each
Distribution Date, together with the installment of principal, if any, to the
extent not in full payment of this Note, shall be made by check mailed to the
Person whose name appears as the Registered Holder of this Note (or one or more
Predecessor Notes) on the Note Register on the Record Date, except that with
respect to Notes registered on the Record Date in the name of the nominee of the
Clearing Agency, unless Definitive Notes have been issued (initially, such
nominee to be Cede & Co.), payments will be made by wire transfer in immediately
available funds to the account designated by such nominee. Such checks shall be
mailed to the Person entitled thereto at the address of such Person as it
appears on the Note Register as of the applicable Record Date without requiring
that this Note be submitted for notation of payment, and the mailing of such
check shall constitute payment of the amount thereof regardless of whether such
check is returned undelivered. Any reduction in the principal amount of this
Note (or any one or more Predecessor Notes) effected by any payments made on any
Distribution Date shall be binding upon all future Noteholders of this Note and
of any Note issued upon the registration of transfer hereof or in exchange
hereof or in lieu hereof, whether or not noted hereon. If funds are expected to
be available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Note on a Distribution Date, then the
Indenture Trustee, in the name of and on behalf of the Issuer, will notify the
Person who was the Noteholder hereof as of the Record Date preceding such
Distribution Date by notice mailed no later than five days prior to such
Distribution Date and the amount then due and payable shall be payable only upon
presentation and surrender of this Note at the
A-1-6
<PAGE> 120
Indenture Trustee's Corporate Trust Office or at the office of the Indenture
Trustee's agent appointed for such purposes located in the Borough of Manhattan,
The City of New York.
The Issuer shall pay interest on overdue installments of
interest at the Note Interest Rate for this Note to the extent lawful.
As provided in the Indenture, the Class A-1 Notes may be
redeemed in part, on a pro rata basis among all the holders of such Notes, on
the Distribution Date on which the Funding Period ends (or on the Distribution
Date immediately following the last day of the Funding Period, if the Funding
Period does not end on a Distribution Date) in the event that any amounts remain
on deposit in the Pre-Funding Account after giving effect to all Additional
Fundings, including any occurring on such Distribution Date.
As provided in the Indenture, if as of the Special
Determination Date, the Subsequent Pool Pre-Funded Amount is greater than
$10,000,000, such amount will be distributed on the first Distribution Date
thereafter to redeem each class of Notes and prepay the Certificates on a pro
rata basis, based on the initial principal balance of each class of Notes and
the Initial Certificate Balance; if such amount is $10,000,000 or less, it will
be distributed on such Distribution Date only to the holders of the Class A-1
Notes to redeem such Class A-1 Notes.
As provided in the Indenture and subject to certain
limitations set forth therein, the transfer of this Note may be registered on
the Note Register upon surrender of this Note for registration of transfer at
the office or agency designated by the Issuer pursuant to the Indenture, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Indenture Trustee duly executed by, the Noteholder hereof or
his attorney duly authorized in writing, with such signature guaranteed by an
"eligible guarantor institution" meeting the requirements of the Note Registrar,
which requirements include membership or participation in Securities Transfer
Agent's Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Note Registrar in addition to, or in substitution
for, STAMP (all in accordance with the Exchange Act), and such other documents
as the Indenture Trustee may require, and thereupon one or more new Notes of
authorized denominations and in the same aggregate principal amount will be
issued to the designated transferee or transferees. No service charge will be
charged for any registration of transfer or exchange of this Note, but the
transferor may be required to pay a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any such registration
of transfer or exchange.
Each holder of the Notes or Note Owner, by acceptance of a
Note or, in the case of a Note Owner, a beneficial interest in the Note,
covenants and agrees that no recourse may be taken, directly or indirectly, with
respect to the obligations of the Issuer, the Indenture Trustee on the Notes or
under the Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Indenture Trustee or the Eligible Lender Trustee in
its individual capacity, (ii) any owner of a beneficial interest in the
A-1-7
<PAGE> 121
Issuer or (iii) any partner, owner, beneficiary, agent, officer, director or
employee of the Indenture Trustee or the Eligible Lender Trustee in its
individual capacity, any holder of a beneficial interest in the Issuer, the
Eligible Lender Trustee or the Indenture Trustee, except as any such Person may
have expressly agreed and except that any such partner, owner or beneficiary
shall be fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity.
Each holder of the Notes or Note Owner, by acceptance of a
Note or, in the case of a Note Owner, a beneficial interest in a Note, covenants
and agrees that by accepting the benefits of the Indenture that such holder of
the Notes or Note Owner will not at any time institute against the Seller or the
Issuer, or join in any institution against the Seller or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency, receivership or liquidation
proceedings or other proceedings under any United States Federal or state
bankruptcy or similar law in connection with any obligations relating to the
Notes, the Indenture or the other Basic Documents.
Prior to the due presentment for registration of transfer of
this Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Indenture Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes whether or not this Note be
overdue, and neither the Issuer, the Indenture Trustee nor any such agent shall
be affected by notice to the contrary.
The term "Issuer" as used in this Note includes any successor
to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Indenture
Trustee and the holders of the Notes under the Indenture.
The Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
This Note shall be construed in accordance with the laws of
the State of New York, without reference to its conflict of law provisions, and
the obligations, rights and remedies of the parties hereunder and thereunder
shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the times, place, and rate, and in the coin or currency, herein
prescribed.
Anything herein to the contrary notwithstanding, except as
expressly provided in the Basic Documents, neither Bankers Trust Company in its
individual
A-1-8
<PAGE> 122
capacity, The First National Bank of Chicago in its individual capacity, any
owner of a beneficial interest in the Issuer, nor any of their respective
partners, beneficiaries, agents, officers, directors, employees or successors or
assigns shall be personally liable for, nor shall recourse be had to any of them
for, the payment of principal of or interest on, or performance of, or omission
to perform, any of the covenants, obligations or indemnifications contained in
this Note or the Indenture; it being expressly understood that said covenants,
obligations and indemnifications have been made by the Eligible Lender Trustee
for the sole purposes of binding the interests of the Eligible Lender Trustee in
the assets of the Issuer. The holder of the Notes by the acceptance hereof
agrees that, except as expressly provided in the Basic Documents, in the case of
an Event of Default under the Indenture, the holder of the Notes shall have no
claim against any of the foregoing for any deficiency, loss or claim therefrom;
PROVIDED, HOWEVER, that nothing contained herein shall be taken to prevent
recourse to, and enforcement against, the assets of the Issuer for any and all
liabilities, obligations and undertakings contained in the Indenture or in this
Note.
A-1-9
<PAGE> 123
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
_______________________________
FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto ___________________________________________
_______________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints ______________________, attorney, to transfer said Note on the
books kept for registration thereof, with full power of substitution in the
premises.
Dated: _____________
________________________________ */
Signature Guaranteed:
________________________________ */
- ------------------
*/ NOTICE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within Note in
every particular, without alteration, enlargement or any change
whatever. Such signature must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in STAMP or such other
"signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
A-1-10
<PAGE> 124
EXHIBIT A-2
TO THE INDENTURE
[FORM OF CLASS A-2 NOTE]
SEE REVERSE FOR CERTAIN DEFINITIONS
Unless this Note is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Issuer
(as defined below) or its agent for registration of transfer, exchange or
payment, and any Note issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE AS SET FORTH IN THE
INDENTURE AND THE SALE AND SERVICING AGREEMENT. ACCORDINGLY, THE OUTSTANDING
PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON
THE FACE HEREOF. THIS NOTE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL
AGENCY.
REGISTERED CUSIP NO.
$__________ 1/
No. R -
KEYCORP STUDENT LOAN TRUST 1999-A
FLOATING RATE CLASS A-2 ASSET BACKED NOTES
KeyCorp Student Loan Trust 1999-A, a trust organized and
existing under the laws of the State of New York (herein referred to as the
"Issuer"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of _________ DOLLARS no later than on the
_______________ Distribution Date (the "Final Maturity Date").
- ---------------------------------
1/ Denominations of $1,000 and integral multiples of $1,000 in excess thereof.
A-4-1
<PAGE> 125
The Issuer will pay interest on this Note at the rate per
annum equal to the Note Interest Rate (as defined on the reverse hereof) for the
Class A-2 Notes, on each Distribution Date until the principal of this Note is
paid or made available for payment, on the principal amount of this Note
outstanding on the preceding Distribution Date (after giving effect to all
payments of principal made on the preceding Distribution Date), subject to
certain limitations contained in Section 3.01 of the Indenture. Interest on this
Note will accrue for each Distribution Date from the most recent Distribution
Date on which interest has been paid to but excluding such Distribution Date or,
if no interest has yet been paid, from the Closing Date. Such principal of and
interest on this Note shall be paid in the manner specified on the reverse
hereof.
The principal of and interest on this Note are payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts. All payments made by the
Issuer with respect to this Note shall be applied first to interest due and
payable on this Note as provided above and then to the unpaid principal of this
Note.
Reference is made to the further provisions of this Note set
forth on the reverse hereof, which shall have the same effect as though fully
set forth on the face of this Note.
Unless the certificate of authentication hereon has been
executed by the Indenture Trustee whose name appears below by manual signature,
this Note shall not be entitled to any benefit under the Indenture referred to
on the reverse hereof, or be valid or obligatory for any purpose.
A-4-2
<PAGE> 126
IN WITNESS WHEREOF, the Issuer has caused this instrument to
be duly executed, manually or in facsimile, as of the date set forth below.
KEYCORP STUDENT LOAN TRUST 1999-A
By: THE FIRST NATIONAL BANK OF CHICAGO, not in
its individual capacity but solely as
Eligible Lender Trustee under the
Trust Agreement,
By: ____________________________________
Authorized Signatory
Date: _______________, 1999
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
BANKERS TRUST COMPANY, not in its
individual capacity but solely as Indenture
Trustee,
By: ____________________________________
Authorized Signatory
Date: _______________, 1999
A-4-3
<PAGE> 127
[REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the
Issuer, designated as its Floating Rate Class A-2 Asset Backed Notes (herein
called the "Class A-2 Notes"), all issued under the Indenture, to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights and obligations thereunder of the Issuer, the
Indenture Trustee and the holders of the Notes. The Class A-2 Notes are subject
to all terms of the Indenture. Capitalized but undefined terms shall have the
meanings set forth in the Indenture dated as of January 1, 1999 between KeyCorp
Student Loan Trust 1999-A and Bankers Trust Company as Trustee including
Appendix A to the Indenture.
The Class A-2 Notes and the Issuer's Floating Rate Class A-1
Asset Backed Notes (the "Class A-1 Notes" and, with the Class A-2 Notes, the
"Notes") are and will be equally and ratably secured by the collateral pledged
as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Distribution
Date to the extent set forth in the Sale and Servicing Agreement and the
Indenture. "Distribution Date" means the twenty-seventh day of each March, June,
September and December, or, if any such date is not a Business Day, the next
succeeding Business Day, commencing March 29, 1999.
As described on the face hereof, the entire unpaid principal
amount of this Note shall be due and payable on its Final Maturity Date.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable on the date on which (i) an Event of Default shall have
occurred and be continuing and (ii) the Indenture Trustee or the holders of the
Notes representing not less than a majority of the Outstanding Amount of the
Notes shall have declared the Notes to be immediately due and payable in the
manner provided in Section 5.02 of the Indenture. All principal payments on the
Notes of the same class shall be made pro rata to the holders of such Notes
entitled thereto.
Interest on the Notes will be payable on each Distribution
Date on the principal amount outstanding of each class of Notes until the
principal amount thereof is paid in full, at a rate per annum equal to the Note
Interest Rate for such class of Notes.
The "Note Interest Rate" means, with respect to any Interest
Period, (x) in the case of the Class A-1 Notes, the interest rate per annum
[(computed on the basis of the actual number of days elapsed in such Interest
Period over a year of 365 days (or 366 in a leap year)] [(computed on the basis
of the actual number of days elapsed in the related Interest Period divided by
360)] equal to the lesser of (i) [the weighted average of the T-Bill Rates
within such Interest Period] [Three-Month LIBOR] plus ___% and (ii) the Student
Loan Rate for such Interest Period, (y) in the case of the Class A-2 Notes, the
interest rate per annum [(computed on the basis of the actual number of days
elapsed
A-4-4
<PAGE> 128
in such Interest Period over a year of 365 days (or 366 in a leap year)]
[(computed on the basis of the actual number of days elapsed in the related
Interest Period divided by 360)] equal to the lesser of (i) [the weighted
average of the T-Bill Rates within such Interest Period] [Three Monthy LIBOR]
plus ___% and (ii) the Student Loan Rate for such Interest Period.]
The "Student Loan Rate" means for any class of Securities for
any Interest Period will equal the product of (a) the quotient obtained by
dividing (i) 365 (or 366 in a leap year) by (ii) the actual number of days
elapsed in such Interest Period and (b) the percentage equivalent of a fraction,
(i) the numerator of which is equal to Expected Interest Collections for the
Collection Period relating to such Interest Period less the Servicing Fees and
the Administration Fee payable on the related Distribution Date and any
Servicing Fees paid on the two preceding Monthly Servicing Payment Dates during
the related Collection Period and (ii) the denominator of which is the
outstanding principal balance of the Securities as of the first day of such
Interest Period.
Pursuant to the Sale and Servicing Agreement, the
Administrator shall determine the [T-Bill Rate] [and Three-Month LIBOR] for
purposes of calculating the Note Interest Rates for each given Interest Period.
[The "T-Bill Rate" means, on any day, the weighted average per annum discount
rate (expressed on a bond equivalent basis and applied on a daily basis) for
91-day Treasury Bills sold at the most recent 91-day Treasury Bill auction prior
to such date as reported by the U.S. Treasury Department. In the event that the
results of the auctions of 91-day Treasury Bills cease to be published or
reported as provided above, or that no such auction is held in a particular
week, then the "T-Bill Rate" in effect as a result of the last such publication
or report shall remain in effect until such time, if any, as the results of
auctions of 91-day Treasury Bills shall again be so published or reported or
such an auction is held, as the case may be. The T-Bill Rate shall be subject to
a Lock-In Period of six Business Days.] ["Three-Month LIBOR" means the London
interbank offered rate for deposits in U.S. dollars having a maturity of three
months commencing on the related LIBOR Determination Date (the "Index Maturity")
which appears on Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR
Determination Date. If such rate does not appear on Telerate Page 3750, the rate
for that day will be determined on the basis of the rates at which deposits in
U.S. dollars, having the Index Maturity and in a principal amount of not less
than U.S. $1,000,000, are offered at approximately 11:00 a.m., London time, on
such LIBOR Determination Date to prime banks in the London interbank market by
the Reference Banks. The Administrator will request the principal London office
of each of such Reference Banks to provide a quotation of its rate. If at least
two such quotations are provided, the rate for that day will be the arithmetic
mean of the quotations. If fewer than two quotations are provided, the rate for
that day will be the arithmetic mean of the rates quoted by major banks in New
York City, selected by the Administrator, at approximately 11:00 a.m., New York
City time, on such LIBOR Determination Date for loans in the U.S. dollars to
leading European banks having the Index Maturity and in a principal amount equal
to an amount of not less than U.S. $1,000,000; provided that if the banks
selected as aforesaid are not quoting as mentioned in this sentence, Three-Month
LIBOR in effect for
A-4-5
<PAGE> 129
the applicable Interest Period will be Three-Month LIBOR in effect for the
previous Interest Period.]
["Reference Bank" means a leading bank (i) engaged in
transactions in Eurodollar deposits in the international Eurocurrency market,
(ii) not controlling, controlled by or under common control with the
Administrator and (iii) having an established place of business in London.]
["LIBOR" Determination Date" means the second Business Day
prior to the commencement of each Interest Period. For purposes of this
definition, a "Business Day" is any day on which Banks in London and New York
City are open for the transaction of business.]
Any Noteholders' Interest Index Carryover that may exist on
any Distribution Date attributable to each class of Notes shall be payable to
the holders of such classes of Notes on a pro rata basis, based on the amount of
Noteholders' Interest Index Carryover then owing on each class of Notes, on that
Distribution Date and any succeeding Distribution Dates solely out of the funds
available and required to be applied thereto pursuant to the Sale and Servicing
Agreement.
Payments of interest on this Note due and payable on each
Distribution Date, together with the installment of principal, if any, to the
extent not in full payment of this Note, shall be made by check mailed to the
Person whose name appears as the Registered Holder of this Note (or one or more
Predecessor Notes) on the Note Register on the Record Date, except that with
respect to Notes registered on the Record Date in the name of the nominee of the
Clearing Agency, unless Definitive Notes have been issued (initially, such
nominee to be Cede & Co.), payments will be made by wire transfer in immediately
available funds to the account designated by such nominee. Such checks shall be
mailed to the Person entitled thereto at the address of such Person as it
appears on the Note Register as of the applicable Record Date without requiring
that this Note be submitted for notation of payment, and the mailing of such
check shall constitute payment of the amount thereof regardless of whether such
check is returned undelivered. Any reduction in the principal amount of this
Note (or any one or more Predecessor Notes) effected by any payments made on any
Distribution Date shall be binding upon all future Noteholders of this Note and
of any Note issued upon the registration of transfer hereof or in exchange
hereof or in lieu hereof, whether or not noted hereon. If funds are expected to
be available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Note on a Distribution Date, then the
Indenture Trustee, in the name of and on behalf of the Issuer, will notify the
Person who was the Noteholder hereof as of the Record Date preceding such
Distribution Date by notice mailed no later than five days prior to such
Distribution Date and the amount then due and payable shall be payable only upon
presentation and surrender of this Note at the Indenture Trustee's Corporate
Trust Office or at the office of the Indenture Trustee's agent appointed for
such purposes located in the Borough of Manhattan, The City of New York.
A-4-6
<PAGE> 130
The Issuer shall pay interest on overdue installments of
interest at the Note Interest Rate for this Note to the extent lawful.
As provided in the Indenture, if as of the Special
Determination Date, the Subsequent Pool Pre-Funded Amount is greater than
$10,000,000, such amount will be distributed on the first Distribution Date
thereafter to redeem each class of Notes and prepay the Certificates on a pro
rata basis, based on the initial principal balance of each class of Notes and
the Initial Certificate Balance; if such amount is $10,000,000 or less, it will
be distributed on such Distribution Date only to the holders of the Class A-1
Notes to redeem such Class A-1 Notes.
As provided in the Indenture and subject to certain
limitations set forth therein, the transfer of this Note may be registered on
the Note Register upon surrender of this Note for registration of transfer at
the office or agency designated by the Issuer pursuant to the Indenture, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Indenture Trustee duly executed by, the Noteholder hereof or
his attorney duly authorized in writing, with such signature guaranteed by an
"eligible guarantor institution" meeting the requirements of the Note Registrar,
which requirements include membership or participation in Securities Transfer
Agent's Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Note Registrar in addition to, or in substitution
for, STAMP (all in accordance with the Exchange Act), and such other documents
as the Indenture Trustee may require, and thereupon one or more new Notes of
authorized denominations and in the same aggregate principal amount will be
issued to the designated transferee or transferees. No service charge will be
charged for any registration of transfer or exchange of this Note, but the
transferor may be required to pay a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any such registration
of transfer or exchange.
Each holder of the Notes or Note Owner, by acceptance of a
Note or, in the case of a Note Owner, a beneficial interest in the Note,
covenants and agrees that no recourse may be taken, directly or indirectly, with
respect to the obligations of the Issuer, the Indenture Trustee on the Notes or
under the Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Indenture Trustee or the Eligible Lender Trustee in
its individual capacity, (ii) any owner of a beneficial interest in the Issuer
or (iii) any partner, owner, beneficiary, agent, officer, director or employee
of the Indenture Trustee or the Eligible Lender Trustee in its individual
capacity, any holder of a beneficial interest in the Issuer, the Eligible Lender
Trustee or the Indenture Trustee, except as any such Person may have expressly
agreed and except that any such partner, owner or beneficiary shall be fully
liable, to the extent provided by applicable law, for any unpaid consideration
for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity.
Each holder of the Notes or Note Owner, by acceptance of a
Note or, in the case of a Note Owner, a beneficial interest in a Note, covenants
and agrees that by
A-4-7
<PAGE> 131
accepting the benefits of the Indenture that such holder of the Notes or Note
Owner will not at any time institute against the Seller or the Issuer, or join
in any institution against the Seller or the Issuer of, any bankruptcy,
reorganization, arrangement, insolvency, receivership or liquidation proceedings
or other proceedings under any United States Federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, the
Indenture or the other Basic Documents.
Prior to the due presentment for registration of transfer of
this Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Indenture Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes whether or not this Note be
overdue, and neither the Issuer, the Indenture Trustee nor any such agent shall
be affected by notice to the contrary.
The term "Issuer" as used in this Note includes any successor
to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Indenture
Trustee and the holders of the Notes under the Indenture.
The Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
This Note shall be construed in accordance with the laws of
the State of New York, without reference to its conflict of law provisions, and
the obligations, rights and remedies of the parties hereunder and thereunder
shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the times, place, and rate, and in the coin or currency, herein
prescribed.
Anything herein to the contrary notwithstanding, except as
expressly provided in the Basic Documents, neither Bankers Trust Company in its
individual capacity, The First National Bank of Chicago in its individual
capacity, any owner of a beneficial interest in the Issuer, nor any of their
respective partners, beneficiaries, agents, officers, directors, employees or
successors or assigns shall be personally liable for, nor shall recourse be had
to any of them for, the payment of principal of or interest on, or performance
of, or omission to perform, any of the covenants, obligations or
indemnifications contained in this Note or the Indenture; it being expressly
understood that said covenants, obligations and indemnifications have been made
by the Eligible Lender Trustee for the sole purposes of binding the interests of
the Eligible Lender Trustee in the assets of the Issuer. The holder of the Notes
by the acceptance hereof agrees that, except as expressly provided in the Basic
Documents, in the case of an Event
A-4-8
<PAGE> 132
of Default under the Indenture, the holder of the Notes shall have no claim
against any of the foregoing for any deficiency, loss or claim therefrom;
PROVIDED, HOWEVER, that nothing contained herein shall be taken to prevent
recourse to, and enforcement against, the assets of the Issuer for any and all
liabilities, obligations and undertakings contained in the Indenture or in this
Note.
A-4-9
<PAGE> 133
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
__________________
FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto _______________________________
__________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints ______________________, attorney, to transfer said Note on the
books kept for registration thereof, with full power of substitution in the
premises.
Dated: _____________
________________________________ */
Signature Guaranteed:
________________________________ */
__________________
*/ NOTICE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within Note in
every particular, without alteration, enlargement or any change
whatever. Such signature must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in STAMP or such other
"signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
A-4-10
<PAGE> 1
Exhibit 4.2
================================================================================
AMENDED AND RESTATED
TRUST AGREEMENT
between
KEY BANK USA, NATIONAL ASSOCIATION
as Depositor
and
THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity but solely
as Eligible Lender Trustee
Dated as of January 1, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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ARTICLE I
<S> <C>
Definitions and Usage.............................................................................................1
ARTICLE II
Organization
SECTION 2.01. Name......................................................................................1
SECTION 2.02. Office....................................................................................2
SECTION 2.03. Purposes and Powers.......................................................................2
SECTION 2.04. Appointment of Eligible Lender Trustee....................................................2
SECTION 2.05. Initial Capital Contribution of Trust Estate..............................................2
SECTION 2.06. Declaration of Trust......................................................................3
SECTION 2.07. Liability of the Certificateholders.......................................................3
SECTION 2.08. Title to Trust Property...................................................................3
SECTION 2.09. Representations and Warranties of the Depositor...........................................4
ARTICLE III
Trust Certificates and Transfer of Interests
SECTION 3.01. Initial Beneficial Ownership..............................................................5
SECTION 3.02. The Trust Certificates....................................................................5
SECTION 3.03. Authentication of Trust Certificates......................................................6
SECTION 3.04. Registration of Transfer and Exchange of Trust Certificates...............................6
SECTION 3.05. Mutilated, Destroyed, Lost or Stolen Trust Certificates...................................7
SECTION 3.06. Persons Deemed Owners.....................................................................7
SECTION 3.07. Access to List of Certificateholders' Names and Addresses.................................7
SECTION 3.08. Maintenance of Office or Agency...........................................................8
SECTION 3.09. Appointment of Certificate Paying Agent...................................................8
SECTION 3.10. Disposition by Depositor..................................................................9
SECTION 3.11. Book-Entry Certificates...................................................................9
SECTION 3.12. Notices to Clearing Agency...............................................................10
SECTION 3.13. Definitive Certificates..................................................................10
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
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ARTICLE IV
Actions by Eligible Lender Trustee
<S> <C>
SECTION 4.01. Prior Notice to Certificateholders with Respect to Certain Matters.......................11
SECTION 4.02. Action by Certificateholders with Respect to Certain Matters.............................11
SECTION 4.03. Action by Certificateholders with Respect to Bankruptcy..................................12
SECTION 4.04. Restrictions on Certificateholders' Power................................................12
SECTION 4.05. Majority Control.........................................................................12
ARTICLE V
Application of Trust Funds; Certain Duties
SECTION 5.01. Application of Trust Funds...............................................................12
SECTION 5.02. Method of Payment........................................................................13
SECTION 5.03. No Segregation of Moneys; No Interest....................................................13
SECTION 5.04. Accounting and Reports to the Noteholders, Certificateholders, the Internal
Revenue Service and Others.......................................................13
SECTION 5.05. Signature on Returns; Tax Matters Partner................................................14
ARTICLE VI
Authority and Duties of Eligible Lender Trustee
SECTION 6.01. General Authority........................................................................14
SECTION 6.02. General Duties...........................................................................15
SECTION 6.03. Action upon Instruction..................................................................15
SECTION 6.04. No Duties Except as Specified in this Agreement, the Sale and Servicing
Agreement, the Supplemental Sale and Servicing Agreement or in
Instructions.....................................................................16
SECTION 6.05. No Action Except Under Specified Documents or Instructions...............................16
SECTION 6.06. Restrictions.............................................................................17
ARTICLE VII
Concerning the Eligible Lender Trustee
SECTION 7.01. Acceptance of Trusts and Duties..........................................................17
SECTION 7.02. Furnishing of Documents..................................................................18
SECTION 7.03. Representations and Warranties...........................................................18
SECTION 7.04. Reliance; Advice of Counsel..............................................................19
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 7.05. Not Acting in Individual Capacity........................................................19
SECTION 7.06. Eligible Lender Trustee Not Liable for Trust Certificates or Financed Student
Loans............................................................................20
SECTION 7.07. Eligible Lender Trustee May Own Trust Certificates and Notes.............................20
ARTICLE VIII
Compensation of Eligible Lender Trustee
SECTION 8.01. Eligible Lender Trustee's Fees and Expenses..............................................21
SECTION 8.02. Payments to the Eligible Lender Trustee..................................................21
ARTICLE IX
Termination of Trust Agreement
SECTION 9.01. Termination of Trust Agreement...........................................................21
SECTION 9.02. Dissolution upon Insolvency of the Depositor.............................................22
ARTICLE X
Successor Eligible Lender Trustees and
Additional Eligible Lender Trustees
SECTION 10.01. Eligibility Requirements for Eligible Lender Trustee....................................23
SECTION 10.02. Resignation or Removal of Eligible Lender Trustee.......................................23
SECTION 10.03. Successor Eligible Lender Trustee.......................................................24
SECTION 10.04. Merger or Consolidation of Eligible Lender Trustee......................................24
SECTION 10.05. Appointment of Co-Eligible Lender Trustee or Separate Eligible Lender Trustee...........25
ARTICLE XI
Miscellaneous
SECTION 11.01. Supplements and Amendments..............................................................26
SECTION 11.02. No Legal Title to Trust Estate in Certificateholders....................................27
SECTION 11.03. Limitations on Rights of Others.........................................................27
SECTION 11.04. Notices.................................................................................27
SECTION 11.05. Severability............................................................................28
SECTION 11.06. Separate Counterparts...................................................................28
SECTION 11.07. Successors and Assigns..................................................................28
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 11.08. No Petition.............................................................................28
SECTION 11.09. No Recourse.............................................................................28
SECTION 11.10. Headings................................................................................29
SECTION 11.11. Governing Law...........................................................................29
EXHIBIT A Certificate
EXHIBIT B Form of Certificate Depository Agreement.
</TABLE>
-iv-
<PAGE> 6
AMENDED AND RESTATED TRUST AGREEMENT (the "Trust Agreement")
dated as of January 1, 1999, between KEY BANK USA, NATIONAL ASSOCIATION, a
national banking association, as Depositor, and THE FIRST NATIONAL BANK OF
CHICAGO, a national banking association, not in its individual capacity but
solely as Eligible Lender Trustee, amending and restating that certain trust
agreement (the "Original Trust Agreement") dated July 13, 1998 between the
parties hereto.
WHEREAS the Original Trust Agreement was entered into as of
July 13, 1998;
WHEREAS the Original Trust Agreement is hereby amended and
restated in its entirety as of January 1, 1999, in order to, INTER ALIA, change
the name of the Trust from "KeyCorp Student Loan Trust 1998-A" to "KeyCorp
Student Loan Trust 1999-A" and to make such other changes and modifications as
are set forth herein; and
WHEREAS, in connection therewith, the Depositor and the
Eligible Lender Trustee agree that the terms and provisions of the Original
Trust Agreement shall no longer have any force and effect with respect to any
date on or after the date as of which this Amended and Restated Trust Agreement
is being entered into (other than Section 4 thereof to the extent applicable to
the allocation of collections, Interest Subsidy Payments and Special Allowance
Payments accruing during any period prior to the Cutoff Date).
NOW, THEREFORE, the Depositor and the Eligible Lender Trustee
hereby agree as follows:
ARTICLE I
DEFINITIONS AND USAGE
Capitalized terms used but not defined herein are defined in
Appendix A to the Sale and Servicing Agreement, which also contains rules as to
construction and usage that shall be applicable herein.
ARTICLE II
ORGANIZATION
SECTION 2.01. NAME. The Trust created under the Original Trust
Agreement shall be known as "KeyCorp Student Loan Trust 1999-A" (which was
formerly named KeyCorp Student Loan Trust 1998-A under the Original Trust
Agreement) in which name the Eligible Lender Trustee may conduct the business of
the Trust, make and execute contracts and other instruments on behalf of the
Trust and sue and be sued.
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SECTION 2.02. OFFICE. The office of the Trust shall be in care
of the Eligible Lender Trustee at its Corporate Trust Office or at such other
address as the Eligible Lender Trustee may designate by written notice to the
holders of the Trust Certificates and the Depositor.
SECTION 2.03. PURPOSES AND POWERS. The purpose of the Trust is
to engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and the Trust
Certificates pursuant to this Agreement and to sell the Notes and the
Trust Certificates in one or more transactions;
(ii) with the proceeds of the sale of the Notes and the Trust
Certificates, to purchase the Financed Student Loans and to fund the
Pre-Funding Account pursuant to the Sale and Servicing Agreement;
(iii) to assign, grant, transfer, pledge, mortgage and convey the
Trust Estate pursuant to the Indenture and to hold, manage and
distribute to the holders of the Trust Certificates pursuant to the
terms of the Sale and Servicing Agreement any portion of the Trust
Estate released from the Lien of, and remitted to the Trust pursuant
to, the Indenture;
(iv) to enter into and perform its obligations under the Basic
Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith; and
(vi) subject to compliance with the Basic Documents, to engage
in such other activities as may be required in connection with
conservation of the Trust Estate and the making of distributions to the
holders of the Trust Certificates, the holders of the Notes and the
others specified in Section 5.05 of the Sale and Servicing Agreement.
The Trust shall not engage in any activity other than in connection with the
foregoing or other than as required or authorized by the terms of this Agreement
or the other Basic Documents.
SECTION 2.04. APPOINTMENT OF ELIGIBLE LENDER TRUSTEE. The
Depositor hereby appoints the Eligible Lender Trustee as trustee of the Trust
effective as of the date hereof, to have all the rights, powers and duties set
forth herein.
SECTION 2.05. INITIAL CAPITAL CONTRIBUTION OF TRUST ESTATE.
Pursuant to the Original Trust Agreement, the Depositor has sold, assigned,
transferred, conveyed and set over to the Eligible Lender Trustee, as of the
date thereof, the sum of $1.00. The Eligible Lender Trustee hereby acknowledges
receipt in trust from the Depositor, as of the date thereof, of the foregoing
contribution, which shall constitute the initial Trust Estate and shall be
deposited in the
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Collection Account. The Depositor shall pay the organizational expenses of the
Trust as they may arise or shall, upon the request of the Eligible Lender
Trustee, promptly reimburse the Eligible Lender Trustee for any such expenses
paid by the Eligible Lender Trustee.
SECTION 2.06. DECLARATION OF TRUST. The Eligible Lender
Trustee hereby declares that it will hold the Trust Estate in trust upon and
subject to the conditions set forth herein for the use and benefit of the
holders of the Trust Certificates, subject to the obligations of the Trust under
the other Basic Documents. It is the intention of the parties hereto that the
Trust constitute a trust under New York law and that this Agreement constitute
the governing instrument of such trust. It is the intention of the parties
hereto that, solely for income and franchise tax purposes, the Trust shall be
treated as a partnership, with the assets of the partnership being the Financed
Student Loans and other assets held by the Trust, the partners of the
partnership being the holders of the Trust Certificates (including the Depositor
in its capacity as recipient of distributions from the Reserve Accounts), and
the Notes being debt of the partnership. The parties agree that, unless
otherwise required by appropriate tax authorities, the Trust will file or cause
to be filed annual or other necessary returns, reports and other forms
consistent with the characterization of the Trust as a partnership for such tax
purposes. Effective as of the date hereof, the Eligible Lender Trustee shall
have all rights, powers and duties set forth herein with respect to
accomplishing the purposes of the Trust.
SECTION 2.07. LIABILITY OF THE CERTIFICATEHOLDERS. (a) The
Depositor shall be liable directly to and will indemnify the injured party for
all losses, claims, damages, liabilities and expenses of the Trust (including
Expenses, to the extent not paid out of the Trust Estate) to the extent that the
Depositor would be liable if the Trust were a partnership under the Delaware
Revised Uniform Limited Partnership Act in which the Depositor were a general
partner; PROVIDED, HOWEVER, that the Depositor shall not be liable for any
losses incurred by a holder of the Trust Certificates or a Certificate Owner in
the capacity of an investor in the Trust Certificates or a holder of the Notes
or a Note Owner in the capacity of an investor in the Notes. In addition, any
third party creditors of the Trust (other than in connection with the
obligations described in the preceding sentence for which the Depositor shall
not be liable) shall be deemed third party beneficiaries of this paragraph. The
obligations of the Depositor under this paragraph shall be evidenced by the
Trust Certificates described in Section 3.10, which shall be deemed to be
separate classes of Trust Certificates from all other Trust Certificates issued
by the Trust; PROVIDED that the rights and obligations evidenced by all Trust
Certificates, regardless of class, except as provided in this Section, shall be
identical.
(b) No holder of a Trust Certificate, other than to the extent
set forth in paragraph (a), shall have any personal liability for any liability
or obligation of the Trust.
SECTION 2.08. TITLE TO TRUST PROPERTY. Legal title to all the
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Trust Estate to be vested in a trustee or trustees, in which case
title shall be deemed to be vested in the Eligible Lender Trustee, a co-trustee
and/or a separate trustee, as the case may be; provided that, legal title to the
Financed Student Loans shall be vested at all times in the Eligible Lender
Trustee on behalf of the Trust.
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SECTION 2.09. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR.
The Depositor hereby represents and warrants to the Eligible Lender Trustee
that:
(a) The Depositor is duly organized and validly existing as a
national banking association in good standing under the laws of the
United States of America, with power and authority to own its
properties and to conduct its business as such properties are currently
owned and such business is presently conducted.
(b) The Depositor has the corporate power and authority to
execute and deliver this Agreement and to carry out its terms; the
Depositor has full corporate power and authority to sell and assign the
property to be sold and assigned to and deposited with the Trust (or
with the Eligible Lender Trustee on behalf of the Trust) and the
Depositor has duly authorized such sale and assignment and deposit to
the Trust (or to the Eligible Lender Trustee on behalf of the Trust) by
all necessary corporate action; and the execution, delivery and
performance of this Agreement has been duly authorized by the Depositor
by all necessary corporate action.
(c) This Agreement constitutes a legal, valid and binding
obligation of the Depositor enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization and
similar laws relating to creditors' rights generally or the rights of
creditors of banks the deposit accounts of which are insured by the
FDIC and subject to general principles of equity.
(d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time or both) a default
under, the articles of association or by-laws of the Depositor, or any
indenture, agreement or other instrument to which the Depositor is a
party or by which it is bound; nor result in the creation or imposition
of any Lien upon any of its properties pursuant to the terms of any
such indenture, agreement or other instrument (other than pursuant to
the Basic Documents); nor violate any law or, to the Depositor's
knowledge, any order, rule or regulation applicable to the Depositor of
any court or of any Federal or state regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over
the Depositor or its properties.
SECTION 2.10. FEDERAL INCOME TAX ALLOCATIONS. Net income of
the Trust with respect to any Loan Group for any Collection Period as determined
for Federal income tax purposes (and each item of income, gain, loss and
deduction entering into the computation thereof) shall be allocated:
(a) among the holders of the Trust Certificates as of the
close of business on the last day of such Collection Period, in
proportion to their ownership of principal amount of Trust Certificates
on such date, an amount of net income up to the sum of (i) the portion
of the Certificateholders' Interest Distribution Amount and the
Certificateholders' Interest Index Carryover if any, for the related
Distribution Date allocable to such Collection
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Period, (ii) interest on the excess, if any, of the Certificateholders'
Interest Distribution Amount for the preceding Distribution Date over
the amount in respect of interest that is actually distributed to such
holders of the Trust Certificates on such preceding Distribution Date,
to the extent permitted by law, at the Certificate Rate for such
Collection Period and (iii) the portion of the market discount on the
Financed Student Loans accrued during such quarter that is allocable to
the excess, if any, of the initial aggregate principal amount of the
Trust Certificates over their initial aggregate issue price; and
(b) to the Depositor, to the extent of any remaining net
income.
If the net income of the Trust for any month is insufficient for the allocations
described in clause (a) above, subsequent net income shall first be allocated to
make up such shortfall before being allocated as provided in the preceding
sentence. Net losses of the Trust if any, for any month as determined for
Federal income tax purposes (and each item of income, gain, loss and deduction
entering into the computation thereof) shall be allocated to the Depositor to
the extent the Depositor is reasonably expected to bear the economic burden of
such net losses, and any remaining net losses shall be allocated among the
remaining holders of the Trust Certificates as of the close of business on the
last day of such month in proportion to their ownership of principal amount of
Trust Certificates on such Record Date. The Depositor is authorized to modify
the allocations in this paragraph if necessary or appropriate, in its sole
discretion, for the allocations to fairly reflect the economic income, gain or
loss to the Depositor or to the holders of the Trust Certificates, or as
otherwise required by the Code.
ARTICLE III
TRUST CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.01. INITIAL BENEFICIAL OWNERSHIP. Upon the formation
of the Trust by the contribution by the Depositor pursuant to Section 2.05 and
until the issuance of the Trust Certificates, the Depositor shall be the sole
beneficial owner of the Trust.
SECTION 3.02. THE TRUST CERTIFICATES. The Trust Certificates
shall be issued in denominations of $1,000 or in integral multiples of $1,000 in
excess thereof; PROVIDED, HOWEVER, that the Trust Certificates issued to the
Depositor pursuant to Section 3.10 may be issued in such denomination as to
include any residual amount. The Trust Certificates shall be in the form of
Exhibit A hereto and shall be executed on behalf of the Trust by manual or
facsimile signature of an authorized officer of the Eligible Lender Trustee.
Trust Certificates bearing the manual or facsimile signatures of individuals who
were, at the time when such signatures shall have been affixed, authorized to
sign on behalf of the Trust, shall be valid and binding obligations of the
Trust, notwithstanding that such individuals or any of them shall have ceased to
be so authorized prior to the authentication and delivery of such Trust
Certificates or did not hold such offices at the date of authentication and
delivery of such Trust Certificates.
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SECTION 3.03. AUTHENTICATION OF TRUST CERTIFICATES.
Concurrently with the initial sale of the Financed Student Loans to the Trust
pursuant to the Sale and Servicing Agreement, the Eligible Lender Trustee shall
cause the Trust Certificates in an aggregate principal amount equal to the
Initial Certificate Balance to be executed on behalf of the Trust, authenticated
and delivered to or upon the written order of the Depositor, signed by its
chairman of the board, its president or any vice president, without further
action by the Depositor, in authorized denominations. No Trust Certificate shall
entitle its holder to any benefit under this Agreement, or shall be valid for
any purpose, unless there shall appear on such Trust Certificate a certificate
of authentication substantially in the form set forth in Exhibit A, executed by
the Eligible Lender Trustee or First Chicago Trust Company of New York, as the
Eligible Lender Trustee's authenticating agent, by manual signature; such
authentication shall constitute conclusive evidence that such Trust Certificate
shall have been duly authenticated and delivered hereunder. All Trust
Certificates shall be dated the date of their authentication. No further Trust
Certificates shall be issued except pursuant to Section 3.04, 3.05 or 3.13
hereunder.
SECTION 3.04. REGISTRATION OF TRANSFER AND EXCHANGE OF TRUST
CERTIFICATES. The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 3.08, a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Eligible
Lender Trustee shall provide for the registration of Trust Certificates and of
transfers and exchanges of Trust Certificates as herein provided. The Eligible
Lender Trustee shall be the initial Certificate Registrar.
Upon surrender for registration of transfer of any Trust
Certificate at the office or agency maintained pursuant to Section 3.08, the
Eligible Lender Trustee shall execute, authenticate and deliver (or shall cause
First Chicago Trust Company of New York as its authenticating agent to
authenticate and deliver), in the name of the designated transferee or
transferees, one or more new Trust Certificates in authorized denominations of a
like aggregate amount dated the date of authentication by the Eligible Lender
Trustee or any authenticating agent. At the option of a holder of the Trust
Certificates, Trust Certificates may be exchanged for other Trust Certificates
of authorized denominations of a like aggregate amount upon surrender of the
Trust Certificates to be exchanged at the office or agency maintained pursuant
to Section 3.08.
Every Trust Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Eligible Lender Trustee and
the Certificate Registrar duly executed by the holder of the Trust Certificates
or his attorney duly authorized in writing, with such signature guaranteed by an
"eligible guarantor institution" meeting the requirements of the Certificate
Registrar, which requirements include membership or participation in Security
Transfer Agent's Medallion Program ("STAMP") or such other "signature guarantee
program" as may be determined by the Certificate Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Exchange Act. Each Trust
Certificate surrendered for registration of transfer or exchange shall be
cancelled and subsequently disposed of by the Eligible Lender Trustee in
accordance with its customary practice.
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No service charge shall be made for any registration of
transfer or exchange of Trust Certificates, but the Eligible Lender Trustee or
the Certificate Registrar may require payment of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any transfer
or exchange of Trust Certificates.
The preceding provisions of this Section notwithstanding, the
Eligible Lender Trustee shall not be required to make and the Certificate
Registrar need not register transfers or exchanges of Trust Certificates for a
period of 15 days preceding any Distribution Date with respect to the Trust
Certificates.
The Trust Certificates and any beneficial interest in such
Trust Certificates may not be acquired by (a) an employee benefit plan (as
defined in Section 3(3) of ERISA) that is subject to the provisions of Title I
of ERISA, (b) an individual retirement account described in Section 408(a) of
the Code or (c) any entity whose underlying assets include plan assets by reason
of a plan's investment in the entity (each, a "Benefit Plan"). By accepting and
holding a Trust Certificate or an interest therein, the holder of the Trust
Certificates thereof or Certificate Owner thereof shall be deemed to have
represented and warranted that it is not a Benefit Plan.
SECTION 3.05. MUTILATED, DESTROYED, LOST OR STOLEN TRUST
CERTIFICATES. If (a) any mutilated Trust Certificate shall be surrendered to the
Certificate Registrar, or if the Certificate Registrar shall receive evidence to
its satisfaction of the destruction, loss or theft of any Trust Certificate, and
(b) there shall be delivered to the Certificate Registrar and the Eligible
Lender Trustee such security or indemnity as may be required by them to save
each of them harmless, then in the absence of notice that such Trust Certificate
shall have been acquired by a bona fide purchaser, the Eligible Lender Trustee
on behalf of the Trust shall execute and the Eligible Lender Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Trust Certificate, a new Trust Certificate of the same
class in authorized denominations of like aggregate amount. In connection with
the issuance of any new Trust Certificate under this Section, the Eligible
Lender Trustee and the Certificate Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Trust Certificate issued pursuant to this
Section shall constitute conclusive evidence of ownership in the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Trust
Certificate shall be found at any time.
SECTION 3.06. PERSONS DEEMED OWNERS. Prior to due presentation
of a Trust Certificate for registration of transfer, the Eligible Lender Trustee
or the Certificate Registrar and any agent of any thereof may treat the Person
in whose name any Trust Certificate shall be registered in the Certificate
Register as the owner of such Trust Certificate for the purpose of receiving
distributions pursuant to Section 5.01 and for all other purposes whatsoever,
and neither the Eligible Lender Trustee, the Certificate Registrar nor any agent
of any thereof shall be bound by any notice to the contrary.
SECTION 3.07. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND
ADDRESSES. The Eligible Lender Trustee shall furnish or cause to be furnished to
the Depositor, within 15 days after receipt by the Eligible Lender Trustee of a
request therefor from the Depositor in writing, a
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list, in such form as the Depositor may reasonably require, of the names and
addresses of the holders of the Trust Certificates as of the most recent Record
Date. If three or more holders of the Trust Certificates or one or more holders
of the Trust Certificates evidencing not less than 25% of the Certificate
Balance apply in writing to the Eligible Lender Trustee, and such application
states that the applicants desire to communicate with other holders of the Trust
Certificates with respect to their rights under this Agreement or under the
Trust Certificates and such application is accompanied by a copy of the
communication that such applicants propose to transmit, then the Eligible Lender
Trustee shall, within five Business Days after the receipt of such application,
afford such applicants access during normal business hours to the current list
of the holders of the Trust Certificates. Upon receipt of any such application,
the Eligible Lender Trustee will promptly notify the Depositor by providing a
copy of such application and a copy of the list of the holders of the Trust
Certificates produced in response thereto. Each holder of the Trust
Certificates, by receiving and holding a Trust Certificate, shall be deemed to
have agreed not to hold any of the Depositor, the Certificate Registrar or the
Eligible Lender Trustee accountable by reason of the disclosure of its name and
address, regardless of the source from which such information was derived.
SECTION 3.08. MAINTENANCE OF OFFICE OR AGENCY. The Eligible
Lender Trustee shall maintain in the Borough of Manhattan, The City of New York,
an office or offices or agency or agencies where Trust Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Eligible Lender Trustee in respect of the Trust
Certificates and the other Basic Documents may be served. The Eligible Lender
Trustee initially designates One First National Plaza, Suite 0126, Chicago,
Illinois 60670, as its principal Corporate Trust Office. The Eligible Lender
Trustee's New York office and its authenticating agent's office are located at
First Chicago Trust Company of New York, 14 Wall Street, 8th Floor, New York,
New York 10005, Attention: Corporate Trust Administration. The Eligible Lender
Trustee shall give prompt written notice to the Depositor and to the holders of
the Trust Certificates of any change in the location of the Certificate Register
or any such office or agency.
SECTION 3.09. APPOINTMENT OF CERTIFICATE PAYING AGENT. The
Certificate Paying Agent shall make distributions to the holders of the Trust
Certificates from the amounts received from the Indenture Trustee out of the
Trust Accounts pursuant to Section 5.01 and shall report the amounts of such
distributions to the Eligible Lender Trustee. Any Certificate Paying Agent shall
have the revocable power to receive such funds from the Indenture Trustee for
the purpose of making the distributions referred to above. The Eligible Lender
Trustee may revoke such power and remove the Certificate Paying Agent if the
Eligible Lender Trustee determines in its sole discretion that the Certificate
Paying Agent shall have failed to perform its obligations under this Agreement
in any material respect. The Certificate Paying Agent shall initially be the
Eligible Lender Trustee, and any co-paying agent chosen by the Eligible Lender
Trustee, and acceptable to the Administrator (which consent shall not be
unreasonably withheld). The Eligible Lender Trustee shall be permitted to resign
as Certificate Paying Agent upon 30 days' written notice to the Administrator.
In the event that the Eligible Lender Trustee shall no longer be the Certificate
Paying Agent, the Eligible Lender Trustee, shall appoint a successor to act as
Certificate Paying Agent (which shall be a bank or trust company). The Eligible
Lender Trustee shall cause such successor Certificate Paying Agent or any
additional Certificate Paying Agent
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appointed by the Eligible Lender Trustee to execute and deliver to the Eligible
Lender Trustee an instrument in which such successor Certificate Paying Agent or
additional Certificate Paying Agent shall agree with the Eligible Lender Trustee
that as Certificate Paying Agent, such successor Certificate Paying Agent or
additional Certificate Paying Agent will hold all sums, if any, held by it for
payment to the holders of the Trust Certificates in trust for the benefit of the
holders of the Trust Certificates entitled thereto until such sums shall be paid
to such holders of the Trust Certificates. The Certificate Paying Agent shall
return all unclaimed funds to the Eligible Lender Trustee and upon removal of a
Certificate Paying Agent such Certificate Paying Agent shall also return all
funds in its possession to the Eligible Lender Trustee. The provisions of
Sections 7.01, 7.03, 7.04, 7.05 and 8.01 shall apply to the Eligible Lender
Trustee also in its role as Certificate Paying Agent, for so long as the
Eligible Lender Trustee shall act as Certificate Paying Agent and, to the extent
applicable, to any other paying agent appointed hereunder. Any reference in this
Agreement to the Certificate Paying Agent shall include any co-paying agent
unless the context requires otherwise.
SECTION 3.10. DISPOSITION BY DEPOSITOR. On and after the
Closing Date, the Depositor shall retain beneficial and record ownership of
Trust Certificates representing at least 1% of the Certificate Balance. Any
attempted transfer of any Trust Certificate that would reduce such interest of
the Depositor below 1% of the Certificate Balance shall be void. The Eligible
Lender Trustee shall cause any Trust Certificate issued to the Depositor on the
Closing Date (and any Trust Certificate issued in exchange therefor) to contain
a legend stating "THIS CERTIFICATE IS NONTRANSFERABLE".
SECTION 3.11. BOOK-ENTRY CERTIFICATES. The Trust Certificates,
upon original issuance, will be issued in the form of a typewritten Trust
Certificate or Trust Certificates representing Book-Entry Certificates, to be
delivered to The Depository Trust Company, the initial Clearing Agency, by, or
on behalf of, the Trust; PROVIDED, HOWEVER, that one Definitive Certificate (as
defined below) may be issued to the Depositor pursuant to Section 3.10. Such
Book-Entry Certificate or Book-Entry Certificates shall initially be registered
on the Certificate Register in the name of Cede & Co., the nominee of the
initial Clearing Agency, and no Certificate Owner (other than the Depositor)
will receive a Definitive Certificate representing such Certificate Owner's
interest in such Trust Certificate, except as provided in Section 3.13. Unless
and until definitive, fully registered Trust Certificates (the "Definitive
Certificates") have been issued to Certificate Owners pursuant to Section 3.13:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Certificate Registrar and the Eligible Lender Trustee
shall be entitled to deal with the Clearing Agency for all purposes of
this Agreement (including the payment of principal of and interest on
the Trust Certificates and the giving of instructions or directions
hereunder) as the sole holder of the Trust Certificates and shall have
no obligation to the Certificate Owners;
(iii) to the extent that the provisions of this Section conflict
with any other provisions of this Agreement, the provisions of this
Section shall control;
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(iv) the rights of Certificate Owners shall be exercised only
through the Clearing Agency and shall be limited to those established
by law and agreements between such Certificate Owners and the Clearing
Agency and/or the Clearing Agency Participants. Pursuant to the
Certificate Depository Agreement, unless and until Definitive
Certificates are issued pursuant to Section 3.13, the initial Clearing
Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit payments of principal of and
interest on the Trust Certificates to such Clearing Agency
Participants; and
(v) whenever this Agreement requires or permits actions to be
taken based upon instructions or directions of the holders of the Trust
Certificates evidencing a specified percentage of the Certificate
Balance, the Clearing Agency shall be deemed to represent such
percentage only to the extent that it has received instructions to such
effect from Certificate Owners and/or Clearing Agency Participants
owning or representing, respectively, such required percentage of the
beneficial interest in the Trust Certificates and has delivered such
instructions to the Eligible Lender Trustee.
SECTION 3.12. NOTICES TO CLEARING AGENCY. Whenever a notice or
other communication to the holders of the Trust Certificates is required under
this Agreement, unless and until Definitive Certificates shall have been issued
to Certificate Owners pursuant to Section 3.13, the Eligible Lender Trustee
shall give all such notices and communications specified herein to be given to
the holders of the Trust Certificates to the Clearing Agency, and shall have no
obligations to the Certificate Owners.
SECTION 3.13. DEFINITIVE CERTIFICATES. If (i) the
Administrator advises the Eligible Lender Trustee in writing that the Clearing
Agency is no longer willing or able to discharge properly its responsibilities
with respect to the Trust Certificates, and the Administrator is unable to
locate a qualified successor, (ii) the Administrator at its option advises the
Eligible Lender Trustee in writing that it elects to terminate the book-entry
system through the Clearing Agency or (iii) after the occurrence of an Event of
Default, a Servicer Default or an Administrator Default, Certificate Owners
representing beneficial interests aggregating at least a majority of the
Certificate Balance advise the Clearing Agency (which shall then notify the
Eligible Lender Trustee) in writing that the continuation of a book-entry system
through the Clearing Agency is no longer in the best interest of the Certificate
Owners, then the Eligible Lender Trustee shall cause the Clearing Agency to
notify all Certificate Owners of the occurrence of any such event and of the
availability of the Definitive Certificates to Certificate Owners requesting the
same. Upon surrender to the Eligible Lender Trustee of the typewritten Trust
Certificate or Trust Certificates representing the Book-Entry Certificates by
the Clearing Agency, accompanied by registration instructions, the Eligible
Lender Trustee shall execute and authenticate the Definitive Certificates in
accordance with the instructions of the Clearing Agency. Neither the Certificate
Registrar nor the Eligible Lender Trustee shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Certificates, the Eligible Lender Trustee shall recognize the registered holders
of the Definitive Certificates as the holders of the Trust Certificates. The
Definitive Certificates shall, at the expense of the Depositor, be printed,
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lithographed or engraved or may be produced in any other manner as is reasonably
acceptable to the Eligible Lender Trustee, as evidenced by its execution
thereof.
ARTICLE IV
ACTIONS BY ELIGIBLE LENDER TRUSTEE
SECTION 4.01. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT
TO CERTAIN MATTERS. With respect to the following matters, the Eligible Lender
Trustee shall not take action unless at least 30 days before the taking of such
action, the Eligible Lender Trustee shall have notified the holders of the Trust
Certificates in writing of the proposed action and the holders of the Trust
Certificates shall not have notified the Eligible Lender Trustee in writing
prior to the 30th day after such notice is given that such holders of the Trust
Certificates have withheld consent or provided alternative direction:
(a) the initiation of any material claim or lawsuit by the
Trust (except claims or lawsuits brought in connection with the
collection of the Financed Student Loans) and the compromise of any
material action, claim or lawsuit brought by or against the Trust
(except with respect to the aforementioned claims or lawsuits for
collection of Financed Student Loans);
(b) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any holder of the Notes is
required;
(c) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any holder of the Notes is not
required and such amendment materially adversely affects the interest
of the holders of the Trust Certificates;
(d) the amendment, change or modification of the
Administration Agreement, except to cure any ambiguity or to amend or
supplement any provision in a manner or add any provision that would
not materially adversely affect the interests of the holders of the
Trust Certificates; or
(e) the appointment pursuant to the Indenture of a successor
Note Registrar, Certificate Paying Agent or Indenture Trustee or
pursuant to this Agreement of a successor Certificate Registrar, or the
consent to the assignment by the Note Registrar, Certificate Paying
Agent or Indenture Trustee or Certificate Registrar of its obligations
under the Indenture or this Agreement, as applicable.
SECTION 4.02. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO
CERTAIN MATTERS. The Eligible Lender Trustee shall not have the power, except
upon the direction of the holders of the Trust Certificates, to (a) remove the
Servicer or the Administrator under the Sale and Servicing Agreement pursuant to
Section 8.01 thereof or (b) except as expressly provided in the Basic Documents,
sell the Financed Student Loans after the termination of the Indenture. The
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Eligible Lender Trustee shall take the actions referred to in the preceding
sentence only upon written instructions signed by the holders of the Trust
Certificates.
SECTION 4.03. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO
BANKRUPTCY. The Eligible Lender Trustee shall not have the power to commence a
voluntary proceeding in bankruptcy relating to the Trust without the unanimous
prior approval of all holders of the Trust Certificates and the delivery to the
Eligible Lender Trustee by each such holder of the Trust Certificates of a
certificate certifying that such holder of the Trust Certificates reasonably
believes that the Trust is insolvent.
SECTION 4.04. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER. The
holders of the Trust Certificates shall not direct the Eligible Lender Trustee
to take or refrain from taking any action if such action or inaction would be
contrary to any obligations of the Trust or the Eligible Lender Trustee under
the Higher Education Act or this Agreement or any of the other Basic Documents
or would be contrary to Section 2.03 nor shall the Eligible Lender Trustee be
permitted to follow any such direction, if given.
SECTION 4.05. MAJORITY CONTROL. Except as expressly provided
herein, any action that may be taken by the holders of the Trust Certificates
under this Agreement may be taken by the holders of Trust Certificates
evidencing not less than a majority of the sum of the Certificate Balances.
Except as expressly provided herein, any written notice of the holders of the
Trust Certificates delivered pursuant to this Agreement shall be effective if
signed by holders of the Trust Certificates evidencing not less than a majority
of the Certificate Balance at the time of the delivery of such notice.
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
SECTION 5.01. APPLICATION OF TRUST FUNDS. (a) On each
Distribution Date, the Eligible Lender Trustee will distribute to holders of the
Certificates, on a pro rata basis, amounts received from the Indenture Trustee
pursuant to Sections 5.05 and 5.06 of the Sale and Servicing Agreement on such
Distribution Date.
(b) On each Distribution Date, the Eligible Lender Trustee
shall send to each holder of the Trust Certificates the statement
provided to the Eligible Lender Trustee by the Administrator pursuant
to Section 5.07 of the Sale and Servicing Agreement on such
Distribution Date.
(c) In the event that any withholding tax is imposed on the
Trust's payment (or allocations of income) to a holder of the Trust
Certificates, such tax shall reduce the amount otherwise distributable
to such holder in accordance with this Section. The Eligible Lender
Trustee is hereby authorized and directed to retain from amounts
otherwise distributable to the holders of the Trust Certificates
sufficient funds for the payment of any tax that is legally owed by the
Trust (but such authorization shall not
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prevent the Eligible Lender Trustee from contesting any such tax in
appropriate proceedings, and withholding payment of such tax, if
permitted by law, pending the outcome of such proceedings). The amount
of any withholding tax imposed with respect to a holder of the Trust
Certificates shall be treated as cash distributed to such holder of the
Trust Certificates at the time it is withheld by the Trust to be
remitted to the appropriate taxing authority. If there is a possibility
that withholding tax is payable with respect to a distribution (such as
a distribution to a non-U.S. holder of the Trust Certificates), the
Eligible Lender Trustee in its sole discretion may (but unless
otherwise required by law shall be obligated to) withhold such amounts
in accordance with this paragraph (c). In the event that a holder of
the Trust Certificates wishes to apply for a refund of any such
withholding tax, the Eligible Lender Trustee shall reasonably cooperate
with such holder in making such claim so long as such holder of the
Trust Certificates agrees to reimburse the Eligible Lender Trustee for
any out-of-pocket expenses incurred.
SECTION 5.02. METHOD OF PAYMENT. Subject to Section 9.01(c),
distributions required to be made to the holders of the Trust Certificates on
any Distribution Date shall be made to each such holder of record on the
preceding Record Date either by wire transfer, in immediately available funds,
to the account of such holder at a bank or other entity having appropriate
facilities therefor, if such holder shall have provided to the Certificate
Registrar appropriate written instructions signed by two authorized officers, if
any, at least five Business Days prior to such Distribution Date and such
holder's Trust Certificates in the aggregate evidence a denomination of not less
than $1,000,000, or, if not, by check mailed to such holder at the address of
such holder appearing in the Certificate Register; PROVIDED, HOWEVER, that,
unless Definitive Certificates have been issued pursuant to Section 3.13, with
respect to Trust Certificates registered on the Record Date in the name of the
nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
distributions will be made by wire transfer in immediately available funds to
the account designated by such nominee. Notwithstanding the foregoing, the final
distribution in respect of any Trust Certificate (whether on its Final Maturity
Date or otherwise) will be payable only upon presentation and surrender of such
Trust Certificate at the Corporate Trust Office of the Eligible Lender Trustee
or such other location specified in writing to the holder thereof.
SECTION 5.03. NO SEGREGATION OF MONEYS; NO INTEREST. Subject
to Section 5.01, moneys received by the Eligible Lender Trustee hereunder need
not be segregated in any manner, except to the extent required by law or the
Sale and Servicing Agreement and may be deposited under such general conditions
as may be prescribed by law, and the Eligible Lender Trustee shall not be liable
for any interest thereon.
SECTION 5.04. ACCOUNTING AND REPORTS TO THE NOTEHOLDERS,
CERTIFICATEHOLDERS, THE INTERNAL REVENUE SERVICE AND OTHERS. The Eligible Lender
Trustee shall (a) maintain (or cause to be maintained) the books of the Trust on
a calendar year basis on the accrual method of accounting, (b) deliver to each
holder of the Trust Certificates (and to each Person who was a holder of the
Trust Certificates at any time during the applicable calendar year), as may be
required by the Code and applicable Treasury Regulations, such information as
may be required
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(including Schedule K-1) to enable each such holder of the Trust Certificates
to prepare its Federal and state income tax returns, (c) file such tax returns
relating to the Trust (including a partnership information return, Internal
Revenue Service Form 1065), and make such elections as may from time to time be
required or appropriate under any applicable state or Federal statute or rule or
regulation thereunder so as to maintain the Trust's characterization as a
partnership for Federal income tax purposes, (d) cause such tax returns to be
signed in the manner required by law and (e) collect or cause to be collected
any withholding tax as described in and in accordance with Section 5.01(c) with
respect to income or distributions to the holders of the Trust Certificates. The
Eligible Lender Trustee shall elect under Section 1278 of the Code to include in
income currently any market discount that accrues with respect to the Financed
Student Loans. The Eligible Lender Trustee shall not make the election provided
under Section 754 of the Code.
SECTION 5.05. SIGNATURE ON RETURNS; TAX MATTERS PARTNER. (a) The Eligible Lender
Trustee shall sign on behalf of the Trust the tax returns of the Trust, unless
applicable law requires a holder of the Trust Certificates to sign such
documents, in which case such documents shall be signed by the Depositor.
(b) The Depositor shall be designated the "tax matters
partner" of the Trust pursuant to Section 6231(a)(7)(A) of the Code and
applicable Treasury Regulations.
ARTICLE VI
AUTHORITY AND DUTIES OF ELIGIBLE LENDER TRUSTEE
SECTION 6.01. GENERAL AUTHORITY. The Eligible Lender Trustee
is authorized and directed to execute and deliver the Basic Documents to which
the Trust is to be a party and each certificate or other document attached as an
exhibit to or contemplated by the Basic Documents to which the Trust is to be a
party, in each case, in such form as the Depositor shall approve as evidenced
conclusively by the Eligible Lender Trustee's execution thereof, and, on behalf
of the Trust, to direct the Indenture Trustee to authenticate and deliver Notes
in the aggregate principal amount of $______________. The Eligible Lender
Trustee is also authorized and directed on behalf of the Trust (i) to acquire
and hold legal title to the Financed Student Loans from the Depositor and (ii)
to take all actions required pursuant to Section 4.02(c) of the Sale and
Servicing Agreement, and otherwise follow the direction of and cooperate with
the Administrator in submitting, pursuing and collecting any claims to and with
the Department with respect to any Interest Subsidy Payments and Special
Allowance Payments relating to the Financed Federal Loans.
In addition to the foregoing, the Eligible Lender Trustee is
authorized, but shall not be obligated, to take all actions required of the
Trust pursuant to the Basic Documents. The Eligible Lender Trustee is further
authorized from time to time to take such action as the Administrator directs or
instructs with respect to the Basic Documents and is directed to take such
action to the extent that the Administrator is expressly required pursuant to
the Basic Documents to cause the Eligible Lender Trustee to act.
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SECTION 6.02. GENERAL DUTIES. It shall be the duty of the
Eligible Lender Trustee to discharge (or cause to be discharged) all its
responsibilities pursuant to the terms of this Agreement and the other Basic
Documents to which the Trust is a party and to administer the Trust in the
interest of the holders of the Trust Certificates, subject to and in accordance
with the provisions of this Agreement and the other Basic Documents. Without
limiting the foregoing, the Eligible Lender Trustee shall on behalf of the Trust
file and prove any claim or claims that may exist on behalf of the Trust against
the Depositor in connection with any claims paying procedure as part of an
insolvency or a receivership proceeding involving the Depositor. Notwithstanding
the foregoing, the Eligible Lender Trustee shall be deemed to have discharged
its duties and responsibilities hereunder and under the other Basic Documents to
the extent the Administrator has agreed in the Administration Agreement to
perform any act or to discharge any duty of the Eligible Lender Trustee
hereunder or under any other Basic Document, and the Eligible Lender Trustee
shall not be held liable for the default or failure of the Administrator to
carry out its obligations under the Administration Agreement. Except as
expressly provided in the Basic Documents, the Eligible Lender Trustee shall
have no obligation to administer, service or collect the Financed Student Loans
or to maintain, monitor or otherwise supervise the administration, servicing or
collection of the Financed Student Loans.
SECTION 6.03. ACTION UPON INSTRUCTION. (a) Subject to Article
IV, Section 7.01 and in accordance with the terms of the Basic Documents, the
holders of the Trust Certificates may by written instruction direct the Eligible
Lender Trustee in the management of the Trust. Such direction may be exercised
at any time by written instruction of the holders of the Trust Certificates
pursuant to Article IV.
(b) The Eligible Lender Trustee shall not be required to take
any action hereunder or under any other Basic Document if the Eligible
Lender Trustee shall have reasonably determined, or shall have been
advised by counsel, that such action is likely to result in liability
on the part of the Eligible Lender Trustee or is contrary to the terms
hereof or of any other Basic Document or is otherwise contrary to law.
(c) Whenever the Eligible Lender Trustee is unable to
determine the appropriate course of action between alternative courses
of action permitted or required by the terms of this Agreement or under
any other Basic Document, the Eligible Lender Trustee shall promptly
give notice (in such form as shall be appropriate under the
circumstances) to the holders of the Trust Certificates requesting
instruction as to the course of action to be adopted, and to the extent
the Eligible Lender Trustee acts in good faith in accordance with any
written instruction of the holders of the Trust Certificates received,
the Eligible Lender Trustee shall not be liable on account of such
action to any Person. If the Eligible Lender Trustee shall not have
received appropriate instruction within 10 days of such notice (or
within such shorter period of time as reasonably may be specified in
such notice or may be necessary under the circumstances) it may, but
shall be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement or the other Basic Documents, as it
shall deem to be in the best interests of the holders of the Trust
Certificates, and shall have no liability to any Person for such action
or inaction.
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(d) In the event that the Eligible Lender Trustee is unsure as
to the application of any provision of this Agreement or any other
Basic Document or any such provision is ambiguous as to its
application, or is, or appears to be, in conflict with any other
applicable provision, or in the event that this Agreement permits any
determination by the Eligible Lender Trustee or is silent or is
incomplete as to the course of action that the Eligible Lender Trustee
is required to take with respect to a particular set of facts, the
Eligible Lender Trustee may give notice (in such form as shall be
appropriate under the circumstances) to the holders of the Trust
Certificates requesting instruction and, to the extent that the
Eligible Lender Trustee acts or refrains from acting in good faith in
accordance with any such instruction received, the Eligible Lender
Trustee shall not be liable, on account of such action or inaction, to
any Person. If the Eligible Lender Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such
shorter period of time as reasonably may be specified in such notice or
may be necessary under the circumstances) it may, but shall be under no
duty to, take or refrain from taking such action, not inconsistent with
this Agreement or the other Basic Documents, as it shall deem to be in
the best interests of the holders of the Trust Certificates, and shall
have no liability to any Person for such action or inaction.
SECTION 6.04. NO DUTIES EXCEPT AS SPECIFIED IN THIS AGREEMENT,
THE SALE AND SERVICING AGREEMENT, THE SUPPLEMENTAL SALE AND SERVICING AGREEMENT
OR IN INSTRUCTIONS. The Eligible Lender Trustee shall not have any duty or
obligation to manage, make any payment with respect to, register, record, sell,
service, dispose of or otherwise deal with the Trust Estate, or to otherwise
take or refrain from taking any action under, or in connection with, any
document contemplated hereby to which the Eligible Lender Trustee is a party,
except as expressly provided by the terms of this Agreement, the Sale and
Servicing Agreement, the Supplemental Sale and Servicing Agreement or in any
document or written instruction received by the Eligible Lender Trustee pursuant
to Section 6.03; and no implied duties or obligations shall be read into this
Agreement or any other Basic Document against the Eligible Lender Trustee. The
Eligible Lender Trustee shall have no responsibility for filing any financing or
continuation statement in any public office at any time or to otherwise perfect
or maintain the perfection of any security interest or lien granted to it
hereunder or to prepare or file any Commission filing for the Trust or to record
this Agreement or any other Basic Document. The Eligible Lender Trustee
nevertheless agrees that it will, at its own cost and expense, promptly take all
action as may be necessary to discharge any liens on any part of the Trust
Estate that result from actions by, or claims against, The First National Bank
of Chicago in its individual capacity or as the Eligible Lender Trustee that are
not related to the ownership or the administration of the Trust Estate.
SECTION 6.05. NO ACTION EXCEPT UNDER SPECIFIED DOCUMENTS OR
INSTRUCTIONS. The Eligible Lender Trustee shall not manage, control, use, sell,
service, dispose of or otherwise deal with any part of the Trust Estate except
(i) in accordance with the powers granted to and the authority conferred upon
the Eligible Lender Trustee pursuant to this Agreement, (ii) in accordance with
the other Basic Documents to which it is a party and (iii) in accordance with
any document or instruction delivered to the Eligible Lender Trustee pursuant to
Section 6.03.
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SECTION 6.06. RESTRICTIONS. The Eligible Lender Trustee shall
not take any action (a) that is inconsistent with the purposes of the Trust set
forth in Section 2.03 or (b) that, to the actual knowledge of the Eligible
Lender Trustee, would result in the Trust's becoming taxable as a corporation
for Federal income tax purposes. The holders of the Trust Certificates shall not
direct the Eligible Lender Trustee to take action that would violate the
provisions of this Section.
ARTICLE VII
CONCERNING THE ELIGIBLE LENDER TRUSTEE
SECTION 7.01. ACCEPTANCE OF TRUSTS AND DUTIES. The Eligible
Lender Trustee accepts the trusts hereby created and agrees to perform its
duties hereunder with respect to such trusts but only upon the terms of this
Agreement. The Eligible Lender Trustee also agrees to disburse all moneys
actually received by it constituting part of the Trust Estate upon the terms of
this Agreement and the other Basic Documents. The Eligible Lender Trustee shall
not be answerable or accountable hereunder or under any other Basic Document
under any circumstances, except (i) for its own willful misconduct or negligence
or (ii) in the case of the inaccuracy of any representation or warranty
contained in Section 7.03 expressly made by the Eligible Lender Trustee. In
particular, but not by way of limitation (and subject to the exceptions set
forth in the preceding sentence):
(a) the Eligible Lender Trustee shall not be liable for any
error of judgment made by a responsible officer of the Eligible Lender
Trustee;
(b) the Eligible Lender Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in accordance
with the direction or instructions of the Administrator or any holder
of the Trust Certificates;
(c) subject to Section 7.07 hereof, no provision of this
Agreement or any other Basic Document shall require the Eligible Lender
Trustee to expend or risk funds or otherwise incur any financial
liability in the performance of any of its rights or powers hereunder
or under any other Basic Document, if the Eligible Lender Trustee shall
have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably
assured or provided to it;
(d) under no circumstances shall the Eligible Lender Trustee
be liable for indebtedness evidenced by or arising under any of the
Basic Documents, including the principal of and interest on the Notes;
(e) the Eligible Lender Trustee shall not be responsible for
or in respect of the validity or sufficiency of this Agreement or for
the due execution hereof by the Depositor or for the form, character,
genuineness, sufficiency, value or validity of any of the Trust Estate
or for or in respect of the validity or sufficiency of the Basic
Documents, other than the certificate of authentication on the Trust
Certificates, and the Eligible Lender
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Trustee shall in no event assume or incur any liability, duty, or
obligation to any holder of the Notes or to any holder of the Trust
Certificates, other than as expressly provided for herein and in the
other Basic Documents;
(f) subject to Section 7.07 hereof, the Eligible Lender
Trustee shall not be liable for the action or inaction, default or
misconduct of the Administrator, the Seller, the Indenture Trustee or
any Servicer under any of the other Basic Documents or otherwise and
the Eligible Lender Trustee shall have no obligation or liability to
perform the obligations of the Trust under this Agreement or the other
Basic Documents that are required to be performed by the Administrator
under the Sale and Servicing Agreement, the Supplemental Sale and
Servicing Agreement or the Administration Agreement, the Indenture
Trustee under the Indenture or any Servicer under the Sale and
Servicing Agreement or the Supplemental Sale and Servicing Agreement;
and
(g) the Eligible Lender Trustee shall be under no obligation
to exercise any of the rights or powers vested in it by this Agreement,
or to institute, conduct or defend any litigation under this Agreement
or otherwise or in relation to this Agreement or any other Basic
Document, at the request, order or direction of any of the holders of
the Trust Certificates, unless such holders have offered to the
Eligible Lender Trustee security or indemnity satisfactory to it
against the costs, expenses and liabilities that may be incurred by the
Eligible Lender Trustee therein or thereby. The right of the Eligible
Lender Trustee to perform any discretionary act enumerated in this
Agreement or in any other Basic Document shall not be construed as a
duty, and the Eligible Lender Trustee shall not be answerable for other
than its negligence or willful misconduct in the performance of any
such act.
SECTION 7.02. FURNISHING OF DOCUMENTS. The Eligible Lender
Trustee shall furnish to the holders of the Trust Certificates promptly upon
receipt of a written request therefor, duplicates or copies of all reports,
notices, requests, demands, certificates, financial statements and any other
instruments furnished to the Eligible Lender Trustee under the Basic Documents.
SECTION 7.03. REPRESENTATIONS AND WARRANTIES. The Eligible
Lender Trustee hereby represents and warrants to the Depositor, for the benefit
of the holders of the Trust Certificates, that:
(a) It is a national banking association duly organized and
validly existing in good standing under the laws of the United States
and having an office located within the State of New York. It has all
requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement.
(b) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement, and this Agreement
will be executed and delivered by one of its officers who is duly
authorized to execute and deliver this Agreement on its behalf.
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(c) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will contravene any Federal or New York state law, governmental rule or
regulation governing the banking or trust powers of the Eligible Lender
Trustee or any judgment or order binding on it, or constitute any
default under its charter documents or by-laws or any indenture,
mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound.
(d) It is an "eligible lender" as such term is
defined in Section 435(d) of the Higher Education Act, for purposes of
holding legal title to the Financed Student Loans as contemplated by
this Agreement and the other Basic Documents, has obtained a lender
identification number with respect to the Trust from the Department and
has in effect a Guarantee Agreement with each of the Guarantors with
respect to the Financed Student Loans.
SECTION 7.04. RELIANCE; ADVICE OF COUNSEL (a) The Eligible
Lender Trustee shall incur no liability to anyone in acting upon any signature,
instrument, direction, notice, resolution, request, consent, order, certificate,
report, opinion, bond, or other document or paper believed by it to be genuine
and believed by it to be signed by the proper party or parties. The Eligible
Lender Trustee may accept a certified copy of a resolution of the board of
directors or other governing body of any corporate party as conclusive evidence
that such resolution has been duly adopted by such body and that the same is in
full force and effect. As to any fact or matter the method of the determination
of which is not specifically prescribed herein, the Eligible Lender Trustee may
for all purposes hereof rely on a certificate, signed by the president or any
vice president or by the treasurer or other authorized officers of the relevant
party, as to such fact or matter and such certificate shall constitute full
protection to the Eligible Lender Trustee for any action taken or omitted to be
taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder
and in the performance of its duties and obligations under this
Agreement or the other Basic Documents, the Eligible Lender Trustee (i)
may act directly or through its agents or attorneys pursuant to
agreements entered into with any of them, and the Eligible Lender
Trustee shall not be liable for the conduct or misconduct of such
agents or attorneys if such agents or attorneys shall have been
selected by the Eligible Lender Trustee with reasonable care, and (ii)
may consult with counsel, accountants and other skilled persons to be
selected with reasonable care and employed by it. The Eligible Lender
Trustee shall not be liable for anything done, suffered or omitted in
good faith by it in accordance with the written opinion or advice of
any such counsel, accountants or other such persons and not contrary to
this Agreement or any other Basic Document.
SECTION 7.05. NOT ACTING IN INDIVIDUAL CAPACITY. Except as provided in this
Article VII, in accepting the trusts hereby created THE FIRST NATIONAL BANK OF
CHICAGO acts solely as Eligible Lender Trustee hereunder and not in its
individual capacity and all Persons having any claim against the Eligible Lender
Trustee by reason of the transactions contemplated by this
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Agreement or any other Basic Document shall look only to the Trust Estate for
payment or satisfaction thereof.
Notwithstanding any other provision in this Agreement or the
other Basic Documents, nothing in this Agreement or the other Basic Documents
shall be construed to limit the legal responsibility of the Eligible Lender
Trustee or the Indenture Trustee to the U.S. Secretary of Education or a
Guarantor for any violations of statutory or regulatory requirements that may
occur with respect to loans held by the Eligible Lender Trustee or the Indenture
Trustee, pursuant to or to otherwise comply with the obligations under the
Higher Education Act or implementing regulations.
SECTION 7.06. ELIGIBLE LENDER TRUSTEE NOT LIABLE FOR TRUST
CERTIFICATES OR FINANCED STUDENT LOANS. The recitals contained herein and in the
Trust Certificates (other than the signature and countersignature of the
Eligible Lender Trustee on the Trust Certificates) shall be taken as the
statements of the Depositor and the Eligible Lender Trustee assumes no
responsibility for the correctness thereof. The Eligible Lender Trustee makes no
representations as to the validity or sufficiency of this Agreement, the Trust
Certificates or any other Basic Document (other than the signature and
countersignature of the Eligible Lender Trustee on the Trust Certificates) or
the Notes, or of any Financed Student Loan or related documents. Subject to
Section 7.07 hereof, the Eligible Lender Trustee shall at no time have any
responsibility (or liability except for willfully or negligently terminating or
allowing to be terminated any of the Guarantee Agreements, in a case where the
Eligible Lender Trustee knows of any facts or circumstances which will or could
reasonably be expected to result in any such termination) for or with respect to
the legality, validity, enforceability and eligibility for Guarantee Payments,
federal reinsurance, Interest Subsidy Payments or Special Allowance Payments, as
applicable, of any Financed Student Loan, or for or with respect to the
sufficiency of the Trust Estate or its ability to generate the payments to be
distributed to holders of the Trust Certificates under this Agreement or the
holders of the Notes under the Indenture, including: the existence and contents
of any computer or other record of any Financed Student Loan; the validity of
the assignment of any Financed Student Loan to the Eligible Lender Trustee on
behalf of the Trust; the completeness of any Financed Student Loan; the
performance or enforcement (except as expressly set forth in any Basic Document)
of any Financed Student Loan; the compliance by the Depositor or any Servicer
with any warranty or representation made under any Basic Document or in any
related document or the accuracy of any such warranty or representation or any
action or inaction of the Administrator, the Indenture Trustee or any Servicer
or any subservicer taken in the name of the Eligible Lender Trustee.
SECTION 7.07. ELIGIBLE LENDER TRUSTEE MAY OWN TRUST
CERTIFICATES AND NOTES The Eligible Lender Trustee in its individual or any
other capacity may become the owner or pledgee of Trust Certificates or Notes
and may deal with the Depositor, the Administrator, the Indenture Trustee and
any Servicer in banking transactions with the same rights as it would have if it
were not Eligible Lender Trustee.
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ARTICLE VIII
COMPENSATION OF ELIGIBLE LENDER TRUSTEE
SECTION 8.01. ELIGIBLE LENDER TRUSTEE'S FEES AND EXPENSES. The
Eligible Lender Trustee shall receive as compensation for its services hereunder
such fees as have been separately agreed upon before the date hereof between the
Depositor and the Eligible Lender Trustee, and the Eligible Lender Trustee shall
be entitled to be reimbursed by the Depositor, to the extent provided in such
separate agreement, for its other reasonable expenses hereunder.
SECTION 8.02. PAYMENTS TO THE ELIGIBLE LENDER TRUSTEE. Any
amounts paid to the Eligible Lender Trustee pursuant to Section 8.01 hereof or
pursuant to Section 6.03 or 6.04 of the Sale and Servicing Agreement shall be
deemed not to be a part of the Trust Estate immediately after such payment.
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
SECTION 9.01. TERMINATION OF TRUST AGREEMENT. (a) This
Agreement (other than Article VIII) and the Trust shall terminate and be of no
further force or effect upon the earlier of (i) the final distribution by the
Eligible Lender Trustee of all moneys or other property or proceeds of the Trust
Estate in accordance with the terms of the Indenture, the Sale and Servicing
Agreement and Article V, (ii) the expiration of 21 years from the death of the
last survivor of the descendants of Joseph P. Kennedy, the late Ambassador of
the United States to the Court of St. James, living on the date hereof, and
(iii) the time provided in Section 9.02. The bankruptcy, liquidation,
dissolution, death or incapacity of any holder of the Trust Certificates, other
than the Depositor as described in Section 9.02, shall not (x) operate to
terminate this Agreement or the Trust, nor (y) entitle such holder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of all or any part of the
Trust or Trust Estate nor (z) otherwise affect the rights, obligations and
liabilities of the parties hereto.
(b) Except as provided in Section 9.01(a), neither the
Depositor nor any holder of the Trust Certificates shall be entitled to
revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the
Distribution Date upon which the holders of the Trust Certificates
shall surrender their Trust Certificates to the Certificate Paying
Agent for payment of the final distribution and cancellation, shall be
given promptly by the Eligible Lender Trustee by letter to the holders
of the Trust Certificates mailed within five Business Days of receipt
of notice of such termination from the Administrator given pursuant to
Section 9.01(d) of the Sale and Servicing Agreement, stating (i) the
Distribution Date upon which final payment of the Trust Certificates
shall be made upon presentation and surrender of the Trust Certificates
at the office of the Certificate Paying Agent therein designated, (ii)
the amount of any such final
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payment and (iii) that the Record Date otherwise applicable to such
Distribution Date is not applicable, payments being made only upon
presentation and surrender of the Trust Certificates at the office of
the Certificate Paying Agent therein specified. The Eligible Lender
Trustee shall give such notice to the Certificate Registrar (if other
than the Eligible Lender Trustee) and the Certificate Paying Agent at
the time such notice is given to the holders of the Trust Certificates.
Upon presentation and surrender of the Trust Certificates, the
Certificate Paying Agent shall cause to be distributed to the holders
of the Trust Certificates amounts distributable to such holders on such
Distribution Date pursuant to Section 5.01.
In the event that all the holders of the Trust Certificates
shall not surrender their Trust Certificates for cancellation within six months
after the date specified in the above-mentioned written notice, the Eligible
Lender Trustee shall give a second written notice to the remaining holders of
the Trust Certificates to surrender their Trust Certificates for cancellation
and receive the final distribution with respect thereto. If within one year
after the second notice all the Trust Certificates shall not have been
surrendered for cancellation, the Eligible Lender Trustee may take appropriate
steps, or may appoint an agent to take appropriate steps, to contact the
remaining holders of the Trust Certificates concerning surrender of their Trust
Certificates, and the cost thereof shall be paid out of the funds and other
assets that shall remain subject to this Agreement. Any funds remaining in the
Trust after exhaustion of such remedies and no later than five years after the
first such notice shall be distributed by the Eligible Lender Trustee to the
Depositor.
SECTION 9.02. DISSOLUTION UPON INSOLVENCY OF THE DEPOSITOR. In
the event that an Insolvency Event shall occur with respect to the Depositor,
this Agreement shall be terminated in accordance with Section 9.01 90 days after
the date of such Insolvency Event, unless, before the end of such 90-day period,
the Eligible Lender Trustee shall have received written instructions from the
holders of the Trust Certificates (other than the Depositor) representing more
than 50% of the Certificate Balance (not including the principal amount of Trust
Certificates held by the Depositor), to the effect that each such party
disapproves of the liquidation of the Financed Student Loans and termination of
the Trust, in which event the Trust shall continue in accordance with the Basic
Documents. Promptly after the occurrence of any Insolvency Event with respect to
the Depositor, (i) the Depositor shall give the Indenture Trustee and the
Eligible Lender Trustee written notice of such Insolvency Event, (ii) the
Eligible Lender Trustee shall, upon the receipt of such written notice from the
Depositor, give prompt written notice to the holders of the Trust Certificates
and the Indenture Trustee, of the occurrence of such event and (iii) the
Indenture Trustee shall, upon receipt of written notice of such Insolvency Event
from the Eligible Lender Trustee or the Depositor, give prompt written notice to
the holders of the Notes of the occurrence of such event; PROVIDED, HOWEVER,
that any failure to give a notice required by this sentence shall not prevent or
delay, in any manner, a termination of the Trust pursuant to the first sentence
of this Section 9.02. Upon a termination pursuant to this Section, the Eligible
Lender Trustee shall direct the Indenture Trustee promptly to sell the assets of
the Trust (other than the Trust Accounts) in a commercially reasonable manner
and on commercially reasonable terms.
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<PAGE> 28
ARTICLE X
SUCCESSOR ELIGIBLE LENDER TRUSTEES AND
ADDITIONAL ELIGIBLE LENDER TRUSTEES
SECTION 10.01. ELIGIBILITY REQUIREMENTS FOR ELIGIBLE LENDER
TRUSTEE. The Eligible Lender Trustee shall at all times be a corporation or
association (i) qualifying as an "eligible lender" as such term is defined in
Section 435(d) of the Higher Education Act for purposes of holding legal title
to the Financed Student Loans on behalf of the Trust, with a valid lender
identification number with respect to the Trust from the Department; (ii) being
authorized to exercise corporate trust powers and hold legal title to the
Financed Student Loans; (iii) having in effect Guarantee Agreements with each of
the Guarantors; (iv) having a combined capital and surplus of at least
$50,000,000 and being subject to supervision or examination by Federal or state
authorities; (v) incorporated or authorized to do business in the State of New
York or which is a national bank having an office located within the State of
New York; and (vi) having (or having a parent which has) a rating of at least
Baa3 by Moody's. If the Eligible Lender Trustee shall publish reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purpose of this
Section, the combined capital and surplus of the Eligible Lender Trustee shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time the Eligible Lender
Trustee shall cease to be eligible in accordance with the provisions of this
Section, the Eligible Lender Trustee shall resign immediately in the manner and
with the effect specified in Section 10.02.
SECTION 10.02. RESIGNATION OR REMOVAL OF ELIGIBLE LENDER
TRUSTEE. The Eligible Lender Trustee may at any time resign and be discharged
from the trusts hereby created by giving written notice thereof to the
Administrator. Upon receiving such notice of resignation, the Administrator
shall promptly appoint a successor Eligible Lender Trustee meeting the
eligibility requirements of Section 10.01 by written instrument, in duplicate,
one copy of which instrument shall be delivered to the resigning Eligible Lender
Trustee and one copy to the successor Eligible Lender Trustee. If no successor
Eligible Lender Trustee shall have been so appointed and have accepted
appointment within 30 days after the giving of such notice of resignation, the
resigning Eligible Lender Trustee may petition any court of competent
jurisdiction for the appointment of a successor Eligible Lender Trustee;
PROVIDED, HOWEVER, that such right to appoint or to petition for the appointment
of any such successor shall in no event relieve the resigning Eligible Lender
Trustee from any obligations otherwise imposed on it under the Basic Documents
until such successor has in fact assumed such appointment.
If at any time the Eligible Lender Trustee shall cease to be
eligible in accordance with the provisions of Section 10.01 and shall fail to
resign after written request therefor by the Administrator, or if at any time an
Insolvency Event with respect to the Eligible Lender Trustee shall have occurred
and be continuing, then the Administrator may remove the Eligible Lender
Trustee. If the Administrator shall remove the Eligible Lender Trustee under the
authority of the immediately preceding sentence, the Administrator shall
promptly appoint a successor Eligible
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<PAGE> 29
Lender Trustee by written instrument, in duplicate, one copy of which instrument
shall be delivered to the outgoing Eligible Lender Trustee so removed and one
copy to the successor Eligible Lender Trustee and payment of all fees owed to
the outgoing Eligible Lender Trustee.
Any resignation or removal of the Eligible Lender Trustee and
appointment of a successor Eligible Lender Trustee pursuant to any of the
provisions of this Section shall not become effective until acceptance of
appointment by the successor Eligible Lender Trustee pursuant to Section 10.03
and payment of all fees and expenses owed to the outgoing Eligible Lender
Trustee. The Administrator shall provide notice of such resignation or removal
of the Eligible Lender Trustee to each of the Rating Agencies.
SECTION 10.03. SUCCESSOR ELIGIBLE LENDER TRUSTEE. Any
successor Eligible Lender Trustee appointed pursuant to Section 10.02 shall
execute, acknowledge and deliver to the Administrator and to its predecessor
Eligible Lender Trustee an instrument accepting such appointment under this
Agreement, and thereupon the resignation or removal of the predecessor Eligible
Lender Trustee shall become effective and such successor Eligible Lender
Trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor under
this Agreement, with like effect as if originally named as Eligible Lender
Trustee. The predecessor Eligible Lender Trustee shall upon payment of its fees
and expenses deliver to the successor Eligible Lender Trustee all documents,
statements, moneys and properties held by it under this Agreement and shall
assign, if permissible, to the successor Eligible Lender Trustee the lender
identification number obtained from the Department on behalf of the Trust; and
the Administrator and the predecessor Eligible Lender Trustee shall execute and
deliver such instruments and do such other things as may reasonably be required
for fully and certainly vesting and confirming in the successor Eligible Lender
Trustee all such rights, powers, duties and obligations.
No successor Eligible Lender Trustee shall accept appointment
as provided in this Section unless at the time of such acceptance such successor
Eligible Lender Trustee shall be eligible pursuant to Section 10.01.
Upon acceptance of appointment by a successor Eligible Lender
Trustee pursuant to this Section, the Administrator shall mail notice of the
successor of such Eligible Lender Trustee to all holders of the Trust
Certificates, the Indenture Trustee, all holders of the Notes and the Rating
Agencies. If the Administrator shall fail to mail such notice within 10 days
after acceptance of appointment by the successor Eligible Lender Trustee, the
successor Eligible Lender Trustee shall cause such notice to be mailed at the
expense of the Administrator.
SECTION 10.04. MERGER OR CONSOLIDATION OF ELIGIBLE LENDER
TRUSTEE. Any corporation into which the Eligible Lender Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Eligible Lender
Trustee shall be a party, or any corporation succeeding to all or substantially
all the corporate trust business of the Eligible Lender Trustee, shall, without
the execution or filing of any instrument or any further act on the part of any
of the parties hereto, anything herein to the contrary notwithstanding, be the
successor of the Eligible Lender Trustee
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<PAGE> 30
hereunder; PROVIDED that such corporation shall be eligible pursuant to Section
10.01; PROVIDED FURTHER that the Eligible Lender Trustee shall mail notice of
such merger or consolidation to the Rating Agencies.
SECTION 10.05. APPOINTMENT OF CO-ELIGIBLE LENDER TRUSTEE OR
SEPARATE ELIGIBLE LENDER TRUSTEE Notwithstanding any other provisions of this
Agreement, at any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust may at the time be located, the
Administrator and the Eligible Lender Trustee acting jointly shall have the
power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Eligible Lender Trustee, meeting the eligibility
requirements of clauses (i) through (iii) of Section 10.01, to act as
co-trustee, jointly with the Eligible Lender Trustee, or separate trustee or
separate trustees, of all or any part of the Trust Estate, and to vest in such
Person, in such capacity, such title to the Trust Estate, or any part thereof,
and, subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Administrator and the Eligible Lender
Trustee may consider necessary or desirable. If the Administrator shall not have
joined in such appointment within 15 days after the receipt by it of a request
so to do, the Eligible Lender Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor trustee pursuant to
clauses (iv) and (v) of Section 10.01 and no notice of the appointment of any
co-trustee or separate trustee shall be required pursuant to Section 10.03.
Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties, and obligations conferred or
imposed upon the Eligible Lender Trustee shall be conferred upon and
exercised or performed by the Eligible Lender Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without the
Eligible Lender Trustee joining in such act), except to the extent that
under any law of any jurisdiction in which any particular act or acts
are to be performed, the Eligible Lender Trustee shall be incompetent
or unqualified to perform such act or acts, in which event such rights,
powers, duties, and obligations (including the holding of title to the
Trust or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee,
solely at the direction of the Eligible Lender Trustee;
(ii) no trustee under this Agreement shall be personally liable
by reason of any act or omission of any other trustee under this
Agreement; and
(iii) the Administrator and the Eligible Lender Trustee acting
jointly may at any time accept the resignation of or remove any
separate trustee or co-trustee.
Any notice, request or other writing given to the Eligible
Lender Trustee shall be deemed to have been given to each of the then separate
trustees and co-trustees, as effectively as
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<PAGE> 31
if given to each of them. Every instrument appointing any separate trustee or
co-trustee shall refer to this Agreement and the conditions of this Article.
Each separate trustee and co-trustee, upon its acceptance of the trusts
conferred, shall be vested with the estates or property specified in its
instrument of appointment, either jointly with the Eligible Lender Trustee or
separately, as may be provided therein, subject to all the provisions of this
Agreement, specifically including every provision of this Agreement relating to
the conduct of, affecting the liability of, or affording protection to, the
Eligible Lender Trustee. Each such instrument shall be filed with the Eligible
Lender Trustee and a copy thereof given to the Administrator.
Any separate trustee or co-trustee may at any time appoint the
Eligible Lender Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Eligible Lender Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. SUPPLEMENTS AND AMENDMENTS. This Agreement may
be amended by the Depositor and the Eligible Lender Trustee, with prior written
notice to the Rating Agencies, without the consent of any of the holders of the
Notes or the holders of the Trust Certificates, to cure any ambiguity, to
correct or supplement any provisions in this Agreement or for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions in this Agreement or of modifying in any manner the rights of the
holders of the Notes or the holders of the Trust Certificates; PROVIDED,
HOWEVER, that such action shall not, as evidenced by an Opinion of Counsel,
adversely affect in any material respect the interests of any holder of the
Notes or holder of the Trust Certificates.
This Agreement may also be amended from time to time by the
Depositor and the Eligible Lender Trustee, with prior written notice to the
Rating Agencies, (i) with the consent of the holders of Notes evidencing not
less than a majority of the Outstanding Amount of the Notes and (ii) with the
consent of the holders of the Trust Certificates evidencing not less than a
majority of the Certificate Balance for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or of modifying in any manner the rights of the holders of the Notes or the
holders of the Trust Certificates; PROVIDED, HOWEVER, that no such amendment
shall (a) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments on Financed Student Loans or
distributions that shall be required to be made for the benefit of the holders
of any class of Notes or the holders of any class of Trust Certificates or (b)
reduce the aforesaid percentage of the Outstanding Amount of the Notes and the
Certificate Balances required to consent to any such
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<PAGE> 32
amendment, without the consent of all the outstanding holders of the Notes and
holders of the Trust Certificates.
Promptly after the execution of any such amendment or consent,
the Eligible Lender Trustee shall furnish written notification of the substance
of such amendment or consent to each holder of the Trust Certificates, the
Indenture Trustee and each of the Rating Agencies.
It shall not be necessary for the consent of the holders of
the Trust Certificates, the holders of the Notes or the Indenture Trustee
pursuant to this Section to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents (and any other
consents of the holders of the Trust Certificates provided for in this Agreement
or in any other Basic Document) and of evidencing the authorization of the
execution thereof by holders of the Trust Certificates shall be subject to such
reasonable requirements as the Eligible Lender Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, the
Eligible Lender Trustee shall be entitled to receive and rely upon an Opinion of
Counsel stating that the execution of such amendment is authorized or permitted
by this Agreement. The Eligible Lender Trustee may, but shall not be obligated
to, enter into any such amendment which affects the Eligible Lender Trustee's
own rights, duties or immunities under this Agreement or otherwise.
SECTION 11.02. NO LEGAL TITLE TO TRUST ESTATE IN
CERTIFICATEHOLDERS. The holders of the Trust Certificates shall not have legal
title to any part of the Trust Estate. The holders of the Trust Certificates
shall be entitled to receive distributions with respect to their undivided
beneficial ownership interest therein only in accordance with Articles V and IX.
No transfer, by operation of law or otherwise, of any right, title, or interest
of the holders of the Trust Certificates to and in their beneficial ownership
interest in the Trust Estate shall operate to terminate this Agreement or the
trusts hereunder or entitle any transferee to an accounting or to the transfer
to it of legal title to any part of the Trust Estate.
SECTION 11.03. LIMITATIONS ON RIGHTS OF OTHERS. Except for
Section 2.07, the provisions of this Agreement are solely for the benefit of the
Eligible Lender Trustee, the Depositor, the holders of the Trust Certificates,
the Administrator and, to the extent expressly provided herein, the Indenture
Trustee and the holders of the Notes, and nothing in this Agreement (other than
Section 2.07), whether express or implied, shall be construed to give to any
other Person any legal or equitable right, remedy or claim in the Trust Estate
or under or in respect of this Agreement or any covenants, conditions or
provisions contained herein.
SECTION 11.04. NOTICES. (a) Unless otherwise expressly
specified or permitted by the terms hereof, all notices shall be in writing and
shall be deemed given upon receipt by the intended recipient or three Business
Days after mailing if mailed by certified mail, postage prepaid (except that
notice to the Eligible Lender Trustee shall be deemed given only upon actual
receipt by the Eligible Lender Trustee), if to the Eligible Lender Trustee,
addressed to its Corporate Trust Office; if to the Depositor, addressed to Key
Bank USA, National Association,
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<PAGE> 33
800 Superior Avenue, Cleveland, Ohio 44114, Attention: Senior Vice President,
Education Lending, or, as to each party, at such other address as shall be
designated by such party in a written notice to each other party.
(b) Any notice required or permitted to be given to a holder
of the Trust Certificates shall be given by first-class mail, postage
prepaid, at the address of such holder as shown in the Certificate
Register. Any notice so mailed within the time prescribed in this
Agreement shall be conclusively presumed to have been duly given,
whether or not such holder receives such notice.
SECTION 11.05. SEVERABILITY. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 11.06. SEPARATE COUNTERPARTS. This Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 11.07. SUCCESSORS AND ASSIGNS. All covenants and
agreements contained herein shall be binding upon, and inure to the benefit of,
the Depositor and its successors, the Eligible Lender Trustee and its
successors, each holder of the Trust Certificates and its successors and
permitted assigns, all as herein provided. Any request, notice, direction,
consent, waiver or other instrument or action by a holder of the Trust
Certificates shall bind the successors and assigns of such holder.
SECTION 11.08. NO PETITION. (a) The Depositor will not at any
time institute against the Trust any bankruptcy proceedings under any United
States Federal or state bankruptcy or similar law in connection with any
obligations relating to the Trust Certificates, the Notes, this Agreement or any
of the other Basic Documents.
(b) The Eligible Lender Trustee (not in its individual
capacity but solely as Eligible Lender Trustee), by entering into this
Agreement, each holder of the Trust Certificates, by accepting a Trust
Certificate, and the Indenture Trustee and each holder of the Notes by
accepting the benefits of this Agreement, hereby covenant and agree
that they will not at any time institute against the Depositor or the
Trust, or join in any institution against the Depositor or the Trust
of, any bankruptcy, reorganization, arrangement, insolvency,
receivership or liquidation proceedings, or other proceedings under any
United States Federal or state bankruptcy or similar law in connection
with any obligations relating to the Trust Certificates, the Notes,
this Agreement or any of the other Basic Documents.
SECTION 11.09. NO RECOURSE. Each holder of the Trust
Certificates by accepting a Trust Certificate acknowledges that such holder's
Trust Certificates represent beneficial interests in the Trust only and do not
represent interests in or obligations of the Seller,
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<PAGE> 34
any Servicer, the Administrator, the Eligible Lender Trustee, the Indenture
Trustee or any Affiliate thereof or any officer, director or employee of any
thereof and no recourse may be had against such parties or their assets, except
as may be expressly set forth or contemplated in this Agreement, the Trust
Certificates or the other Basic Documents.
SECTION 11.10. HEADINGS. The headings of the various Articles
and Sections herein are for convenience of reference only and shall not define
or limit any of the terms or provisions hereof.
SECTION 11.11. GOVERNING LAW. This Agreement shall be
construed in accordance with the laws of the State of New York, without
reference to its conflict of law provisions, and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance with such
laws.
IN WITNESS WHEREOF, the parties hereto have caused this
Amended and Restated Trust Agreement to be duly executed by their respective
officers hereunto duly authorized, as of the day and year first above written.
THE FIRST NATIONAL BANK OF CHICAGO, not in
its individual capacity but solely as
Eligible Lender Trustee,
By:_________________________________
Name:
Title:
KEY BANK USA, NATIONAL ASSOCIATION,
Depositor,
By:_________________________________
Name:
Title:
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<PAGE> 35
EXHIBIT A
TO THE TRUST AGREEMENT
[FORM OF TRUST CERTIFICATE]
SEE REVERSE FOR CERTAIN DEFINITIONS
Unless this Trust Certificate is presented by an authorized
representative of The Depository Trust Company, a New York Corporation ("DTC"),
to the Issuer (as defined below) or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or in such other name as is requested by an authorized representative
of DTC (and any payment is made to Cede & Co. or to such other entity as is
requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as
the registered owner hereof, Cede & Co., has an interest herein.
THIS TRUST CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF A
BENEFIT PLAN (AS DEFINED BELOW). THIS CERTIFICATE IS NOT GUARANTEED OR INSURED
BY ANY GOVERNMENTAL AGENCY.
[THIS TRUST CERTIFICATE IS NONTRANSFERABLE.](1)
NUMBER
R- $___________
CUSIP NO.
KEYCORP STUDENT LOAN TRUST 1999-A
FLOATING RATE ASSET BACKED CERTIFICATE
evidencing a fractional undivided interest in the Trust, as defined
below, the property of which includes a pool of law school, medical
school, dental school, graduate business school and other graduate
school student loans sold to the Trust by Key Bank USA, National
Association.
(This Trust Certificate does not represent an interest in or obligation
of Key Bank USA, National Association, the Servicer (as defined below),
the Eligible Lender Trustee (as defined below) or any of their
respective affiliates, except to the extent described below.)
______________________
(1) To be included only on the Certificates issued to the Seller (as
defined below) on the Closing Date and any Certificates issued in
exchange therefor.
1
<PAGE> 36
THIS CERTIFIES THAT is the registered owner of
dollars nonassessable, fully-paid, fractional undivided interest
in the KeyCorp Student Loan Trust 1999-A (the "Trust"), a trust formed under the
laws of the State of New York by Key Bank USA, National Association, a national
banking association (the "Seller"). The Trust was created pursuant to a Trust
Agreement dated as of July 13, 1998, as amended and restated as of January 1,
1999 (the "Trust Agreement"), between the Seller and The First National Bank of
Chicago, a national banking association, not in its individual capacity but
solely as eligible lender trustee on behalf of the Trust (the "Eligible Lender
Trustee"), a summary of certain of the pertinent provisions of which is set
forth below. To the extent not otherwise defined herein, the capitalized terms
used herein have the meanings assigned to them in Appendix A to the Sale and
Servicing Agreement (the "Sale and Servicing Agreement") dated as of January 1,
1999, among the Trust, the Eligible Lender Trustee, the Seller, Pennsylvania
Higher Education Assistance Agency, as servicer ( "Servicer"), EFS Services,
Inc., as servicer ("Servicer"), and Key Bank USA, National Association, as
administrator (the "Administrator"); such Appendix A also contains rules as to
usage that shall be applicable herein.
This Certificate is one of the duly authorized Certificates
designated as "Floating Rate Asset Backed Certificates" (herein called the
"Trust Certificates"). Issued under the Indenture dated as of January 1, 1999,
between the Trust and Bankers Trust Company, as Indenture Trustee, are Notes
designated as "Floating Rate Asset Backed Notes" (the "Notes"). This Trust
Certificate is issued under and is subject to the terms, provisions and
conditions of the Trust Agreement, to which Trust Agreement the holder of this
Trust Certificate by virtue of the acceptance hereof assents and by which such
holder is bound. The property of the Trust includes a pool of law school,
medical school, dental school, graduate business school and other graduate
school student loans (the "Financed Student Loans"), all moneys paid thereunder
(except from the proceeds on any Guarantee Payments made by TERI) on or after
January 1, 1999 (or, in the case of Financed Student Loans that constitute
Additional Student Loans, on or after the respective Subsequent Cutoff Dates),
certain bank accounts and the proceeds thereof and certain other rights under
the Trust Agreement and the Sale and Servicing Agreement and all proceeds of the
foregoing. The rights of the holders of the Trust Certificates to the assets of
the Trust are subordinated to the rights of the holders of the Notes, as set
forth in the Sale and Servicing Agreement.
Under the Trust Agreement, to the extent of funds available
therefor, interest on the Certificate Balance of this Trust Certificate at the
Certificate Rate for this Trust Certificate, and principal and certain other
amounts will be distributed on the twenty-seventh day of each March, June,
September and December (or, if such twenty-seventh day is not a Business Day,
the next succeeding Business Day) (each a "Distribution Date"), commencing on
June 28, 1999 to the person in whose name this Trust Certificate is registered
at the close of business on the twenty-sixth day of the calendar month in which
such Distribution Date occurs (the "Record Date"), in each case to the extent of
such holder's fractional undivided interest in the amount or amounts to be
distributed to the holders of the Trust Certificates on such Distribution Date
pursuant to the Sale and Servicing Agreement.
<PAGE> 37
The Trust Certificates may be paid in part, in certain
circumstances on a pro rata basis among all holders of Securities, on June 28,
1999 to the extent the Subsequent Pool Pre-Funded Amount is greater than
$10,000,000 as of the Special Determination Date after giving effect to the
purchase of any Subsequent Pool Student Loans on such date.
Each holder of this Trust Certificate acknowledges and agrees
that its rights to receive distributions in respect of this Trust Certificate
from Available Funds and amounts on deposit in the Reserve Account are
subordinated to the rights of the holders of the Notes as described in the Sale
and Servicing Agreement and the Indenture.
It is the intent of the Seller, each Servicer, the
Administrator, the holders of the Trust Certificates and the Certificate Owners
that, for purposes of Federal income, state and local income and franchise and
any other income taxes, the Trust will be treated as a partnership and the
holders of the Trust Certificates (including the Depositor in its capacity as
recipient of distributions from the Reserve Account) will be treated as partners
in that partnership. The Depositor and the other holders of the Trust
Certificates by acceptance of a Trust Certificate (and the Certificate Owners by
acceptance of a beneficial interest in a Trust Certificate), agree to treat, and
to take no action inconsistent with the treatment of, the Trust Certificates for
such tax purposes as partnership interests in the Trust.
Each holder of a Trust Certificate or Certificate Owner, by
its acceptance of a Trust Certificate or, in the case of a Certificate Owner, a
beneficial interest in a Trust Certificate, covenants and agrees that such
holder or Certificate Owner, as the case may be, will not at any time institute
against the Seller or the Trust, or join in any institution against the Seller
or the Trust of, any bankruptcy, reorganization, arrangement, insolvency,
receivership or liquidation proceedings, or other proceedings under any United
States Federal or state bankruptcy or similar law in connection with any
obligations relating to the Trust Certificates, the Notes, the Trust Agreement
or any of the other Basic Documents.
The Trust Certificates do not represent an obligation of, or
an interest in, the Seller, any Servicer, the Administrator, the Eligible Lender
Trustee or any affiliates of any of them, and no recourse may be had against
such parties or their assets, except as may be expressly set forth or
contemplated herein, in the Trust Agreement or in the other Basic Documents. In
addition, this Trust Certificate is not guaranteed by any governmental agency or
instrumentality and is limited in right of payment to certain collections with
respect to the Financed Student Loans, all as more specifically set forth in the
Sale and Servicing Agreement. A copy of each of the Sale and Servicing Agreement
and the Trust Agreement may be examined during normal business hours at the
principal office of the Seller, and at such other places, if any, designated by
the Seller, by any holder of the Trust Certificates upon request.
The Trust Certificates (including any beneficial interests
therein) may not be acquired by or for the account of (i) an employee benefit
plan (as defined in Section 3(3) of ERISA) that is subject to the provisions of
Title I of ERISA, (ii) an individual retirement account described in Section
408(a) of the Internal Revenue Code of 1986, as amended, or (iii) any entity
whose underlying assets include plan assets by reason of a plan's investment in
the entity (each, a
<PAGE> 38
"Benefit Plan"). By accepting and holding this Trust Certificate, the Holder
hereof shall be deemed to have represented and warranted that it is not a
Benefit Plan.
This Trust Certificate shall be construed in accordance with
the laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
shall be determined in accordance with such laws.
Unless the certificate of authentication hereon shall have
been executed by an authorized officer of the Eligible Lender Trustee or its
authenticating agent, by manual signature, this Trust Certificate shall not
entitle the holder hereof to any benefit under the Trust Agreement or the Sale
and Servicing Agreement or be valid for any purpose.
IN WITNESS WHEREOF, the Eligible Lender Trustee on behalf of
the Trust and not in its individual capacity has caused this Trust Certificate
to be duly executed as of the date set forth below.
KEYCORP STUDENT LOAN TRUST 1999-A
By: THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity but
solely as Eligible Lender Trustee,
By:
-----------------------------
Authorized Signatory
Date: February __, 1999
<PAGE> 39
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Trust Certificates referred to in the within-mentioned Trust
Agreement.
THE FIRST NATIONAL BANK OF CHICAGO, not in
its individual capacity but solely as
Eligible Lender Trustee,
By:
--------------------------------------
Authorized Signatory
OR
THE FIRST NATIONAL BANK OF CHICAGO, not in
its individual capacity but solely as
Eligible Lender Trustee,
By: FIRST CHICAGO TRUST COMPANY OF
NEW YORK, as Authenticating Agent,
By:
--------------------------------------
Authorized Signatory
Date: February __, 1999
<PAGE> 40
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
________________________________________________________________________________
the within Trust Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
_____________________________________Attorney to transfer said Trust Certificate
on the books of the Certificate Registrar, with full power of substitution in
the premises.
Dated:
__________________*
Signature Guaranteed:
__________________*
* NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Trust Certificate in every particular,
without alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
<PAGE> 1
Exhibit 8.1
[Thompson Hine & Flory LLP Letterhead]
January 26, 1999
Key Bank USA, National Association
Key Tower
127 Public Square
Cleveland, Ohio 44114-1306
Re: Key Bank USA, National Association Registration Statement on Form S-3
(No. 333-58073)
Ladies and Gentlemen:
We have acted as special tax counsel for Key Bank USA, National Association (the
"Seller"), in connection with the above-referenced Registration Statement
(together with the exhibits and any amendments thereto, the "Registration
Statement"), filed by the Seller with the Securities and Exchange Commission in
connection with the registration by the Seller of Asset Backed Notes (the
"Notes") and Asset Backed Certificates (the "Certificates") to be sold from time
to time in one or more series in amounts to be determined at the time of sale
and to be set forth in one or more Supplements (each, a "Prospectus Supplement")
to the Prospectus (the "Prospectus") included in the Registration Statement.
We are familiar with the proceedings to date in connection with the proposed
issuance and sale of the Notes and Certificates and in order to express our
opinion hereinafter stated, (a) we have examined copies of the forms of (i) the
Amended and Restated Trust Agreement, (ii) the Sale and Servicing Agreement,
(iii) the Supplemental Sale and Servicing Agreement, (iv) the Indenture, and (v)
the Notes and Certificates filed as exhibits to the Registration Statement
(collectively the "Operative Documents") and (b) we have examined such other
records and documents and such matters of law, and we have satisfied ourselves
as to such matters of fact, as we have considered relevant for purposes of this
opinion.
The opinions set forth in this letter concerning Federal income tax matters and
ERISA matters are 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")
including those contained in published Revenue Rulings and Revenue Procedures,
the applicable provisions of the Employee Retirement Income Security Act of
1974, as amended, Department of Labor ("DOL") Regulations promulgated
thereunder, prohibited transaction exemptions granted by the DOL, and existing
judicial decisions. This opinion is subject to the explanations and
qualifications set forth under the captions "Income Tax Consequences" and "ERISA
Considerations" in the
<PAGE> 2
Key Bank USA, National Association
January 26, 1999
Page 2
Prospectus and the Prospectus Supplements which constitute a part of the
Registration Statement.
Based on the foregoing and assuming that the Operative Documents are executed
and delivered in substantially the form we have examined, we hereby confirm our
opinion with respect to the Federal income tax characterization of the
Certificates and the Notes and the Federal income tax treatment of the issuance
of such Certificates and Notes set forth under the caption "Income Tax
Consequences" in the Prospectus and each Prospectus Supplement. In our opinion,
for Federal income tax purposes, the Notes will be characterized as debt, and
the Trust will not be classified as a separate entity that is an association (or
publicly traded partnership) taxable as a corporation. Moreover, we are of the
opinion that the statements regarding federal income tax matters and ERISA
matters set forth in the Prospectus and the Prospectus Supplements under the
headings "Summary of Terms -- Tax Considerations", "Summary of Terms -- ERISA
Considerations," "Income Tax Consequences" and "ERISA Considerations" are a fair
and accurate summary of the material federal income tax and ERISA consequences
of the issuance of the holding of the Notes and the Certificates. There can be
no assurance, however, that the legal conclusions presented therein will not be
successfully challenged by the relevant administrative authorities, or
significantly altered by new legislation, changes in administrative positions,
or judicial decisions, any of which challenges or alterations may be applied
retroactively with respect to completed transactions.
We note that the Prospectus does not relate to a specific transaction.
Accordingly, the above-referenced description of federal income tax consequences
and ERISA considerations may, under certain circumstances, require modification
in the context of an actual transaction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Prospectus and
Prospectus Supplements under the caption "Income Tax Consequences" and "Legal
Opinions."
Very truly yours,
/s/ Thompson Hine & Flory LLP
<PAGE> 1
EXHIBIT 8.2
January 25, 1999
Key Bank USA, National Association
127 Public Square
Cleveland, Ohio 44114
RE: KEYCORP STUDENT LOAN TRUST 1999-A
FLOATING RATE ASSET BACKED NOTES
AND FLOATING RATE ASSET BACKED CERTIFICATES
Ladies & Gentlemen:
We have been retained by KeyCorp Student Loan Trust 1999-A (the "Trust")
and Key Bank USA, National Association ("Key Bank") as special Pennsylvania tax
counsel to render an opinion as to certain Pennsylvania tax consequences in
connection with the issuance and sale of Floating Rate Asset Backed Notes (the
"Notes"), to be issued pursuant to the Indenture, dated as of January 1, 1999,
between the Trust and Bankers Trust Company, as Trustee; and the issuance and
sale of Floating Rate Asset Backed Certificates (the "Certificates") to be
issued pursuant to the Amended and Restated Trust Agreement, dated as of
January 1, 1999, between Key Bank and The First National Bank of Chicago, as
Eligible Lender Trustee.
In rendering this opinion, we have examined the preliminary Prospectus
(the "Prospectus") included as part of the Registration Statement on Form S-3
(Registration No.: 333-58073), as amended, as filed with the Securities and
Exchange Commission (the "Registration Statement"), the Pennsylvania Tax Reform
Code of 1972, as amended (the "Code"), Regulations promulgated under the Code,
Pennsylvania Department of Revenue rulings, judicial decisions, and such other
documents, records, and questions of law, as we have deemed necessary or
appropriate for the purposes of this opinion. All capitalized terms used herein
and not otherwise defined have the respective meanings specified in the
Prospectus.
Based upon our examination of the Prospectus and subject to the
assumptions, exceptions, limitations and qualifications set forth in said
Prospectus and herein, if the transactions are consummated in accordance with
the terms of the Prospectus (and without any waiver, breach or amendment of any
of the provisions thereof), we are of the opinion that the statements set forth
in the Prospectus under the headings "Pennsylvania Income and Franchise Tax
Consequences with Respect to the Notes" and "Pennsylvania Income and Franchise
Tax Consequences with Respect to the Certificates" as attached hereto and
incorporated herein by
<PAGE> 2
Key Bank USA, National Association
Page 2
reference accurately reflect our opinion.
This opinion is based on the Code, Regulations promulgated under the Code,
Pennsylvania Department of Revenue rulings, judicial decisions, and the
applicable authority, all as in effect on the date of this opinion. The legal
authorities on which this opinion is based may be changed at any time. Any
such changes may be retroactively applied and could modify the opinions
expressed above. This opinion is limited solely to the Pennsylvania state tax
consequences of the Notes and Certificates set forth in the Prospectus and does
not address any other tax consideration under foreign, federal, local or other
Pennsylvania law.
We hereby consent to the references in the Prospectus to the fact that
this opinion has been rendered and will be included as an exhibit to the
Registration Statement. We undertake no responsibility to update this opinion.
This opinion is being furnished to you specifically in connection with the
Notes and Certificates being offered under the Prospectus, and solely for your
information and benefit. It may not be relied on by you in any other connection,
and it may not be relied on by any other person for any purpose. This opinion
may not be assigned, used or quoted, other than in the Prospectus, without our
prior written consent.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
<PAGE> 1
EXHIBIT 10.1
SALE AND SERVICING AGREEMENT
among
KEYCORP STUDENT LOAN TRUST 1999-A
as Issuer,
KEY BANK USA, NATIONAL ASSOCIATION
as Seller,
PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY
as Servicer,
EFS SERVICES, INC.,
as Servicer,
THE FIRST NATIONAL BANK OF CHICAGO
not in its individual capacity but solely
as Eligible Lender Trustee,
AND
KEY BANK USA, NATIONAL ASSOCIATION
as Administrator
Dated as of January 1, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Definitions and Usage.......................................................................1
ARTICLE II Conveyance of Financed Student Loans........................................................2
SECTION 2.01. Conveyance of Initial Financed Student Loans......................................2
SECTION 2.02. Conveyance of Subsequent Pool Student Loans and Other Subsequent Student
Loans.............................................................................2
SECTION 2.02A. Conveyance of Other Student Loans.................................................5
SECTION 2.03. Conveyance of Financed Federal Loans and Financed Private Loans by the
Eligible Lender Trustee to the Seller in Connection with Consolidation
Loans.............................................................................6
SECTION 2.04. Endorsement.......................................................................7
ARTICLE III The Financed Student Loans..................................................................7
SECTION 3.01. Representations and Warranties of Seller with Respect to the Financed
Student Loans.....................................................................7
SECTION 3.02. Repurchase upon Breach; Reimbursement............................................10
SECTION 3.03. Custody of Financed Student Loan Files...........................................11
SECTION 3.04. Duties of Servicer as Custodian..................................................12
-
SECTION 3.05. Instructions; Authority To Act...................................................12
SECTION 3.06. Custodian's Indemnification......................................................12
SECTION 3.07. Effective Period and Termination.................................................13
SECTION 3.08. Schedule of Financed Student Loans...............................................13
ARTICLE IV Administration and Servicing of Financed Student Loans...............................................13
SECTION 4.01. Duties of Servicers..............................................................13
SECTION 4.02. Collection of Financed Student Loan Payments.....................................15
-
SECTION 4.03. Realization upon Financed Student Loans..........................................17
SECTION 4.04. Computation of Note Interest Rate and Certificate Rate...........................17
-
SECTION 4.05. No Impairment....................................................................17
SECTION 4.06. Purchase of Financed Student Loans; Reimbursement................................17
-
SECTION 4.07. Servicing Fee; Excess Servicing Fee..............................................18
SECTION 4.08. Administrator's Certificate; Servicer's Report...................................18
SECTION 4.09. Annual Statement as to Compliance; Notice of Default.............................19
SECTION 4.10. Annual Independent Certified Public Accountants' Report..........................20
SECTION 4.11. Access to Certain Documentation and Information Regarding Financed
Student Loans....................................................................21
SECTION 4.12. Servicer and Administrator Expenses..............................................21
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
SECTION 4.13. Appointment of Subservicer.......................................................21
SECTION 4.14. Special Programs.................................................................21
ARTICLE V Distributions; Reserve Account; Statements to Certificateholders and Noteholders...........22
SECTION 5.01. Establishment of Trust Accounts..................................................22
SECTION 5.02. Collections......................................................................24
SECTION 5.03. Application of Collections.......................................................24
SECTION 5.04. Additional Deposits..............................................................25
SECTION 5.05. Distributions....................................................................25
SECTION 5.06. Reserve Account..................................................................27
SECTION 5.07. Statements to Certificateholders and Noteholders.................................29
SECTION 5.08. Pre-Funding Account..............................................................31
SECTION 5.09. Negative Carry Initial Deposit...................................................34
ARTICLE VI The Seller and the Administrator.....................................................................34
SECTION 6.01. Representations of Seller and Administrator......................................34
-
SECTION 6.02. Existence........................................................................36
SECTION 6.03. Liability of Seller; Indemnities.................................................36
SECTION 6.04. Liability of Administrator; Indemnities..........................................37
SECTION 6.05. Merger or Consolidation of, or Assumption of the Obligations of, Seller
or Administrator.................................................................38
SECTION 6.06. Limitation on Liability of Seller, Administrator and Others......................39
SECTION 6.07. Seller May Own Certificates or Notes.............................................40
SECTION 6.08. Key Bank USA, National Association Not To Resign as Administrator................40
ARTICLE VII The Servicer...............................................................................40
SECTION 7.01. Representations of Servicer......................................................40
SECTION 7.02. Indemnities of Servicer..........................................................42
SECTION 7.03. Merger or Consolidation of, or Assumption of the Obligations of, Servicer........43
SECTION 7.04. Limitation on Liability of Servicer and Others...................................43
-
SECTION 7.05. Neither PHEAA Nor EFS To Resign as Servicer......................................44
-
ARTICLE VIII Default....................................................................................44
SECTION 8.01. Servicer Default; Administrator Default..........................................44
-
SECTION 8.02. Appointment of Successor.........................................................47
SECTION 8.03. Notification to Noteholders and Certificateholders...............................48
-
SECTION 8.04. Waiver of Past Defaults..........................................................48
ARTICLE IX Termination................................................................................48
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
SECTION 9.01. Termination......................................................................48
ARTICLE X [Reserved].............................................................................................51
ARTICLE XI Miscellaneous........................................................................................51
SECTION 11.01. Amendment........................................................................51
SECTION 11.02. Protection of Interests in Trust.................................................52
SECTION 11.03. Notices..........................................................................54
SECTION 11.04. Assignment.......................................................................55
SECTION 11.05. Limitations on Rights of Others..................................................55
SECTION 11.06. Severability.....................................................................55
SECTION 11.07. Separate Counterparts............................................................55
SECTION 11.08. Headings.........................................................................55
SECTION 11.09. Governing Law....................................................................55
SECTION 11.10. Assignment to Indenture Trustee..................................................55
SECTION 11.11 Nonpetition Covenants............................................................56
SECTION 11.12. Limitation of Liability of Eligible Lender Trustee and Indenture Trustee.........56
APPENDIX A Definitions and Usage
SCHEDULE A Schedule of Financed Student Loans
SCHEDULE B Schedule of Subsequent Pool Student Loans
SCHEDULE C Location of Financed Student Loan Files
SCHEDULE D Provisions to be Audited Regarding
Servicer and Administrator
EXHIBIT A Form of Report to Noteholders
EXHIBIT B Form of Report to Certificateholders
EXHIBIT C Form of Administrator's Certificate
EXHIBIT D Form of Assignment on Closing Date
EXHIBIT E Form of Transfer Agreement
</TABLE>
-iii-
<PAGE> 5
SALE AND SERVICING AGREEMENT dated as of January 1, 1999,
among KEYCORP STUDENT LOAN TRUST 1999-A, a New York trust (the "Issuer"), KEY
BANK USA, NATIONAL ASSOCIATION, a national banking association and successor in
interest to Society National Bank (the "Seller"), PENNSYLVANIA HIGHER EDUCATION
ASSISTANCE AGENCY, an agency of the Commonwealth of Pennsylvania, as servicer (a
"Servicer"), EFS SERVICES, INC., an Indiana corporation (a "Servicer"), THE
FIRST NATIONAL BANK OF CHICAGO, a national banking association, solely as
eligible lender trustee and not in its individual capacity (the "Eligible Lender
Trustee"), and KEY BANK USA, NATIONAL ASSOCIATION, a national banking
association, as administrator (the "Administrator").
WHEREAS, on July 13, 1998, the Seller assigned to the Issuer
(formerly known as KeyCorp Student Loan Trust 1998-A) its rights in a portfolio
of law school, medical school, dental school, graduate business school and other
graduate school student loans originated in the ordinary course of business by
the Seller or its predecessors, subject to revocation by the Seller;
WHEREAS the Seller intends to assign to the Issuer during a
limited period additional student loans it currently owns and student loans it
may originate or acquire in the future;
WHEREAS the Issuer desires to purchase, and the Seller is
willing to sell to the Issuer, such student loans;
WHEREAS the Eligible Lender Trustee is willing to hold legal
title to, and serve as eligible lender trustee with respect to, such student
loans on behalf of the Issuer; and
WHEREAS each Servicer and the Administrator are willing to
service the portion of such student loans it services and undertake certain
administrative functions with respect thereto.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND USAGE
Capitalized terms used but not defined herein are defined in
Appendix A hereto, which also contains rules as to usage and construction that
shall be applicable herein.
<PAGE> 6
ARTICLE II
CONVEYANCE OF FINANCED STUDENT LOANS
SECTION 2.01 CONVEYANCE OF INITIAL FINANCED STUDENT LOANS. In
consideration of the Issuer's delivery to or upon the order of the Seller on the
Closing Date of the net proceeds from the sale of the Notes and the Certificates
and the other amounts to be distributed from time to time to the Seller in
accordance with the terms of this Agreement, the Seller does hereby, as
evidenced by a duly executed written assignment in the form of Exhibit D, sell,
transfer, assign, set over and otherwise convey to the Issuer (or, in the case
of the Initial Financed Student Loans (as defined below), to the Eligible Lender
Trustee on behalf of the Issuer), without recourse (subject to the obligations
herein):
(i) all right, title and interest of the Seller in and to the
Financed Student Loans (other than the Additional Student Loans) (the
"Initial Financed Student Loans") and all obligations of the Obligors
thereunder, including all moneys paid thereunder, and all written
communications received by the Seller with respect thereto (including
borrower correspondence, notices of death, disability or bankruptcy and
requests for deferrals or forbearances), on or after the Cutoff Date;
(ii) all right, title and interest of the Seller under the
Assigned Agreements insofar as they relate to the Financed Private
Loans but not with respect to any other loans covered thereby (the
"Assigned Rights");
(iii) all right, title and interest of the Seller in and to
all funds on deposit from time to time in the Trust Accounts,
including, but not limited to, the Reserve Account Initial Deposit, the
Pre Funded Amount and the Negative Carry Initial Deposit (including all
income thereon); and
(iv) the proceeds of any and all of the foregoing.
SECTION 2.02. CONVEYANCE OF SUBSEQUENT POOL STUDENT LOANS AND
OTHER SUBSEQUENT STUDENT LOANS. (a) Subject to the conditions set forth in
paragraph (b) below, in consideration of the Issuer's delivery on the related
Transfer Date to or upon the order of the Seller of the amount described in
Section 5.08(a) to be delivered to the Seller, the Seller does hereby sell,
transfer, assign, set over and otherwise convey to the Eligible Lender Trustee
on behalf of the Issuer, without recourse (subject to the obligations herein)
all right, title and interest of the Seller in and to each Subsequent Pool
Student Loan and each Other Subsequent Student Loan, and all obligations of the
Obligors thereunder including all moneys paid thereunder, and all written
communications received by the Seller with respect thereto (including borrower
correspondence, notices of death, disability or bankruptcy and requests for
deferrals or forbearances), on and after the related Subsequent Cutoff Date,
made from time to time during the Funding Period.
-2-
<PAGE> 7
(b) The Seller shall transfer to the Eligible Lender Trustee
on behalf of the Issuer the Subsequent Pool Student Loans and/or the Other
Subsequent Student Loans for a given Transfer Date and the other property and
rights related thereto described in paragraph (a) above only upon the
satisfaction of each of the following conditions on or prior to such Transfer
Date:
(i) the Seller shall have delivered to the Eligible Lender
Trustee and the Indenture Trustee a duly executed written assignment
(including an acceptance by the Eligible Lender Trustee and the
Indenture Trustee) in substantially the form of Exhibit E (each, a
"Transfer Agreement"), which shall include supplements to Schedule A
listing such Subsequent Pool Student Loans and/or the Other Subsequent
Student Loans, as applicable;
(ii) except for the Additional Student Loans transferred on
the Closing Date, the Seller shall have delivered, at least two days
prior to such Transfer Date, notice of such transfer to the Eligible
Lender Trustee, the Indenture Trustee and the Rating Agencies,
including a listing of the designation and the aggregate principal
balance of such Subsequent Pool Student Loans or Other Subsequent
Student Loans, as the case may be;
(iii) the Seller shall, to the extent required by Section
5.02, have deposited in the Collection Account all collections in
respect of the Subsequent Pool Student Loans and/or Other Subsequent
Student Loans on and after each applicable Subsequent Cutoff Date;
(iv) as of each Transfer Date, the Seller was not insolvent
nor will it have been made insolvent by such transfer nor is it aware
of any pending insolvency;
(v) such addition will not result in a material adverse
Federal or State tax consequence to the Issuer, the holders of Notes or
the holders of Certificates;
(vi) the Funding Period shall not have terminated and, with
respect to Subsequent Pool Student Loans, the Transfer Date is on or
prior to the Special Determination Date;
(vii) the Seller shall have delivered to the Indenture Trustee
and the Eligible Lender Trustee an Officers' Certificate confirming the
satisfaction of each condition precedent specified in this paragraph
(b);
(viii) the Seller shall have delivered (A) to the Rating
Agencies an Opinion of Counsel with respect to the transfer of the
Subsequent Pool Student Loans and/or Other Subsequent Student Loans
transferred on such Transfer Date, substantially in the form of the
Opinion of Counsel delivered to the Rating Agencies on the Closing
Date, and (B) to
-3-
<PAGE> 8
the Eligible Lender Trustee and the Indenture Trustee the Opinion of
Counsel required by Section 11.02(i)(1);
(ix) the Seller shall have taken any action required to
maintain the first perfected ownership interest of the Issuer in the
Trust Estate and the first perfected security interest of the Indenture
Trustee in the Collateral;
(x) no selection procedures believed by the Seller to be
adverse to the interests of the holders of Certificates or the holders
of Notes shall have been utilized in selecting the Subsequent Pool
Student Loans or the Other Subsequent Student Loans;
(xi) no Consolidation Loan will be transferred to the Issuer
unless at least one underlying student loan to be consolidated is a
Financed Student Loan already held by the Eligible Lender Trustee on
behalf of the Issuer; and
(xii) the Issuer may not purchase any Other Subsequent Student
Loans which are (a) Stafford Loans, if after giving effect to such
purchase Stafford Loans which are Other Subsequent Student Loans or
Other Student Loans in an aggregate principal amount of $________ have
been purchased by the Issuer, (b) Federal Consolidation Loans, if after
giving effect to such purchase Federal Consolidation Loans which are
Other Subsequent Student Loans or Other Student Loans in an aggregate
principal amount of $________ have been purchased by the Issuer, (c)
Private Consolidation Loans, if after giving effect to such purchase
Private Consolidation Loans which are Other Subsequent Student Loans or
Other Student Loans in an aggregate principal amount of $________ have
been purchased by the Issuer and (d) Private Loans, which are not
Private Consolidation Loans, if after giving effect to such purchase
Private Loans, which are not Private Consolidation Loans and are Other
Subsequent Student Loans or Other Student Loans, in an aggregate
principal amount of $________ have been purchased by the Issuer, in
each case without giving effect to any capitalized interest accrued
thereon;
PROVIDED, HOWEVER, that the Seller shall not incur any liability as a result of
transferring Subsequent Pool Student Loans or Other Subsequent Student Loans on
any Transfer Date at a time when the condition set forth in clause (v) was not
satisfied, if at the time of such transfer the Authorized Officers of the
Seller, after reasonable inquiry of in-house counsel to the Seller, were not
aware of any fact that would reasonably suggest that such condition would not be
satisfied as of such date.
(c) The Seller covenants to transfer during the Funding Period
to the Eligible Lender Trustee on behalf of the Issuer pursuant to paragraph (a)
above Other Subsequent Student Loans with an aggregate principal balance of not
less than $________ (less the Pre-Funded Amount thereof, if any, used by the
Trust to fund shortfalls in the payment of interest on the Notes and the
Certificates); PROVIDED, HOWEVER, that the Seller shall have no liability for a
breach of the foregoing covenant as a result of the Seller not having made or
owned prior to the date hereof Other Subsequent Student Loans equal to the
amount specified above during the Funding
-4-
<PAGE> 9
Period, the Seller not being able to transfer Other Subsequent Student Loans
because of Section 2.02(b)(xii) or there being insufficient funds available in
the Escrow Account and the Pre-Funding Account for the Eligible Lender Trustee
to consummate such acquisitions.
SECTION 2.02A. CONVEYANCE OF OTHER STUDENT LOANS. (a) Subject
to the conditions set forth in paragraph (b) below, in consideration of the
Issuer's delivery on the related Transfer Date to or upon the order of the
Seller of the amount described in Section 5.08(a) to be delivered to the Seller,
the Seller does hereby sell, transfer, assign, set over and otherwise convey to
the Eligible Lender Trustee on behalf of the Issuer, without recourse (subject
to the obligations herein) all right, title and interest of the Seller in and to
each Other Student Loan, and all moneys received thereon, and all written
communications received by the Seller with respect thereto (including borrower
correspondence, notices of death, disability or bankruptcy and requests for
deferrals or forbearances), on and after the related Subsequent Cutoff Date,
made from time to time after the Funding Period but on or prior to the Loan
Purchase Termination Date.
(b) The Seller shall transfer to the Issuer the Other Student
Loans for a given Transfer Date and the other property and rights related
thereto described in paragraph (a) above only upon the satisfaction of each of
the following conditions on or prior to such Transfer Date:
(i) the Seller shall have delivered to the Eligible Lender
Trustee and the Indenture Trustee a duly executed Transfer Agreement,
which shall include supplements to Schedule A, listing such Other
Student Loans;
(ii) the Seller shall have delivered, at least two days prior
to such Transfer Date, notice of such transfer to the Eligible Lender
Trustee, the Indenture Trustee and the Rating Agencies, including a
listing of the designation and the aggregate principal balance of such
Other Student Loans;
(iii) the Seller shall, to the extent required by Section
5.02, have deposited in the Collection Account all collections in
respect of the Other Student Loans on and after each applicable
Subsequent Cutoff Date;
(iv) as of each Transfer Date, the Seller was not insolvent
nor will it have been made insolvent by such transfer nor is it aware
of any pending insolvency;
(v) such addition will not result in a material adverse
Federal or State tax consequence to the Issuer, the holders of Notes or
the holders of Certificates;
(vi) such Transfer Date shall occur on a date which is after
the termination of the Funding Period and on or prior to the Loan
Purchase Termination Date;
(vii) the Seller shall have delivered to the Indenture Trustee
and the Eligible Lender Trustee an Officers' Certificate confirming the
satisfaction of each condition precedent specified in this paragraph
(b);
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(viii) the Seller shall have delivered (A) to the Rating
Agencies an Opinion of Counsel with respect to the transfer of the
Other Student Loans transferred on such Transfer Date, substantially in
the form of the Opinion of Counsel delivered to the Rating Agencies on
the Closing Date, and (B) to the Eligible Lender Trustee and the
Indenture Trustee the Opinion of Counsel required by Section
11.02(i)(1);
(ix) the Seller shall have taken any action required to
maintain the first perfected ownership interest of the Issuer in the
Trust Estate and the first perfected security interest of the Indenture
Trustee in the Collateral;
(x) no selection procedures believed by the Seller to be
adverse to the interests of the holders of Certificates or the holders
of Notes shall have been utilized in selecting the Other Student Loans;
(xi) no Consolidation Loan will be transferred to the Issuer
unless at least one underlying student loan to be consolidated is a
Financed Student Loan already held by the Eligible Lender Trustee on
behalf of the Issuer; and
(xii) the Issuer may not purchase any Other Student Loans
which are (a) Stafford Loans, if after giving effect to such purchase
Stafford Loans which are Other Subsequent Student Loans or Other
Student Loans in an aggregate principal amount of $________ have been
purchased by the Issuer, (b) Federal Consolidation Loans, if after
giving effect to such purchase Federal Consolidation Loans which are
Other Subsequent Student Loans or Other Student Loans in an aggregate
principal amount of $________ have been purchased by the Issuer, (c)
Private Consolidation Loans, if after giving effect to such purchase
Private Consolidation Loans which are Other Subsequent Student Loans or
Other Student Loans in an aggregate principal amount of $________ have
been purchased by the Issuer and (d) Private Loans, which are not
Private Consolidation Loans, if after giving effect to such purchase
Private Loans, which are not Private Consolidation Loans and are Other
Subsequent Student Loans or Other Student Loans in an aggregate
principal amount of $________ have been purchased by the Issuer, in
each case without giving effect to any capitalized interest accrued
thereon;
PROVIDED, HOWEVER, that the Seller shall not incur any liability as a result of
transferring Other Student Loans on any Transfer Date at a time when the
condition set forth in clause (v) was not satisfied, if at the time of such
transfer the Authorized Officers of the Seller, after reasonable inquiry of
in-house counsel to the Seller, were not aware of any fact that would reasonably
suggest that such condition would not be satisfied as of such date.
SECTION 2.03. CONVEYANCE OF FINANCED FEDERAL LOANS AND
FINANCED PRIVATE LOANS BY THE ELIGIBLE LENDER TRUSTEE TO THE SELLER IN
CONNECTION WITH CONSOLIDATION LOANS. On any date (whether or not during the
Funding Period), upon receipt of written notice (or telephonic or facsimile
notice followed by written notice) from the Seller (or from the Servicer on
behalf of
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the Seller) by the Eligible Lender Trustee and the Indenture Trustee, the
Eligible Lender Trustee will convey to the Seller the Financed Federal Loans and
Financed Private Loans identified in such notice, which are to be repaid
pursuant to the Consolidation Loans to be made by the Seller. Simultaneously
with each such conveyance by the Eligible Lender Trustee and the making by the
Seller of each such Consolidation Loan prior to the Loan Purchase Termination
Date, the Seller shall deposit into the Escrow Account an amount equal to the
sum of the principal balances of such Financed Federal Loans and Financed
Private Loans thereby being consolidated plus accrued interest thereon to the
date of such consolidation.
With respect to each Consolidation Loan made by the Seller
after the Loan Purchase Termination Date, the Seller shall deposit,
simultaneously with each such conveyance by the Eligible Lender Trustee and the
making of each such Consolidation Loan, into the Collection Account in
accordance with Section 5.04 an amount equal to the aggregate unpaid principal
balance of, plus accrued interest on, each such Financed Federal Loan and
Financed Private Loan as payment for such conveyance of such Financed Federal
Loans and Financed Private Loans.
SECTION 2.04. ENDORSEMENT. The Seller hereby appoints each of
the Eligible Lender Trustee and the Indenture Trustee as the Seller's true and
lawful attorney-in-fact with full power of substitution to endorse the Seller's
name on any promissory note evidencing the Initial Financed Student Loans and
any Additional Student Loans transferred to the Eligible Lender Trustee on
behalf of the Trust pursuant to Sections 2.01, 2.02 and 2.02A. The Seller
acknowledges and agrees that this power of attorney shall be construed as a
power coupled with an interest, shall be irrevocable as long as the Trust
Agreement remains in effect and shall continue in effect until the Trust
Agreement terminates.
ARTICLE III
THE FINANCED STUDENT LOANS
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF SELLER WITH
RESPECT TO THE FINANCED STUDENT LOANS. The Seller makes the following
representations and warranties as to the Financed Student Loans on which the
Issuer is deemed to have relied in acquiring (through the Eligible Lender
Trustee) the Financed Student Loans. Such representations and warranties speak
as of the execution and delivery of this Agreement and as of the Closing Date,
in the case of the Initial Financed Student Loans and the Subsequent Pool
Student Loans, and as of the applicable Transfer Date, in the case of the Other
Subsequent Student Loans and the Other Student Loans, but shall survive the
sale, transfer and assignment of the Financed Student Loans to the Eligible
Lender Trustee on behalf of the Issuer and the pledge thereof to the Indenture
Trustee pursuant to the Indenture.
(i) CHARACTERISTICS OF FINANCED STUDENT LOANS. Each Financed
Student Loan (A) was originated in the United States of America, its
territories, its possessions or other
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areas subject to its jurisdiction by the Seller in the ordinary course
of its business to an eligible borrower under applicable law and
agreements and was fully and properly executed by the parties thereto
and (B) provides or, when the payment schedule with respect thereto is
determined, will provide for payments on a periodic basis that fully
amortize the principal amount of such Financed Student Loan by its
maturity and yield interest at the rate applicable thereto, as such
maturity may be modified in accordance with any applicable deferral or
forbearance periods granted in accordance with applicable laws and
restrictions, including those of the Higher Education Act, any
Guarantee Agreement or the Programs. Each Financed Student Loan that is
a Financed Federal Loan qualifies the holder thereof to receive
Interest Subsidy Payments (other than SLS Loans, unsubsidized Stafford
Loans and certain Consolidation Loans) and Special Allowance Payments
from the Department and Guarantee Payments from the applicable
Guarantor and qualifies the applicable Guarantor to receive reinsurance
payments thereon from the Department. Each Financed Student Loan that
is a Financed Private Loan qualifies the holder thereof to receive
Guarantee Payments from the applicable Guarantor pursuant to the
applicable Guarantee Agreement.
(ii) SCHEDULES OF FINANCED STUDENT LOANS. The information set
forth in Schedules A and B to this Agreement and Schedule A to the
related Transfer Agreement is true and correct in all material respects
as of the opening of business on the Cutoff Date (with respect to
Schedules A and B to this Agreement) or each applicable Subsequent
Cutoff Date, as applicable, and no selection procedures believed to be
adverse to the holders of Notes or the holders of Certificates were
utilized in selecting the Initial Financed Student Loans or the
applicable Additional Student Loans, as applicable. The computer tape
regarding the Initial Financed Student Loans and the Subsequent Pool
Student Loans made available to the Issuer and its assigns is true and
correct in all respects as of the Cutoff Date.
(iii) COMPLIANCE WITH LAW. Each Financed Student Loan complied
at the time it was originated or made and at the execution of this
Agreement or the applicable Transfer Agreement, as the case may be,
complies, and the Seller and its agents, with respect to each such
Financed Student Loan, have at all times complied, in all material
respects with all requirements of applicable Federal, state and local
laws and regulations thereunder, including the Higher Education Act,
usury law, the Federal Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Reserve Board's Regulation B and other
consumer credit laws and equal credit opportunity and disclosure laws
and all applicable requirements of the Guarantee Agreements.
(iv) BINDING OBLIGATION. Each Financed Student Loan represents
the genuine, legal, valid and binding payment obligation in writing of
the borrower thereof, enforceable by or on behalf of the holder thereof
in accordance with its terms, and no Financed Student Loan has been
satisfied, subordinated or rescinded, subject to clause (xiii) below.
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(v) NO DEFENSES. No right of rescission, setoff, counterclaim
or defense has been asserted or threatened or exists with respect to
any Financed Student Loan.
(vi) NO DEFAULT. No Initial Financed Student Loan or
Subsequent Pool Student Loan has a payment that is more than 150 days
overdue as of the Cutoff Date or, with respect to the Other Subsequent
Student Loans and the Other Student Loans, more than 90 days overdue as
of the applicable Subsequent Cutoff Date, as the case may be, and,
except as permitted in this paragraph, no default, breach, violation or
event permitting acceleration under the terms of any Financed Student
Loan has occurred; and, except for payment defaults continuing for a
period of not more than 150 days or 90 days, as applicable, no
continuing condition that with notice or the lapse of time or both
would constitute a default, breach, violation or event permitting
acceleration under the terms of any Financed Student Loan has arisen;
and the Seller has not waived and shall not waive any of the foregoing
other than as permitted by the Basic Documents.
(vii) TITLE. It is the intention of the Seller that the
transfer and assignment herein contemplated constitute a sale of the
Financed Student Loans from the Seller to the Eligible Lender Trustee
on behalf of the Issuer and that the beneficial interest in and title
to such Financed Student Loans not be part of the debtor's estate in
the event of the appointment of a receiver with respect to the Seller.
No Financed Student Loan has been sold, transferred, assigned or
pledged by the Seller to any Person other than the Eligible Lender
Trustee on behalf of the Issuer. Immediately prior to the transfer and
assignment herein contemplated, the Seller had good title to each
Financed Student Loan, free and clear of all Liens and, immediately
upon the transfer thereof, the Eligible Lender Trustee on behalf of the
Issuer shall have good title to each such Financed Student Loan, free
and clear of all Liens or the transfer shall have been perfected under
the UCC.
(viii) LAWFUL ASSIGNMENT. No Financed Student Loan has been
originated in, or is subject to the laws of, any jurisdiction under
which the sale, transfer and assignment of such Financed Student Loan
or any Financed Student Loan under this Agreement, each Transfer
Agreement or the Indenture is unlawful, void or voidable.
(ix) SECURITY INTEREST PERFECTED. All filings (including UCC
filings) and/or delivery requirements necessary in any jurisdiction to
give the Eligible Lender Trustee on behalf of the Issuer a first
perfected ownership interest in the Financed Student Loans, and to give
the Indenture Trustee a first perfected security interest therein, have
been made or satisfied, as the case may be.
(x) ONE ORIGINAL. There is only one original executed copy of
the promissory note evidencing each Financed Student Loan.
(xi) PRINCIPAL BALANCE. The aggregate principal balance of the
Initial Financed Student Loans, plus accrued interest to be capitalized
with respect thereto, as of January 1, 1999, is $________, and the
aggregate principal balance of the Subsequent Pool
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Student Loans, plus accrued interest to be capitalized with respect
thereto, as of January 1, 1999 is $____________.
(xii) NO CLAIMS. As of the Cutoff Date, no claim for payment
with respect to an Initial Financed Student Loan has been made to a
Guarantor, and as of the related Subsequent Cutoff Date no claim for
payment with respect to an Additional Student Loan will have been made.
(xiii) NO BANKRUPTCIES OR DEATHS. No borrower of any Financed
Student Loan as of January 1, 1999 (in the case of the Initial Financed
Student Loans), or the applicable Subsequent Cutoff Date (in the case
of Additional Student Loans) was noted in the related Financed Student
Loan File as being currently involved in a bankruptcy proceeding or as
having died.
(xiv) U.S. OBLIGORS. Less than 1% of the Financed Student
Loans are due from Persons not having a mailing address in the United
States of America.
(xv) INTEREST ACCRUING. Each Financed Student Loan is accruing
interest (whether or not such interest is being paid currently, by the
borrower or by the Department, or is being capitalized), except as
otherwise expressly permitted by the Basic Documents.
(xvi) SELLER'S REPRESENTATIONS. The representations and
warranties of the Seller contained in Section 6.01 are true and
correct.
SECTION 3.02. REPURCHASE UPON BREACH; REIMBURSEMENT. The
Seller, any Servicer or the Eligible Lender Trustee, as the case may be, shall
inform the other parties to this Agreement and the Indenture Trustee promptly,
in writing, upon the discovery of any breach of the Seller's representations and
warranties made pursuant to Section 3.01 or Section 6.01. Unless any such breach
shall have been cured within 60 days following the discovery thereof by the
Eligible Lender Trustee or receipt by the Eligible Lender Trustee of written
notice from the Seller or any Servicer of such breach, the Seller shall be
obligated to repurchase any Financed Student Loan in which the interests of the
holders of Notes or the holders of Certificates are materially and adversely
affected by any such breach as of the first day succeeding the end of such
60-day period that is the last day of a Collection Period; provided that it is
understood that any such breach that does not affect any Guarantor's obligation
to guarantee payment of such Financed Student Loan to the Eligible Lender
Trustee in accordance with the Guarantee Agreements will not be considered to
have a material adverse effect for this purpose. In consideration of and
simultaneously with the repurchase of the Financed Student Loan, the Seller
shall remit the Purchase Amount, in the manner specified in Section 5.04, and
the Issuer shall execute such assignments and other documents reasonably
requested by the Seller in order to effect such transfer. Upon any such transfer
of a Financed Student Loan, legal title to, and beneficial ownership and control
of, the related Financed Student Loan File will thereafter belong to the Seller.
In addition, if any such breach by the Seller does not trigger such a
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repurchase obligation but does result in the refusal by a Federal Guarantor to
guarantee all or a portion of the accrued interest, or the loss (including any
obligation of the Issuer to repay to the Department) of certain Interest Subsidy
Payments and Special Allowance Payments, with respect to a Financed Federal
Loan, then, unless such breach, if curable, is cured within 60 days, the Seller
shall reimburse the Issuer by remitting an amount equal to the sum of all such
non-guaranteed interest amounts and such forfeited Interest Subsidy Payments and
Special Allowance Payments in the manner specified in Section 5.04. Subject to
the provisions of Section 6.03, the sole remedy of the Issuer, the Eligible
Lender Trustee, the Indenture Trustee, the holders of Notes or the holders of
Certificates with respect to a breach of representations and warranties pursuant
to Section 3.01 and the agreement contained in this Section shall be to require
the Seller to repurchase Financed Student Loans or to reimburse the Issuer as
provided above pursuant to this Section, subject to the conditions contained
herein.
SECTION 3.03. CUSTODY OF FINANCED STUDENT LOAN FILES. To
assure uniform quality in servicing the Financed Student Loans and to reduce
administrative costs, the Issuer hereby revocably appoints (x) PHEAA, in its
capacity as a Servicer and PHEAA hereby accepts such appointment, to act for the
benefit of the Issuer and the Indenture Trustee as custodian of the following
documents or instruments related to the Financed Student Loans it services (as
set forth in Schedules A and B hereto) and (y) EFS, in its capacity as a
Servicer and EFS hereby accepts such appointment, to act for the benefit of the
Issuer and the Indenture Trustee as custodian of the following documents or
instruments related to the Financed Student Loans it services (as set forth in
Schedules A and B hereto), in each case, which are hereby constructively
delivered to the Indenture Trustee, as pledgee of the Issuer (or, in the case of
the Additional Student Loans, will as of the applicable Transfer Date be
constructively delivered to the Indenture Trustee, as pledgee of the Issuer)
with respect to each Financed Student Loan:
(a) the original fully executed copy of the note evidencing
the Financed Student Loan;
(b) the original loan application fully executed by the
borrower; and
(c) any and all other documents and computerized records that
any of the applicable Servicer, the Administrator or the Seller shall keep on
file, in accordance with its customary procedures, relating to such Financed
Student Loan or any Obligor with respect thereto.
Unless otherwise specified, all references to actions to be
taken by "the Servicer" as "custodian" under this Article III or any other
provision of this Agreement with respect to the Financed Student Loans or the
Financed Student Loan Files shall be deemed to refer to actions to be taken by
each Servicer with respect to the Financed Student Loans serviced by such
Servicer, as specified on Schedules A and B hereto, or with respect to the
Financed Student Loan Files held by such Servicer. Consistent with the
foregoing, but only insofar as the context so permits, this Article III is to be
read with respect to each custodian as if such custodian alone was holding its
respective Financed Student Loans hereunder.
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SECTION 3.04. DUTIES OF SERVICER AS CUSTODIAN. (a)
SAFEKEEPING. The Servicer, as custodian, shall hold the Financed Student Loan
Files for the benefit of the Issuer and the Indenture Trustee and maintain such
accurate and complete accounts, records and computer systems pertaining to each
Financed Student Loan File as shall enable the Issuer to comply with this
Agreement. In performing its duties as custodian the Servicer shall act with
reasonable care, using that degree of skill and attention that the Servicer
exercises with respect to the student loan files relating to all comparable
student loans that the Servicer services and shall ensure that it complies fully
and completely with all applicable Federal and State laws, including the Higher
Education Act, with respect thereto. The Servicer shall conduct, or cause to be
conducted, periodic audits of the Financed Student Loan Files held by it under
this Agreement and of the related accounts, records and computer systems, in
such a manner as shall enable the Issuer or the Indenture Trustee to verify the
accuracy of the Servicer's record keeping. The Servicer shall promptly report to
the Issuer and the Indenture Trustee any failure on its part to hold the
Financed Student Loan Files and maintain its accounts, records and computer
systems as herein provided and promptly take appropriate action to remedy any
such failure. Nothing herein shall be deemed to require an initial review or any
periodic review by the Issuer, the Eligible Lender Trustee or the Indenture
Trustee of the Financed Student Loan Files.
(b) MAINTENANCE OF AND ACCESS TO RECORDS. The Servicer, as
custodian, shall maintain each Financed Student Loan File at one of its offices
specified in Schedule C to this Agreement or at such other office as shall be
specified by written notice to the Issuer and the Indenture Trustee not later
than 90 days after any change in location. Upon reasonable prior notice, the
Servicer shall make available to the Issuer and the Indenture Trustee or their
respective duly authorized representatives, attorneys or auditors a list of
locations of the Financed Student Loan Files and the related accounts, records
and computer systems maintained by the Servicer at such times during normal
business hours as the Issuer or the Indenture Trustee shall instruct.
(c) RELEASE OF DOCUMENTS. Upon instruction from the Indenture
Trustee, the Servicer, as custodian, shall release any Financed Student Loan
File to the Indenture Trustee, the Indenture Trustee's agent, or the Indenture
Trustee's designee, as the case may be, at such place or places as the Indenture
Trustee may designate, as soon as practicable.
SECTION 3.05. INSTRUCTIONS; AUTHORITY TO ACT. The Servicer, as
custodian, shall be deemed to have received proper instructions with respect to
the Financed Student Loan Files upon its receipt of written instructions signed
by a Responsible Officer of the Indenture Trustee.
SECTION 3.06. CUSTODIAN'S INDEMNIFICATION. The Servicer as
custodian shall pay for any loss, liability or expense, including reasonable
attorney's fees, that may be imposed on, incurred by or asserted against the
Issuer, the Eligible Lender Trustee or the Indenture Trustee or any of their
officers, directors, employees and agents as the result of any improper act or
omission in any way relating to the maintenance and custody by the Servicer as
custodian of the Financed Student Loan Files where the final determination that
any such improper act or
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omission by the Servicer resulted in such loss, liability or expense is
established by a court of law, by an arbitrator or by way of settlement agreed
to by the Servicer; PROVIDED, HOWEVER, that the Servicer shall not be liable to
the Eligible Lender Trustee for any portion of any such amount resulting from
the willful misfeasance, bad faith or negligence of the Eligible Lender Trustee
and the Servicer shall not be liable to the Indenture Trustee for any portion of
any such amount resulting from the willful misfeasance, bad faith or negligence
of the Indenture Trustee. This provision, as it relates to PHEAA, shall not be
construed to limit the sovereign immunity of the Commonwealth of Pennsylvania or
the Servicer's or any other party's rights, obligations, liabilities, claims or
defenses which arise as a matter of law or pursuant to any other provision of
this Agreement.
SECTION 3.07. EFFECTIVE PERIOD AND TERMINATION. Each of
PHEAA's and EFS's appointment as custodian shall become effective as of the
Closing Date and shall continue in full force and effect for so long as PHEAA
and EFS, respectively, shall remain a Servicer hereunder. If PHEAA, EFS or any
successor Servicer shall resign as Servicer in accordance with the provisions of
this Agreement or if all the rights and obligations of PHEAA, EFS or any such
successor Servicer shall have been terminated under Section 8.01, the
appointment of PHEAA, EFS or such successor Servicer as custodian shall be
terminated simultaneously with the effectiveness of such termination. As soon as
practicable on or after any termination of such appointment (and in any event
within (i) 10 Business Days, with respect to that portion of the Financed
Student Loan Files it holds consisting of electronic records and information,
and (ii) 30 Business Days, with respect to the remaining portion of the Financed
Student Loan Files it holds), such Servicer shall deliver the Financed Student
Loan Files it holds to the Indenture Trustee or the Indenture Trustee's agent at
such place or places as the Indenture Trustee may reasonably designate.
SECTION 3.08. SCHEDULE OF FINANCED STUDENT LOANS. Schedules A
and B hereto shall indicate by name the Servicer whose obligation it is to
service each Financed Student Loan set forth on each such schedule. Such
indication shall be conclusive evidence of the applicable Servicer's obligation
to service such Financed Student Loans absent manifest error.
ARTICLE IV
ADMINISTRATION AND SERVICING OF FINANCED STUDENT LOANS
SECTION 4.01. DUTIES OF SERVICERS. Unless otherwise specified,
all references to actions to be taken by "the Servicer" under this Article IV or
any other provision of this Agreement with respect to a Financed Student Loan or
Financed Student Loans or with respect to a Financed Student Loan File or
Financed Student Loan Files shall be deemed to refer to actions to be taken by
each Servicer with respect to a Financed Student Loan or Financed Student Loans
serviced by such Servicer, as specified on Schedules A and B hereto, or with
respect to a Financed Student Loan File or Financed Student Loan Files held by
such Servicer. In addition, unless otherwise specified, all references to
actions previously taken by "the Servicer" under this Article IV or any other
provision of this Agreement with respect to a Financed Student Loan or Financed
Student Loans or with respect to a Financed Student Loan File or Financed
Student Loan Files shall be deemed to refer to actions previously taken by the
related Servicer with respect to such Financed Student Loan or
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Financed Student Loans or with respect to a Financed Student Loan File or
Financed Student Loan Files. Further, unless otherwise specified, all references
to actions to be taken by "the Servicer" under this Article IV or any other
provision of this Agreement with respect to a Trust Account or the preparation
or delivery of any report or Officers' Certificate shall be deemed to refer to
actions to be taken by each Servicer with respect to such Trust Account or
preparation or delivery of such report or Officers' Certificate, and all
references to actions previously taken by "the Servicer" under this Article IV
or any other provision of this Agreement with respect to a Trust Account or the
preparation or delivery of any report or Officers' Certificate shall be deemed
to refer to actions previously taken by the related Servicer with respect to
such Trust Account or preparation or delivery of such report or Officers'
Certificate. Consistent with the foregoing, but only insofar as the context so
permits, this Article IV is to be read with respect to each Servicer as if such
Servicer alone were servicing and administering its respective Financed Student
Loans hereunder. Further still, unless otherwise specified, all references to
"the Servicer" under this Article IV or any other provision of this Agreement
with respect to representations, warranties or covenants of the Servicer shall
be deemed to refer to representations, warranties or covenants made by each
Servicer, except that representations, warranties or covenants with respect to
the Financed Student Loans are hereby made by each Servicer only with respect to
the Financed Student Loans it services. Further still, unless otherwise
specified, all references to "the Servicer" in Sections 7.01, 7.02, 7.03, 7.04,
8.01 and 11.02 shall be references to each Servicer as if each Servicer was
referred to alone.
The Servicer, for the benefit of the Issuer (to the extent
provided herein), shall manage, service, administer and make collections on the
Financed Student Loans with reasonable care, using that degree of skill and
attention that the Servicer exercises with respect to all comparable student
loans that it services. Without limiting the generality of the foregoing or of
any other provision set forth in this Agreement and notwithstanding any other
provision to the contrary set forth herein, the Servicer shall manage, service,
administer and make collections with respect to the Financed Student Loans
(other than collection of any Interest Subsidy Payments and Special Allowance
Payments, which the Eligible Lender Trustee will perform on behalf of the Trust)
in accordance with, and otherwise comply with, all applicable Federal and state
laws, including all applicable standards, guidelines and requirements of the
Higher Education Act (in the case of the Financed Federal Loans) and any
Guarantee Agreement (in the case of all the Financed Student Loans), the failure
to comply with which would adversely affect the eligibility of one or more of
the Financed Federal Loans for federal reinsurance or Interest Subsidy Payments
or Special Allowance Payments or one or more of the Financed Student Loans for
receipt of Guarantee Payments or would have an adverse effect on the holders of
Certificates or the holders of Notes. In addition, without limiting the
generality of the foregoing, the Servicer shall service the Financed Student
Loans in accordance with the provisions of the Supplemental Sale and Servicing
Agreement. The Servicer also hereby acknowledges that its obligation to service
the Financed Student Loans includes those Additional Student Loans conveyed by
the Seller to the Eligible Lender Trustee on behalf of the Trust pursuant to
Sections 2.02 and 2.02A and the related Transfer Agreement, a copy of which
shall be delivered to the Servicer by the
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Seller promptly upon execution thereof; PROVIDED that any failure by the Seller
to so deliver a Transfer Agreement shall not affect the Servicer's obligations
hereunder to service all the Financed Student Loans.
The Servicer's duties shall include collection and posting of
all payments, responding to inquiries of borrowers on such Financed Student
Loans, monitoring borrowers' status, making required disclosures to borrowers,
investigating delinquencies, sending payment coupons to borrowers and otherwise
establishing repayment terms, reporting tax information to borrowers, if
applicable, accounting for collections and furnishing monthly and annual
statements with respect thereto to the Administrator. Subject to the provisions
of Section 4.02, the Servicer shall follow its customary standards, policies and
procedures in performing its duties as Servicer. Without limiting the generality
of the foregoing, the Servicer is authorized and empowered to execute and
deliver, on behalf of itself, the Issuer, the Eligible Lender Trustee, the
Indenture Trustee, the holders of Certificates and the holders of Notes or any
of them, instruments of satisfaction or cancellation, or partial or full release
or discharge, and all other comparable instruments, with respect to such
Financed Student Loans; PROVIDED, HOWEVER, that the Servicer agrees that it will
not (a) permit any rescission or cancellation of a Financed Student Loan except
as ordered by a court of competent jurisdiction or governmental authority or as
otherwise consented to in writing by the Eligible Lender Trustee and the
Indenture Trustee or (b) reschedule, revise, defer or otherwise compromise with
respect to payments due on any Financed Student Loan except pursuant to any
applicable deferral or forbearance periods or otherwise in accordance with all
applicable standards, guidelines and requirements of the Higher Education Act,
any Guarantee Agreement or the Programs with respect to the servicing of the
Financed Student Loans and except as otherwise permitted in accordance with
Section 4.14; PROVIDED FURTHER, HOWEVER, that the Servicer shall not agree to
any decrease of the interest rate on, or the principal amount payable with
respect to, any Financed Student Loan except in accordance with the applicable
standards, guidelines and requirements of the Higher Education Act, any
Guarantee Agreement or the Programs and as otherwise permitted in accordance
with Section 4.14. The Eligible Lender Trustee on behalf of the Issuer hereby
grants a power of attorney and all necessary authorization to each Servicer to
maintain any and all collection procedures with respect to the Financed Student
Loans it services, including filing, pursuing and recovering claims against the
Guarantors for Guarantee Payments and taking any steps to enforce such Financed
Student Loan such as commencing a legal proceeding to enforce a Financed Student
Loan in the name of the Issuer, the Eligible Lender Trustee, the Indenture
Trustee, the holders of Certificates or the holders of Notes. The Eligible
Lender Trustee or the Indenture Trustee shall upon the written request of the
Servicer or the Administrator furnish the Servicer or the Administrator with any
other powers of attorney and other documents reasonably necessary or appropriate
to enable the Servicer or the Administrator to carry out their servicing and
administrative duties hereunder.
SECTION 4.02. COLLECTION OF FINANCED STUDENT LOAN PAYMENTS.
(a) The Servicer shall make reasonable efforts (including all efforts that may
be specified under the Higher Education Act or any Guarantee Agreement) to
collect all payments called for under the terms and provisions of the Financed
Student Loans as and when the same shall become due and
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shall follow such collection procedures as it follows with respect to all
comparable student loans that it services. The Servicer shall allocate
collections with respect to the Financed Student Loans between principal and
interest in accordance with Section 5.03. With the written consent of the
Administrator, the Servicer may in its discretion waive any late payment charge
or any other fees that may be collected in the ordinary course of servicing a
Financed Student Loan.
(b) The Servicer shall make reasonable efforts to claim,
pursue and collect all Guarantee Payments from the Guarantors pursuant to the
Guarantee Agreements with respect to any of the Financed Student Loans as and
when the same shall become due and payable, shall comply with all applicable
laws and agreements with respect to claiming, pursuing and collecting such
payments and shall follow such practices and procedures as it follows with
respect to all comparable guarantee agreements and student loans that it
services. In connection therewith, the Servicer is hereby authorized and
empowered to convey to any Guarantor the note and the related Financed Student
Loan File representing any Financed Student Loan in connection with submitting a
claim to such Guarantor for a Guarantee Payment in accordance with the terms of
the applicable Guarantee Agreement.
(c) The Eligible Lender Trustee shall, with the assistance of
the Administrator as set forth below and on behalf of the Issuer, make
reasonable efforts to claim, pursue and collect all Interest Subsidy Payments
and Special Allowance Payments from the Department with respect to any of the
Financed Federal Loans as and when the same shall become due and payable, shall
comply with all applicable laws and agreements with respect to claiming,
pursuing and collecting such payments and shall follow such practices and
procedures as the Administrator follows with respect to its own student loans.
All amounts so collected by the Eligible Lender Trustee shall constitute
Available Funds for the applicable Collection Period and shall be deposited into
the Collection Account in accordance with Section 5.02. In connection therewith,
the Administrator shall prepare and file with the Department on a timely basis
all claims forms and other documents and filings necessary or appropriate in
connection with the claiming of Interest Subsidy Payments and Special Allowance
Payments on behalf of the Eligible Lender Trustee and shall otherwise assist the
Eligible Lender Trustee in pursuing and collecting such Interest Subsidy
Payments and Special Allowance Payments from the Department. The Eligible Lender
Trustee shall upon the written request of the Administrator furnish the
Administrator with any power of attorney and other documents reasonably
necessary or appropriate to enable the Administrator to prepare and file such
claims forms and other documents and filings.
The Eligible Lender Trustee may permit trusts, other than the
Trust, established by the Seller to securitize student loans to use the
Department lender identification number applicable to the Trust. In such event,
the Eligible Lender Trustee may claim and collect Interest Subsidy Payments and
Special Allowance Payments with respect to Financed Student Loans in the Trust
and student loans in such other trusts using such common lender identification
number. Notwithstanding anything herein or in the Basic Documents to the
contrary, any amounts assessed against payments (including, but not limited to,
Interest Subsidy Payments and Special Allowance Payments) due from the
Department or any Federal Guarantor to any such other trust
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using such common lender identification number as a result of amounts
(including, but not limited to, Consolidation Fees) owing to the Department or
any Federal Guarantor from the Trust will be deemed for all purposes hereof and
of the Basic Documents (including for purposes of determining amounts paid by
the Department or any Federal Guarantor with respect to the student loans in the
Trust and such other trust) to have been assessed against the Trust and shall be
deducted by the Eligible Lender Trustee or the Servicer and paid to such other
trust from any collections made by them which would otherwise have been payable
to the Collection Account, for the Trust. If so specified in the servicing
agreement applicable to any such other trust, any amounts assessed against
payments due from the Department or any Federal Guarantor to the Trust as a
result of amounts owing to the Department or any Federal Guarantor from such
other trust using such common lender identification number will be deemed to
have been assessed against such other trust and will be deducted by the Eligible
Lender Trustee or the Servicer from any collections made by them which would
otherwise be payable to the collection account for such other trust and paid to
the Trust.
SECTION 4.03. REALIZATION UPON FINANCED STUDENT LOANS. For the
benefit of the Issuer, the Servicer shall use reasonable efforts consistent with
its customary servicing practices and procedures and including all efforts that
may be specified under the Higher Education Act or any Guarantee Agreement in
its servicing of any delinquent Financed Student Loans.
SECTION 4.04. COMPUTATION OF NOTE INTEREST RATE AND
CERTIFICATE RATE. Prior to each Determination Date, the Administrator shall
determine each Note Interest Rate and the Certificate Rate that will be
applicable to the Distribution Date following such Determination Date, in
compliance with its obligation to prepare and deliver an Administrator's
Certificate on such Determination Date pursuant to Section 4.08. In connection
therewith, the Administrator shall [calculate the T-Bill Rate in accordance with
the definition thereof] [, calculate Three-Month LIBOR in accordance with the
definition thereof] and shall also determine the Student Loan Rate with respect
to such Distribution Date; provided, however, that no such calculation of the
Student Loan Rate shall be required to be made unless [the T-Bill Rate] or
[Three-Month LIBOR] for such Interest Period is 100 basis points greater than
[the T-Bill Rate of the preceding Determination Date] or [Three-Month LIBOR of
the preceding Determination Date], respectively, [or with respect to T-Bill
Indexed Securities only, the 52 Week Treasury Bill Rate is 100 basis points less
than the T-Bill Rate as of such Determination Date].
SECTION 4.05. NO IMPAIRMENT. The Servicer shall not impair the
rights of the Issuer, the Eligible Lender Trustee, the Indenture Trustee, the
holders of Certificates or the holders of Notes in such Financed Student Loans.
SECTION 4.06. PURCHASE OF FINANCED STUDENT LOANS;
REIMBURSEMENT. The Servicer or the Eligible Lender Trustee shall inform the
other party as well as the Indenture Trustee and the Seller promptly, in
writing, upon the discovery of any breach pursuant to Section 4.01, 4.02, 4.03
or 4.05. Unless the breach shall have been cured within 60 days following such
discovery (or, at the Servicer's election, the last day of the first month
following such discovery), the Servicer shall purchase any Financed Student Loan
in which the interests of the holders of
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Notes or the holders of Certificates are materially and adversely affected by
such breach as of the first day succeeding the end of such 60-day period that is
the last day of a Collection Period (it being understood that any such breach
that does not affect any Guarantor's obligation to guarantee payment of such
Financed Student Loan in accordance with Guarantee Agreements will not be
considered to have a material adverse effect for this purpose). If the Servicer
takes any action or fails to take any action during any Collection Period
pursuant to the sections referred to above that impairs the rights of the
Issuer, the Indenture Trustee, the Eligible Lender Trustee, the holders of
Certificates or the holders of Notes in any Financed Student Loan or otherwise
than as provided in such sections, the Servicer shall purchase such Financed
Student Loan as of the last day of such Collection Period. In consideration of
the purchase of any such Financed Student Loan pursuant to either of the two
preceding sentences, the Servicer shall remit the Purchase Amount in the manner
specified in Section 5.04. In addition, if any such breach by the Servicer does
not trigger such a purchase obligation but does result in the refusal by a
Federal Guarantor to guarantee all or a portion of the accrued interest, or the
loss (including any obligation of the Issuer to repay to the Department) of
certain Interest Subsidy Payments and Special Allowance Payments, with respect
to a Financed Federal Loan, then, unless such breach, if curable, is cured
within 60 days, the Servicer shall reimburse the Issuer by remitting an amount
equal to the sum of all such non-guaranteed interest amounts and such forfeited
Interest Subsidy Payments and Special Allowance Payments in the manner specified
in Section 5.04. Subject to Section 7.02, the sole remedy of the Issuer, the
Eligible Lender Trustee, the Indenture Trustee, the holders of Certificates and
the holders of Notes with respect to a breach pursuant to Section 4.01, 4.02,
4.03 or 4.05 shall be to require the Servicer to purchase Financed Student Loans
or to reimburse the Issuer as provided above pursuant to this Section. The
Eligible Lender Trustee shall have no duty to conduct any affirmative
investigation as to the occurrence of any condition requiring the repurchase of
any Financed Student Loan or the reimbursement for any interest penalty pursuant
to this Section 4.06.
SECTION 4.07. SERVICING FEE; EXCESS SERVICING FEE. The
Servicing Fee for each calendar month payable on each Monthly Servicing Payment
Date and any Excess Servicing Fees payable on any Distribution Date shall be
equal to the amounts determined by reference to the schedule of fees as set
forth in the PHEAA Fee Schedule and the EFS Fee Schedule (The "PHEAA Fee
Schedule" and the "EFS Fee Schedule" shall be the respective fee schedules
delivered to the Eligible Lender Trustee. Notwithstanding anything to the
contrary contained herein or in any other Basic Document, the Servicer shall
only be entitled to receive any Excess Servicing Fee on any Distribution Date if
and to the extent that sufficient funds are available pursuant to Section
5.05(c)(viii).
SECTION 4.08. ADMINISTRATOR'S CERTIFICATE; SERVICER'S REPORT.
(a) On or before (i) the seventh day of each month (or, if any such day is not a
Business Day, on the next succeeding Business Day), the Servicer shall deliver
to the Seller a Servicer's Report with respect to the preceding calendar month
containing all information necessary for the preparation of the applicable
Transfer Agreement (including Schedule A), and (ii) the Closing Date or the
fifteenth day of each month (or, if any such day is not a Business Day, on the
next succeeding Business Day) or any other Transfer Date, the Servicer shall
deliver to the Administrator a Servicer's
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Report with respect to the preceding calendar month containing all information
necessary for the Administrator's preparation of the Administrator's Officers'
Certificate and the Administrator's Certificate covering such calendar month
referred to in paragraphs (b) and (c) below.
(b) On each Determination Date prior to a Monthly Servicing
Payment Date that is not a Distribution Date, the Administrator shall deliver to
the Eligible Lender Trustee, the Indenture Trustee and (if the Seller is not the
Administrator) the Seller, an Officer's Certificate of the Administrator
containing all information necessary to pay the Servicer the Servicing Fee due
on such Monthly Servicing Payment Date pursuant to Sections 5.05(b) and 5.06. In
addition, on the Business Day preceding each Transfer Date during the Funding
Period, the Administrator shall deliver to the Eligible Lender Trustee, the
Indenture Trustee, and (if the Seller is not the Administrator) the Seller, an
Officer's Certificate of the Administrator containing all information necessary
to make the transfers from the Escrow Account and the Pre-Funding Account on
such Transfer Date pursuant to Section 5.08.
(c) On each Determination Date prior to a Distribution Date,
the Administrator shall deliver to the Eligible Lender Trustee, the Indenture
Trustee and (if the Seller is not the Administrator) the Seller, with a copy to
the Rating Agencies, an Administrator's Certificate containing all information
necessary to make the distributions pursuant to Sections 5.05, 5.06 and
5.08(c)(i) and (ii), if applicable, for the Collection Period preceding the date
of such Administrator's Certificate. Financed Student Loans to be repurchased by
the Seller (whether pursuant to Section 2.03 or 3.02), purchased by the Servicer
or acquired by any Guarantor shall be identified by the Administrator by type of
loan and borrower social security number with respect to such Financed Student
Loan (as specified in Schedule A).
SECTION 4.09. ANNUAL STATEMENT AS TO COMPLIANCE; NOTICE OF
DEFAULT. (a) Each of the Servicer and the Administrator shall deliver to the
Seller, the Eligible Lender Trustee, the and the Indenture Trustee, on or before
March 30 of each year beginning March 30, 2000, an Officers' Certificate of the
Servicer or the Administrator, as the case may be, dated as of December 31 of
the preceding year, stating that (i) a review of the activities of the Servicer
or the Administrator, as the case may be, during the preceding 12-month period
(or, in the case of the first such certificate, during the period from the
Closing Date to December 31, 1999) and of its performance under this Agreement
has been made under such officers' supervision and (ii) to the best of such
officers' knowledge, based on such review, the Servicer or the Administrator, as
the case may be, has fulfilled all its obligations under this Agreement, or
under this Agreement and the Administration Agreement, respectively, throughout
such year or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officers and the nature
and status thereof. The Indenture Trustee shall send a copy of each such
Officers' Certificate and each report referred to in Section 4.10 to the Rating
Agencies. A copy of each such Officers' Certificate and each report referred to
in Section 4.10 may be obtained by any holder of Certificates, Certificate
Owner, holder of Notes or Note Owner by a request in writing to the Eligible
Lender Trustee addressed to its Corporate Trust Office, together with evidence
satisfactory to the Eligible Lender Trustee that such Person is one of the
foregoing parties. Upon the telephone request of the Eligible Lender Trustee,
the Indenture Trustee will promptly furnish
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the Eligible Lender Trustee a list of holders of Notes as of the date specified
by the Eligible Lender Trustee.
(b) The Servicer shall deliver to the Eligible Lender Trustee,
the Indenture Trustee, the Seller, and the Rating Agencies, promptly after
having obtained knowledge thereof, but in no event later than five Business Days
thereafter, written notice in an Officers' Certificate of such Servicer of any
event which with the giving of notice or lapse of time, or both, would become a
Servicer Default with respect to such Servicer under Section 8.01(a)(1) or (2).
(c) The Administrator shall deliver to the Eligible Lender
Trustee, the Indenture Trustee, the Servicer and the Rating Agencies, promptly
after having obtained knowledge thereof, but in no event later than five
Business Days thereafter, written notice in an Officers' Certificate of the
Administrator of any event which with the giving of notice or lapse of time, or
both, would become an Administrator Default under Section 8.01(b)(1) or (2) or
would cause Key Bank USA, National Association, to fail to meet any Rating
Agency Condition pursuant to Section 5.02(iii).
SECTION 4.10. ANNUAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS'
REPORT. Each of the Servicer and the Administrator shall cause a firm of
independent certified public accountants, which may also render other services
to the Servicer or the Administrator, as the case may be, to deliver to the
Seller, the Eligible Lender Trustee and the Indenture Trustee on or before March
30 of each year beginning March 30, 2000, (a) a report expressing a summary of
findings based upon a comparison of the mathematical calculations of certain
amounts set forth in the Servicer's Reports during the preceding calendar year
(or, in the case of the first such report, the period from the Closing Date to
December 31, 1999) with the Servicer's computer reports that were the source of
such amounts and a report with regard to the assertions by the Servicer's
management about the Servicer's compliance with this Agreement during the
preceding calendar year (or, in the case of the first such report, the period
from the Closing Date to December 31, 1999) and (b) a report addressed to the
Servicer, the Seller, the Eligible Lender Trustee, the Indenture Trustee and
each Rating Agency to the effect that (i) such accountants have relied upon the
assertions by the Servicer's management about the Servicer's compliance with
this Agreement during the preceding calendar year (or, in the case of the first
such report, during the period from the Closing Date to December 31, 1999) and
(ii) in such accountants' opinion, such assertions are fairly stated in all
material respects, except for such exceptions as such firm shall believe to be
immaterial and such other exceptions as shall be set forth in such report.
Such report will also indicate that the firm is independent of
the Servicer or the Administrator, as the case may be, within the meaning of the
Code of Professional Ethics of the American Institute of Certified Public
Accountants.
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SECTION 4.11. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION
REGARDING FINANCED STUDENT Loans. Upon reasonable prior notice, the Servicer
shall provide to the holders of Certificates and the holders of Notes access to
the Financed Student Loan Files in such cases where the holders of Certificates
or the holders of Notes shall be required by applicable statutes or regulations
to review such documentation, as demonstrated by evidence satisfactory to the
Servicer in its reasonable judgment. Access shall be afforded without charge,
but only upon reasonable request and during the normal business hours at the
respective offices of the Servicer. Nothing in this Section shall affect the
obligation of the Servicer to observe any applicable law prohibiting disclosure
of information regarding the Obligors and the failure of the Servicer to provide
access to information as a result of such obligation shall not constitute a
breach of this Section.
SECTION 4.12. SERVICER AND ADMINISTRATOR EXPENSES. Each
Servicer and the Administrator shall be severally required to pay all expenses
incurred by it in connection with its activities hereunder, including fees and
disbursements of independent accountants, taxes imposed on such Servicer or the
Administrator, as the case may be, and expenses incurred in connection with
distributions and reports to the Administrator or to the holders of Certificates
and the holders of Notes, as the case may be.
SECTION 4.13. APPOINTMENT OF SUBSERVICER. Each Servicer may at
any time, upon the written consent of the Administrator, appoint a subservicer
to perform all or any portion of its obligations as Servicer hereunder;
PROVIDED, HOWEVER, that the Rating Agency Condition shall have been satisfied in
connection therewith; PROVIDED FURTHER that each Servicer shall remain obligated
and be liable to the Issuer, the Eligible Lender Trustee, the Indenture Trustee,
the holders of Certificates and the holders of Notes for the servicing and
administering of the Financed Student Loans it services, as specified on
Schedules A and B hereto in accordance with the provisions hereof without
diminution of such obligation and liability by virtue of the appointment of such
subservicer and to the same extent and under the same terms and conditions as if
the Servicer alone were servicing and administering the Financed Student Loans
it services. The fees and expenses of the subservicer shall be as agreed between
the applicable Servicer and its subservicer from time to time and none of the
Issuer, the Eligible Lender Trustee, the Indenture Trustee, the holders of
Certificates or the holders of Notes shall have any responsibility therefor.
SECTION 4.14. SPECIAL PROGRAMS. The Servicer shall offer
borrowers of the Financed Student Loans all special incentive programs, whether
or not in existence as of the date of this Agreement, generally offered to the
obligors of comparable loans owned by the Seller; PROVIDED, HOWEVER, that to the
extent such programs are not required by the Higher Education Act and have the
effect of reducing the yield on the Financed Student Loans (either by reducing
borrower payments or reducing principal balance), such special programs shall be
applied to borrowers of Financed Student Loans only if and to the extent the
Issuer receives payment from the Seller in an amount sufficient to offset such
reduction of yield netted against any payments owed by the Trust to the Seller
pursuant to this Agreement.
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ARTICLE V
DISTRIBUTIONS; RESERVE ACCOUNT;
STATEMENTS TO CERTIFICATEHOLDERS AND NOTEHOLDERS
SECTION 5.01. ESTABLISHMENT OF TRUST ACCOUNTS. (a) (i) The
Administrator, for the benefit of the Issuer, shall establish and
maintain in the name of the Indenture Trustee an Eligible Deposit
Account (the "Collection Account"), bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of
the Issuer. The Collection Account will initially be established as a
segregated trust account at KeyBank National Association in the name of
the Indenture Trustee.
(ii) The Administrator, for the benefit of the Issuer, shall
establish and maintain in the name of the Indenture Trustee an Eligible
Deposit Account (the "Reserve Account"), bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of
the Issuer. The Reserve Account will initially be established as a
segregated trust account at KeyBank National Association in the name of
the Indenture Trustee.
(iii) The Administrator, for the benefit of the Issuer, shall
establish and maintain in the name of the Indenture Trustee an Eligible
Deposit Account (the "Pre-Funding Account"), bearing a designation
clearly indicating that the funds deposited therein are held for the
benefit of the Issuer. The Pre-Funding Account will initially be
established as a segregated trust account at KeyBank National
Association in the name of the Indenture Trustee.
(iv) The Administrator, for the benefit of the Issuer, shall
establish and maintain in the name of the Indenture Trustee an Eligible
Deposit Account (the " Escrow Account"), bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of
the Issuer. The Escrow Account will initially be established as a
segregated trust account at KeyBank National Association in the name of
the Indenture Trustee.
(b) Funds on deposit in the Collection Account, the Reserve
Account, the Pre-Funding Account and the Escrow Account (collectively, the
"Trust Accounts") shall be invested by the Indenture Trustee (or any custodian
or designated agent with respect to any amounts on deposit in such accounts) in
Eligible Investments pursuant to written instructions by the Administrator;
PROVIDED, HOWEVER, it is understood and agreed that neither the Administrator
nor the Indenture Trustee shall be liable for any loss arising from such
investment in Eligible Investments. All such Eligible Investments shall be held
by (or by any custodian on behalf of) the Indenture Trustee for the benefit of
the Issuer; provided that on the Business Day preceding each Distribution Date
all interest and other investment income (net of losses and investment expenses)
on funds on deposit therein shall be deposited into the Collection Account and
shall be
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deemed to constitute a portion of the Available Funds for such Distribution
Date. Other than as described in the following proviso or as otherwise permitted
by the Rating Agencies, funds on deposit in the Trust Accounts shall be invested
in Eligible Investments that will mature so that such funds will be available at
the close of business on the Business Day preceding the following Distribution
Date; PROVIDED, HOWEVER, that funds on deposit in Trust Accounts may be invested
in Eligible Investments of the Indenture Trustee which may mature so that such
funds will be available on such Distribution Date. Funds deposited in a Trust
Account on a Business Day which immediately precedes a Distribution Date upon
the maturity of any Eligible Investments are not required to be invested
overnight.
(c) (i) The Indenture Trustee shall possess all right, title
and interest in all funds on deposit from time to time in the Trust
Accounts and in all proceeds thereof (including all income thereon) and
all such funds, investments, proceeds and income shall be part of the
Trust Estate. Subject to the Administrator's power to instruct the
Indenture Trustee pursuant to paragraph (b) above and paragraph
(c)(iii) below, the Trust Accounts shall be under the sole dominion and
control of the Indenture Trustee for the benefit of the Issuer. If, at
any time, any of the Trust Accounts ceases to be an Eligible Deposit
Account, the Indenture Trustee (or the Administrator on its behalf)
agrees, by its acceptance hereto, that it shall within 10 Business Days
(or such longer period, not to exceed 30 calendar days, as to which
each Rating Agency may consent) establish a new Trust Account as an
Eligible Deposit Account and shall transfer any cash and/or any
investments to such new Trust Account. In connection with the
foregoing, the Administrator agrees that, in the event that any of the
Trust Accounts are not accounts with the Indenture Trustee, the
Administrator shall notify the Indenture Trustee in writing promptly
upon any of such Trust Accounts ceasing to be an Eligible Deposit
Account.
(ii) With respect to the Trust Account Property, the Indenture
Trustee agrees, by its acceptance hereof, that:
(A) any Trust Account Property that is held in deposit
accounts shall be held solely in Eligible Deposit Accounts, subject to the last
sentence of Section 5.01(c)(i); and, subject to Section 5.01(b), each such
Eligible Deposit Account shall be subject to the exclusive custody and control
of the Indenture Trustee, and the Indenture Trustee shall have sole signature
authority with respect thereto;
(B) any Trust Account Property shall be Delivered to the
Indenture Trustee in accordance with the definition of "Delivery" and shall be
held, pending maturity or disposition, solely by the Indenture Trustee or such
other Person acting solely for the Indenture Trustee as required for Delivery;
(C) In the event that the Indenture Trustee, in its capacity
as securities intermediary has or subsequently obtains by agreement, operation
of law or otherwise a security interest in the Trust Accounts or any security
entitlement credited thereto, the Indenture Trustee, in its capacity as
securities intermediary hereby agrees that such security interest shall be
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subordinate to the security interest of the Indenture Trustee. The financial
assets and other items deposited to the Trust Accounts will not be subject to
deduction, set-off, banker's lien, or any other right in favor of any person
other than the Indenture Trustee (except that the Indenture Trustee, in its
capacity as securities intermediary may set off (i) all amounts due to it in
respect of its customary fees and expenses for the routine maintenance and
operation of the Trust Accounts, and (ii) the face amount of any checks which
have been credited to the Trust Accounts but are subsequently returned unpaid
because of uncollected or insufficient funds).
(iii) The Administrator shall have the power, revocable for
cause or upon the occurrence and during the continuance of an
Administrator Default by the Indenture Trustee or by the Eligible
Lender Trustee with the consent of the Indenture Trustee, to instruct
the Indenture Trustee to make withdrawals and payments from the Trust
Accounts for the purpose of permitting the Servicers, the Administrator
or the Eligible Lender Trustee to carry out its respective duties
hereunder or permitting the Indenture Trustee to carry out its duties
under the Indenture.
SECTION 5.02. COLLECTIONS. The Servicer shall remit within two
Business Days of receipt thereof to the Collection Account all payments by or on
behalf of the Obligors with respect to the Financed Student Loans (other than
Purchased Student Loans), and all Liquidation Proceeds, as collected during the
Collection Period. Notwithstanding the foregoing, for so long as (i) Key Bank
USA, National Association remains the Administrator, (ii) no Administrator
Default shall have occurred and be continuing and (iii) prior to ceasing daily
remittances to the Collection Account, the Rating Agency Condition shall have
been satisfied (and any conditions or limitations imposed by the Rating Agencies
in connection therewith are complied with), the Servicer shall remit such
collections within two Business Days of receipt thereof to the Administrator,
and the Administrator need not deposit such collections into the Collection
Account until one Business Day immediately prior to the next following
Distribution Date; PROVIDED, HOWEVER, that, notwithstanding the foregoing, on or
before the Business Day preceding each Monthly Servicing Payment Date that is
not a Distribution Date, the Administrator shall deposit into the Collection
Account (i) that portion of such amounts received by it that is equal to the
Servicing Fee payable on such date and (ii) Guarantee Payments made by TERI in
excess of the Maximum TERI Payments Amount. In the event that any of the
foregoing conditions for ceasing daily remittances shall no longer be satisfied,
then the Administrator shall deposit all collections held by it into the
Collection Account within five Business Days thereof. For purposes of this
Article V, the phrase "payments by or on behalf of Obligors" shall mean payments
made with respect to the Financed Student Loans by or on behalf of borrowers
thereof and the Guarantors (but excluding the Department).
SECTION 5.03. APPLICATION OF COLLECTIONS. (a) With respect to
each Financed Student Loan, all collections (including all Guarantee Payments,
but subject to the Maximum TERI Payments Amount with respect to TERI Guarantee
Payments) with respect thereto for the Collection Period shall be applied to
interest and principal on such Financed Student Loan by the Servicer in
accordance with its customary practice by allocating to interest (i) any late
payment charge or any similar fee received with respect to such Financed Student
Loan and (ii) the
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portion of such collection equal to the product of (A) the applicable interest
rate on such Financed Student Loan, (B) the unpaid principal balance of such
Financed Student Loan and (C) the period of time elapsed since the preceding
payment of interest on such Financed Student Loan was made (over the actual
number of days in a year) ("Interest Collections") and by allocating the
remainder of such collection to principal.
(b) All Liquidation Proceeds shall be applied to the related
Financed Student Loan.
SECTION 5.04. ADDITIONAL DEPOSITS. (a) Within two Business
Days after receipt thereof, the Eligible Lender Trustee shall deposit in the
Collection Account the aggregate amount of Interest Subsidy Payments and Special
Allowance Payments received by it with respect to the Financed Federal Loans.
The Servicer shall deposit or cause to be deposited in the Collection Account
the aggregate Purchase Amount with respect to Purchased Student Loans and all
other amounts to be paid by the Servicer under Section 4.06 when such amounts
are due, and the Seller shall deposit or cause to be deposited therein the
aggregate Purchase Amount with respect to Purchased Student Loans and all other
amounts to be paid by the Seller under Sections 3.02 and 9.01 when such amounts
are due.
(b) Notwithstanding anything to the contrary set forth in
paragraph (a) above, if daily deposits to the Collection Account are not
required pursuant to Section 5.02, the Eligible Lender Trustee, the Seller and
the Servicer shall pay the amounts referred to in paragraph (a) above that would
otherwise be deposited into the Collection Account to the Administrator. The
Administrator shall not be required to deposit such amounts into the Collection
Account until the Business Day preceding each Distribution Date.
SECTION 5.05. DISTRIBUTIONS. (a) On each Determination Date,
the Administrator shall calculate all amounts required to determine the amounts
to be deposited in the Collection Account from the other Trust Accounts and the
amounts to be distributed therefrom on the related Monthly Servicing Payment
Date or Distribution Date.
(b) On each Monthly Servicing Payment Date that is not a
Distribution Date, the Administrator shall instruct the Indenture Trustee (based
on the information contained in the Administrator's Officer's Certificate and
each related Servicer's report delivered pursuant to Section 4.08(a) and (b)) to
distribute (i) to the Servicers by 11:00 a.m. (New York time), from and to the
extent of the Available Funds on deposit in the Collection Account the Servicing
Fee due with respect to the preceding calendar month and all unpaid Servicing
Fees from prior months and (ii) to the Seller any amounts on deposit in the
Collection Account which consist of Guarantee Payments made by TERI in excess of
the Maximum TERI Payments Amount and the Indenture Trustee shall comply with
such instructions.
(c) On each Distribution Date, the Administrator shall
instruct the Indenture Trustee (based on the information contained in the
Administrator's Certificate and each related Servicer's Report delivered
pursuant to Section 4.08(a) and (c)) to make the following deposits
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and distributions to the Persons or to the account specified below by 11:00 a.m.
(New York time), to the extent of the amount of Available Funds in the
Collection Account, in the following order of priority and the Indenture Trustee
shall comply with such instructions:
(i) to the Seller, any amounts on deposit in the Collection
Account which consist of Guarantee Payments made by TERI in excess of
the Maximum TERI Payments Amount;
(ii) to the Servicers, the Servicing Fee due with respect to
the preceding calendar month and all unpaid Servicing Fees from prior
months;
(iii) to the Administrator, from the amount of Available Funds
remaining after the application of clauses (i) and (ii), the
Administration Fee and all unpaid Administration Fees from prior
Collection Periods;
(iv) to the holders of the Notes, from the amount of Available
Funds remaining after the application of clauses (i), (ii) and (iii),
the Noteholders' Interest Distribution Amount for such Notes pursuant
to Section 8.02(c)(i) of the Indenture;
(v) to the Eligible Lender Trustee on behalf of the holders of
the Certificates, from the amount of Available Funds remaining after
the application of clauses (i), (ii), (iii) and (iv), the
Certificateholders' Interest Distribution Amount;
(vi) to the Reserve Account from the amount of Available Funds
remaining after the application of clauses (i) through (v), an amount,
up to the amount, if any, necessary to reinstate the balance of the
Reserve Account up to the Specified Reserve Account Balance;
(vii) to the holders of the Notes, from the amount of
Available Funds remaining after the application of clauses (i) through
(vi), the Noteholders' Principal Distribution Amount to be allocated
pursuant to Section 8.02(c)(ii) of the Indenture;
(viii) on each Distribution Date on and after the date on
which the Notes have been paid in full, to the Eligible Lender Trustee
on behalf of the holders of the related Certificates, from the amount
of Available Funds remaining after the application of clauses (i)
through (vii), the Certificateholders' Principal Distribution Amount;
(ix) to the Servicers, from the amount of Available Funds
remaining after the application of clauses (i) through (viii), the
aggregate unpaid amount, if any, of the Excess Servicing Fee;
(x) to the holders of the Notes on a pro rata basis, based on
the amount of Noteholders' Interest Index Carryover owing on each class
of Notes, from the amount of
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Available Funds remaining after the application of clauses (i) through
(x), the aggregate unpaid amount of Noteholders' Interest Index
Carryover, if any;
(xi) to the Eligible Lender Trustee on behalf of the holders
of the Certificates, from the amount of Available Funds remaining after
the application of clauses (i) through (x), the aggregate unpaid amount
of the Certificateholders' Interest Index Carryover, if any;
(xii) to the Seller, the amount of Available Funds remaining
after the application of clauses (i) through (xi).
Notwithstanding anything to the contrary contained in this
Section 5.05(c), if the outstanding principal balance of the Notes
(after giving effect to any amounts to be distributed to the holders of
the Notes pursuant to Section 5.05(c) (vi) above) is in excess of the
Note Collateralization Amount, the holders of the Notes shall receive
the Noteholder's Priority Principal Distribution Amount prior to any
payment to the holders of the Certificates of the Certificateholders'
Interest Distribution Amount pursuant to Section 5.05(c) (iv) above.
(d) On each Transfer Date which occurs during the period which
begins after the Funding Period and ends on the Loan Purchase Termination Date,
the Administrator shall instruct the Indenture Trustee to make withdrawals from
the Escrow Account, until all amounts deposited therein during the calendar
month immediately preceding such Transfer Date have been exhausted (provided
however, that no funds on deposit in the Escrow Account may be used to acquire
Subsequent Pool Student Loans), and then from the Collection Account up to the
amount of Available Loan Purchase Funds for such Transfer Date on deposit
therein, (i) an amount equal to 100% of the sum of (A) the principal balance of,
plus (B) to the extent capitalized or to be capitalized, accrued interest on,
the Other Student Loans (such sum, a "Transferred Balance") and transferred to
the Eligible Lender Trustee on behalf of the Issuer on such Transfer Date and to
distribute such amount to or upon the order of the Seller upon satisfaction of
the conditions set forth in Section 2.02A(b) with respect to such transfer, and
to distribute such amount to or upon the order of the Seller and (ii) on each
such Transfer Date on which Guarantee Fee Advances are to be conveyed to the
Eligible Lender Trustee on behalf of the Issuer, an amount equal to the
principal balance of such Guarantee Fee Advances and to distribute such amount
to or upon the order of the Seller upon satisfaction of the conditions set forth
in Section 2.02A(b) with respect to such transfer of Guarantee Fee Advances.
SECTION 5.06. RESERVE ACCOUNT. (a) On the Closing Date, the
Seller shall deposit the Reserve Account Initial Deposit into the Reserve
Account.
(b) (i) In the event that the Servicing Fee for any Monthly
Servicing Payment Date or Distribution Date exceeds the amount distributed to
the Servicer pursuant to Sections 5.05(b) and 5.05(c) on such Monthly Servicing
Payment Date or Distribution Date, the Administrator shall instruct the
Indenture Trustee to withdraw from the Reserve Account on such
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Monthly Servicing Payment Date or Distribution Date an amount equal to such
excess, to the extent of funds available therein, and to distribute such amount
to the Servicers; PROVIDED, HOWEVER, that, amounts on deposit in the Reserve
Account will not be available to cover any unpaid Excess Servicing Fees to the
Servicers.
(ii) In the event that the Administration Fee for any
Distribution Date exceeds the amount distributed to the Administrator
pursuant to Section 5.05(c)(ii) on such Distribution Date, the
Administrator shall instruct the Indenture Trustee to withdraw from the
Reserve Account on each Distribution Date an amount equal to such
excess, to the extent of funds available therein after giving effect to
paragraph (b)(i) above, and to distribute such amount to the
Administrator.
(iii) [Reserved]
(iv) [Reserved]
(v) In the event that the Noteholders' Interest Distribution
Amount for a Distribution Date exceeds the amount distributed to the
holders of Notes pursuant to Section 5.05(c)(iii) on such Distribution
Date, the Administrator shall instruct the Indenture Trustee to
withdraw from the Reserve Account on such Distribution Date an amount
equal to such excess, to the extent of funds available therein after
giving effect to paragraph (b)(i) and (b)(ii) above, and to distribute
such amount to the holders of Notes entitled thereto, in the same order
and priority as is set forth in Section 5.05(c)(iii); PROVIDED,
HOWEVER, that, amounts on deposit in the Reserve Account will not be
available to cover any unpaid Noteholders' Interest Index Carryover.
(vi) In the event that (A) the Certificateholders' Interest
Distribution Amount for a Distribution Date exceeds the amount
distributed to holders of Certificates pursuant to Section 5.05(c)(iv)
on such Distribution Date and (B) the Note Collateralization Amount is
equal to or greater than the outstanding principal balance of the Notes
(after giving effect to distributions on the Notes on such Distribution
Date, the Administrator shall instruct the Indenture Trustee on such
Distribution Date to withdraw from the Reserve Account on such
Distribution Date an amount equal to the excess described in clause (A)
above, to the extent of funds available therein after giving effect to
paragraphs (b)(i), (b)(ii) and (b)(v) above, and to distribute such
amount to the holders of Certificates entitled thereto, in the same
order and priority as is set forth in Section 5.05(c)(iv); PROVIDED,
HOWEVER, that amounts on deposit in the Reserve Account will not be
available to cover any unpaid Certificateholders' Interest Index
Carryover.
(vii) In the event that on the Final Maturity Date for the
Class A-1 Notes, the outstanding principal balance of the Class A-1
Notes (prior to giving effect to any distribution of principal thereon
on such date) exceeds the amount of principal distributed to the
holders of the Class A-1 Notes on such date pursuant to Section
5.05(c)(vi), the Administrator shall instruct the Indenture Trustee on
such date to withdraw from the
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Reserve Account on such date an amount equal to such excess, to the
extent of funds available therein, after giving effect to paragraphs
(b)(i), (b)(ii), (b)(v) and (b)(vi) above, and to distribute such
amount to the holders of the Class A-1 Notes, in the same order and
priority as is set forth in Section 5.05(c)(vi).
(viii) In the event that on the Final Maturity Date for the
Class A-2 Notes the outstanding principal balance of the Class A-2
Notes (prior to giving effect to any distribution of principal thereon
on such date), exceeds the amount of principal distributed to the
holders of the Class A-2 Notes on such date pursuant to Section
5.05(c)(vi), the Administrator shall instruct the Indenture Trustee on
such date to withdraw from the Reserve Account on such date an amount
equal to such excess, to the extent of funds available therein, after
giving effect to paragraphs (b)(i), (b)(ii), (b)(v), (b)(vi) and
(b)(vii) above, and to distribute such amount to the holders of the
Class A-2 Notes, in the same order and priority as set forth in Section
5.05 (c)(vi).
(ix) In the event that on the Final Maturity Date for the
Certificates the Certificateholders' Principal Distribution Amount
exceeds the amount distributed to the holders of the Certificates
pursuant to Section 5.05(c)(vii), the Administrator shall instruct the
Indenture Trustee on such date to withdraw from the Reserve Account on
such date an amount equal to such excess, to the extent of funds
available therein after giving effect to paragraphs (b)(i), (b)(ii),
(b)(vi), (b)(vii) and (b)(viii) above, and to distribute such amount to
the holders of Certificates entitled thereto, in the same order and
priority as is set forth in Section 5.05 (c)(vii).
(c) [Reserved]
(d) If the amount on deposit in the Reserve Account on any
Distribution Date (without giving effect to all deposits or withdrawals
therefrom on such Distribution Date) is greater than the Specified Reserve
Account Balance for such Distribution Date, the Administrator shall instruct the
Indenture Trustee to deposit the amount of such excess into the Collection
Account for distribution on such Distribution Date.
(e) Following the payment in full of the aggregate outstanding
principal balance of the Notes and the Certificate Balance and of all other
amounts owing or to be distributed hereunder or under the Indenture or the Trust
Agreement to holders of Notes and Certificates, the Servicer or the
Administrator (including any Excess Servicing Fees, Noteholders' Interest Index
Carryover and Certificateholders' Interest Index Carryover) and the termination
of the Trust, any amount remaining on deposit in the Reserve Account shall be
distributed to the Seller. The Seller shall in no event be required to refund
any amounts properly distributed pursuant to this Section 5.06(e).
SECTION 5.07. STATEMENTS TO CERTIFICATEHOLDERS AND
NOTEHOLDERS. On each Determination Date preceding a Distribution Date, the
Administrator shall provide to the Indenture Trustee (with a copy to the Rating
Agencies) for the Indenture Trustee to forward on
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such succeeding Distribution Date to each holder of record of the Notes and to
the Eligible Lender Trustee for the Eligible Lender Trustee to forward on such
succeeding Distribution Date to each holder of record of the Certificates a
statement substantially in the form of Exhibits A and B, respectively, setting
forth at least the following information as to the Notes and the Certificates,
to the extent applicable:
(i) the amount of the distribution allocable to principal of
each of the Class A-1 Notes, the Class A-2 Notes and the Certificates;
(ii) the amount of the distribution allocable to interest on
each of the Class A-1 Notes, the Class A-2 Notes and the Certificates
together with the interest rates applicable with respect thereto
(indicating whether such interest rates are based on (x) [the T-Bill
Rate, in the case of T-Bill Indexed Securities] or [Three-Month LIBOR
in the case of LIBOR Indexed Securities] or (y) the Student Loan Rate
and specifying what each such interest rate would have been if it had
been calculated using the alternate basis; provided that no such
calculation of the Student Loan Rate will be required to be made unless
[the T-Bill Rate] or [Three-Month LIBOR] for such Interest Period is
100 basis points greater than the [T-Bill Rate of the preceding
Determination Date] or [Three-Month LIBOR, of the preceding
Determination Date], respectively[, or with respect to T-Bill Indexed
Securities only, the 52 Week Treasury Bill Rate is 100 basis points
less than the T-Bill Rate as of such Determination Date]);
(iii) the amount of the distribution, if any, allocable to any
Noteholders' Interest Index Carryover and any Certificateholders'
Interest Index Carryover together with the outstanding amount, if any,
of each thereof after giving effect to any such distribution;
(iv) the Pool Balance as of the close of business on the last
day of the preceding Collection Period, after giving effect to payments
allocated to principal reported as described in clause (i) above;
(v) the aggregate outstanding principal balance of each class
of Notes, the Certificate Balance and each Pool Factor as of such
Distribution Date, after giving effect to payments allocated to
principal reported under clause (i) above;
(vi) the amount of the Servicing Fee and any Excess Servicing
Fee paid to the Servicers and the amount of the Administration Fee paid
to the Administrator, respectively, with respect to such Collection
Period, and the amount, if any, of the Excess Servicing Fee remaining
unpaid after giving effect to any such payment;
(vii) the amount of the aggregate Realized Losses, if any, for
such Collection Period and the balance of Financed Student Loans that
are delinquent in each delinquency period as of the end of such
Collection Period;
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(viii) the balance of the Reserve Account on such Distribution
Date, after giving effect to changes therein on such Distribution Date;
(ix) for Distribution Dates during the Funding Period, the
remaining Pre-Funded Amount on such Distribution Date, after giving
effect to changes therein during the related Collection Period;
(x) for the first Distribution Date, the Subsequent Pool
Pre-Funded Amount, if any, remaining in the Subsequent Pool Pre-Funding
Subaccount that has not been used to acquire Subsequent Pool Student
Loans and is being paid out to the holders of the Notes and holders of
the Certificates; and
(xi) for the first Distribution Date on or following the end
of the Funding Period, the amount of any remaining Pre-Funded Amount
that has not been used to make Additional Fundings and is being paid
out to the holders of the Notes.
Each amount set forth pursuant to clauses (i), (ii), (iii), (v) and (vi) above
shall be expressed as a dollar amount per $1,000 of original principal balance
of a Certificate or Note, as applicable. A copy of the statements referred to
above may be obtained by any Certificate Owner or Note Owner by a written
request to the Eligible Lender Trustee or the Indenture Trustee, respectively,
addressed to the respective Corporate Trust Office.
SECTION 5.08. PRE-FUNDING ACCOUNT. (a) On the Closing Date,
the Seller will deposit in the Pre-Funding Account $________ (including
$___________ representing the Negative Carry Initial Deposit) from the net
proceeds of the sale of the Notes and the Certificates. A portion of the amount
on deposit in the Pre-Funding Account equal to $________ (the "Subsequent Pool
Pre-Funded Amount") will be credited on the Closing Date to a designated
subaccount maintained by the Indenture Trustee within the Pre-Funding Account
(the "Subsequent Pool Pre-Funding Subaccount"). The Negative Carry Initial
Deposit will be credited on the Closing Date to the Subsequent Pool Pre-Funding
Subaccount. The remainder of the amount on deposit in the Pre-Funding Account
equal to $________ will be credited on the Closing Date to a designated
subaccount maintained by the Indenture Trustee within the Pre-Funding Account
(the "Other Additional Pre-Funding Subaccount"). No funds in the Other
Additional Pre-Funding Subaccount may be used to purchase Subsequent Pool
Student Loans until the Subsequent Pool Pre-Funded Amount has been reduced to
zero. On each Transfer Date during the Funding Period on which Subsequent Pool
Student Loans to be conveyed to the Eligible Lender Trustee on behalf of the
Issuer, the Administrator shall instruct the Indenture Trustee to withdraw an
amount equal to ____% of the sum of (x) the principal balance of, plus (y) to
the extent capitalized or to be capitalized, accrued interest on, such
Subsequent Pool Student Loans, first from the Subsequent Pool Pre-Funding
Subaccount until the Subsequent Pool Pre-Funded Amount has been reduced to zero
and then any remainder from the Other Additional Pre-Funding Subaccount. On each
Transfer Date during the Funding Period on which Other Subsequent Student Loans
to be conveyed to the Eligible Lender Trustee on behalf of the Issuer, the
Administrator shall instruct the Indenture Trustee to withdraw an amount equal
to
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___% of the sum of (x) the principal balance of, plus (y) to the extent
capitalized or to be capitalized, accrued interest on, such Other Subsequent
Student Loans (each sum of clauses (x) and (y) set forth in this sentence and
the previous sentence being, a "Transferred Balance"), first from the Escrow
Account until all amounts deposited therein during the calendar month
immediately preceding the Transfer Date have been reduced to zero and then any
remainder from the Other Additional Pre-Funding Subaccount. The Administrator
shall instruct the Indenture Trustee to distribute any Transferred Balance to or
upon the order of the Seller upon satisfaction of the conditions set forth in
Section 2.02(b) with respect to such transfer. On each Transfer Date on which
Subsequent Pool Student Loans are to be conveyed to the Eligible Lender Trustee
on behalf of the Issuer, the Administrator shall instruct the Indenture Trustee
to withdraw an amount equal to ____% of the Transferred Balance of such
Subsequent Pool Student Loans, first from the Subsequent Pre-Funding Subaccount
until the Subsequent Pool Pre-Funded Amount has been reduced to zero and then
any remainder from the Other Additional Pre-Funding Subaccount and to deposit
such amount into the Reserve Account upon satisfaction of the conditions set
forth in Section 2.02(b) with respect to such transfer. On each Transfer Date on
which Guarantee Fee Advances are to be conveyed to the Eligible Lender Trustee
on behalf of the Issuer, the Administrator shall instruct the Indenture Trustee
to withdraw from the Other Additional Pre-Funding Subaccount an amount equal to
the principal balance of such Guarantee Fee Advances and to distribute such
amount to or upon the order of the Seller upon satisfaction of the conditions
set forth in Section 2.02(b) with respect to such transfer of Guarantee Fee
Advances.
(b) In the event that any funds deposited in the Escrow
Account during the calendar month immediately preceding any Transfer Date remain
on deposit therein on such Transfer Date, after giving effect to all Additional
Fundings to be made with respect to such Transfer Date pursuant to paragraph (a)
above or Section 5.05(d), as applicable, the Indenture Trustee shall transfer
such remaining funds from the Escrow Account to the Collection Account and such
funds shall be considered collections with respect to the Financed Student
Loans.
(c) (i) If as of the Special Determination Date (after giving
effect to all Additional Fundings on such date) the Subsequent Pool Pre-Funded
Amount has not been reduced to zero, the Administrator shall instruct the
Indenture Trustee pursuant to Section 4.08(c) to withdraw from the Subsequent
Pool Pre-Funding Subaccount on the first Distribution Date the remaining
Subsequent Pool Pre-Funded Amount on deposit in such subaccount and, (x) if such
amount is greater than $10,000,000, distribute the applicable Noteholders'
Percentage of such amount to the holders of Class A-1 Notes and Class A-2 Notes
on a pro rata basis, based on the initial principal amount of the Class A-1
Notes and the Class A-2 Notes, as a payment of principal in the same manner as
the Noteholders' Principal Distribution Amount is distributed, and distribute
the Certificateholders' Percentage of such amount to the holders of Certificates
as a payment of principal in the same manner as the Certificateholders'
Principal Distribution Amount is distributed, and (y) if such amount is
$10,000,000 or less, distribute such amount to the holders of Class A-1 Notes as
a payment of principal in the same manner as the Noteholders' Principal
Distribution Amount is distributed.
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(ii) If (x) the Pre-Funded Amount has not been reduced to zero
on the Distribution Date on which the Funding Period ends (or, if the
Funding Period does not end on a Distribution Date, on the first
Distribution Date following the end of the Funding Period) after giving
effect to any reductions in the Pre-Funded Amount on such Distribution
Date pursuant to paragraph (a) above, the Administrator shall instruct
the Indenture Trustee pursuant to Section 4.08(c) to withdraw from the
Pre-Funding Account on such Distribution Date an amount equal to the
Pre-Funded Amount and shall transfer such remaining funds from the
Pre-Funding Account to the Collection Account and such funds shall be
considered collections with respect to the Financed Student Loans.
(d) (i) In the event that the Servicing Fee for any Monthly
Servicing Payment Date or Distribution Date during the Funding Period
exceeds the amount distributed to the Servicer pursuant to Sections
5.05(b), 5.05(c)(i) and 5.06(b)(i) on such Monthly Servicing Payment
Date or Distribution Date, the Administrator shall instruct the
Indenture Trustee to withdraw from the Other Additional Pre-Funding
Subaccount on such Monthly Servicing Payment Date or Distribution Date
an amount equal to such excess, to the extent of funds available
therein, and to distribute such amount to the Servicers; PROVIDED,
HOWEVER, that, amounts on deposit in the Other Additional Pre-Funding
Subaccount will not be available to cover any unpaid Excess Servicing
Fees to the Servicers.
(ii) In the event that the Administration Fee for any
Distribution Date during the Funding Period exceeds the amount
distributed to the Administrator pursuant to Sections 5.05(c)(ii) and
5.06(b)(ii) on such Distribution Date, the Administrator shall instruct
the Indenture Trustee to withdraw from the Other Additional Pre-Funding
Subaccount on each Distribution Date an amount equal to such excess, to
the extent of funds available therein after giving effect to paragraph
(d)(i) above, and to distribute such amount to the Administrator.
(iii) In the event that the Noteholders' Interest Distribution
Amount for a Distribution Date during the Funding Period exceeds the
amount distributed to the holders of Notes pursuant to Sections
5.05(c)(iii) and 5.06(b)(v) on such Distribution Date, the
Administrator shall instruct the Indenture Trustee to withdraw from the
Other Additional Pre-Funding Subaccount on such Distribution Date an
amount equal to such excess, to the extent of funds available therein
after giving effect to paragraph (d)(i) and (d)(ii) above, and to
distribute such amount to the holders of Notes entitled thereto, in the
same order and priority as is set forth in Section 5.05(c)(iii).
(iv) In the event that (x) the Certificateholders' Interest
Distribution Amount for the Certificates for a Distribution Date
exceeds the amount distributed to the holders of Certificates pursuant
to Sections 5.05(c)(iv) and 5.06(b)(vi) on such Distribution Date and
(y) the Note Collateralization Amount is equal to or greater than the
outstanding principal balance of the Notes (after giving effect to
distributions on the Notes, on such Distribution Date), the
Administrator shall instruct the Indenture Trustee on such
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Distribution Date to withdraw from the Other Additional Pre-Funding
Subaccount on such Distribution Date an amount equal to the excess
described in clause (x) above, to the extent of funds available therein
after giving effect to paragraphs (d)(i), (d)(ii) and (d)(iii) above,
and to distribute such amount to the holders of Certificates entitled
thereto, in the same order and priority as is set forth in Section
5.05(c)(iv).
SECTION 5.09. NEGATIVE CARRY INITIAL DEPOSIT. On the Closing
Date, the Seller will deposit in the Subsequent Pool Pre-Funding Subaccount the
Negative Carry Initial Deposit from the net proceeds of the sale of the Notes
and the Certificates. On the Final Subsequent Transfer Date, the Administrator
will instruct the Indenture Trustee to withdraw from the Subsequent Pool
Pre-Funding Subaccount and deposit into the Collection Account all or a portion
of the Negative Carry Initial Deposit equal to the difference (if positive)
between (i) the product of (a) a fraction the numerator of which is the actual
number of days from the Cutoff Date to the Subsequent Cutoff Date relating to
the Student Loans transferred on the Final Subsequent Transfer Date, and the
denominator of which is 365, (b) the current weighted average of the Note
Interest Rates and the Certificate Interest Rate, each as measured for the
period of time commencing on the Closing Date and ending on the Final Subsequent
Pool Transfer Date, and (c) the Subsequent Pool Pre-Funded Amount as of the
Final Transfer Date minus (ii) the investment earnings on the Subsequent Pool
Pre-Funded Amount and Negative Carry Initial Deposit from the Closing Date to
the Final Subsequent Transfer Date. Any amounts remaining in the Negative Carry
Account after making such deposit to the Collection Account shall be released by
the Indenture Trustee to the Seller.
ARTICLE VI
THE SELLER AND THE ADMINISTRATOR
SECTION 6.01. REPRESENTATIONS OF SELLER AND ADMINISTRATOR. Key
Bank USA, National Association, as Seller and Administrator, makes the following
representations on which the Issuer is deemed to have relied in acquiring the
Financed Student Loans. The representations speak as of the execution and
delivery of this Agreement and the Administration Agreement and as of the
Closing Date, in the case of the Initial Financed Student Loans, and as of the
applicable Transfer Date, in the case of the Additional Student Loans, and shall
survive the sale of the Financed Student Loans to the Eligible Lender Trustee on
behalf of the Issuer and the pledge thereof to the Indenture Trustee pursuant to
the Indenture. As used below, references to Key Bank USA, National Association
shall mean Key Bank USA, National Association in its capacity as both the Seller
and the Administrator.
(a) ORGANIZATION AND GOOD STANDING. Key Bank USA, National
Association is duly organized and validly existing as a national banking
association in good standing under the laws of the United States of America,
with the power and authority to own its properties and to conduct its business
as such properties are currently owned and such business is presently
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conducted, and had at all relevant times, and has, the power, authority and
legal right to acquire and own the Financed Student Loans.
(b) POWER AND AUTHORITY OF THE SELLER. The Seller has the
corporate power and authority to execute and deliver this Agreement and to carry
out its terms; the Seller has full corporate power and authority to sell and
assign the property to be sold and assigned to and deposited with the Issuer (or
with the Eligible Lender Trustee on behalf of the Issuer) and the Seller has
duly authorized such sale and assignment to the Issuer (or to the Eligible
Lender Trustee on behalf of the Issuer) by all necessary corporate action; and
the execution, delivery and performance of this Agreement have been duly
authorized by the Seller by all necessary corporate action.
(c) POWER AND AUTHORITY OF THE ADMINISTRATOR. The
Administrator has the corporate power and authority to execute and deliver this
Agreement and the Administration Agreement and to carry out their terms, and the
execution, delivery and performance of this Agreement and the Administration
Agreement have been duly authorized by the Administrator by all necessary
corporate action.
(d) BINDING OBLIGATION. This Agreement constitutes a legal,
valid and binding obligation of Key Bank USA, National Association and the
Administration Agreement constitutes a legal, valid and binding obligation of
the Administrator, in each case enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization and similar laws
relating to creditors' rights generally or the rights of creditors of banks the
deposit accounts of which are insured by the FDIC and subject to general
principles of equity.
(e) NO VIOLATION. The consummation of the transactions
contemplated by this Agreement or the Administration Agreement and the
fulfillment of the terms hereof or thereof do not conflict with, result in any
breach of any of the terms and provisions of, nor constitute (with or without
notice or lapse of time or both) a default under, the articles of association or
by-laws of Key Bank USA, National Association, or any indenture, agreement or
other instrument to which Key Bank USA, National Association is a party or by
which it shall be bound, which breach or default would reasonably be expected to
have a material adverse affect on the condition of Key Bank USA, National
Association, financial or otherwise, or adversely effect the transactions
contemplated by this Agreement or the Administration Agreement; nor result in
the creation or imposition of any Lien upon any of its properties pursuant to
the terms of any such indenture, agreement or other instrument (other than
pursuant to the Basic Documents); nor violate any law or, to the knowledge of
Key Bank USA, National Association, any order, rule or regulation applicable to
Key Bank USA, National Association of any court or of any Federal or state
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over Key Bank USA, National Association or its properties.
(f) NO PROCEEDINGS. There are no proceedings or, to its best
knowledge, investigations pending against Key Bank USA, National Association or,
to its best knowledge, threatened against Key Bank USA, National Association
before any court, regulatory body,
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administrative agency or other governmental instrumentality having jurisdiction
over Key Bank USA, National Association or its properties: (i) asserting the
invalidity of this Agreement, the Indenture or any of the other Basic Documents,
the Notes or the Certificates, (ii) seeking to prevent the issuance of the Notes
or the Certificates or the consummation of any of the transactions contemplated
by this Agreement, the Indenture or any of the other Basic Documents, (iii)
seeking any determination or ruling that could reasonably be expected to have a
material and adverse effect on the performance by Key Bank USA, National
Association of its obligations under, or the validity or enforceability of, this
Agreement, the Indenture, any of the other Basic Documents, the Notes or the
Certificates or (iv) seeking to affect adversely the Federal or state income tax
attributes of the Issuer, the Notes or the Certificates.
(g) ALL CONSENTS. All authorizations, consents, orders or
approvals of or registrations or declarations with any court, regulatory body,
administrative agency or other government instrumentality required to be
obtained, effected or given by Key Bank USA, National Association in connection
with the execution and delivery by Key Bank USA, National Association of this
Agreement and the performance by Key Bank USA, National Association of the
transactions contemplated by this Agreement, and in connection with the
execution and delivery by the Administrator of the Administration Agreement and
the performance by the Administrator of its duties thereunder, have in each case
been duly obtained, effected or given and are in full force and effect.
SECTION 6.02. EXISTENCE. During the term of this Agreement,
the Seller will keep in full force and effect its existence, rights and
franchises as a national banking association under the laws of the jurisdiction
of its organization, subject, however, to Section 6.05 hereof.
SECTION 6.03. LIABILITY OF SELLER; INDEMNITIES. The Seller
shall be liable in accordance herewith only to the extent of the obligations
specifically undertaken by the Seller under this Agreement.
(a) The Seller shall indemnify, defend and hold harmless the
Issuer, the Eligible Lender Trustee and the Indenture Trustee and their
officers, directors, employees and agents from and against any taxes that may at
any time be asserted against any such Person with respect to the transactions
contemplated herein and in the other Basic Documents (except any such income
taxes arising out of fees paid to the Eligible Lender Trustee or the Indenture
Trustee), including any sales, gross receipts, general corporation, tangible
personal property, privilege or license taxes (but, in the case of the Issuer,
not including any taxes asserted with respect to, and as of the date of, the
sale of the Financed Student Loans to the Eligible Lender Trustee on behalf of
the Issuer or the issuance and original sale of the Certificates and the Notes,
or asserted with respect to ownership of the Financed Student Loans or Federal
or other income taxes arising out of distributions on the Certificates and the
Notes) and costs and expenses in defending against the same.
(b) The Seller shall indemnify, defend and hold harmless the
Issuer, the Eligible Lender Trustee, the Indenture Trustee, the holders of
Certificates and the holders of
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Notes and the officers, directors, employees and agents of the Issuer, the
Eligible Lender Trustee and the Indenture Trustee from and against any and all
costs, expenses, losses, claims, damages and liabilities arising out of, or
imposed upon such Person through, (i) the Seller's willful misfeasance, bad
faith or negligence in the performance of its duties under this Agreement, or by
reason of reckless disregard of its obligations and duties under this Agreement
and (ii) the Seller's or the Issuer's violation of Federal or state securities
laws in connection with the offering and sale of the Notes and the Certificates.
(c) The Seller shall be liable as primary obligor for, and
shall indemnify, defend and hold harmless the Eligible Lender Trustee and its
officers, directors, employees and agents from and against, all costs, expenses,
losses, claims, damages, obligations and liabilities arising out of, incurred in
connection with or relating to the Trust Agreement, the other Basic Documents,
the Trust Estate, the acceptance or performance of the trusts and duties set
forth herein and in the Trust Agreement or the action or the inaction of the
Eligible Lender Trustee hereunder and under the Trust Agreement, except to the
extent that such cost, expense, loss, claim, damage, obligation or liability:
(i) shall be due to the willful misfeasance, bad faith or negligence (except for
errors in judgment) of the Eligible Lender Trustee, (ii) shall arise from any
breach by the Eligible Lender Trustee of its covenants under any of the Basic
Documents; or (iii) shall arise from the breach by the Eligible Lender Trustee
of any of its representations or warranties set forth in Section 7.03 of the
Trust Agreement. In the event of any claim, action or proceeding for which
indemnity will be sought pursuant to this paragraph, the Eligible Lender
Trustee's choice of legal counsel shall be subject to the approval of the
Seller, which approval shall not be unreasonably withheld.
(d) The Seller shall pay any and all taxes levied or assessed
upon all or any part of the Trust Estate (other than those taxes expressly
excluded from the Seller's responsibilities pursuant to Section 6.03(a) above).
Indemnification under this Section shall survive the
resignation or removal of the Eligible Lender Trustee or the Indenture Trustee
and the termination of this Agreement or the Indenture or the Trust Agreement,
as applicable, and shall include reasonable fees and expenses of counsel and
expenses of litigation. If the Seller shall have made any indemnity payments
pursuant to this Section and the Person to or on behalf of whom such payments
are made thereafter shall collect any of such amounts from others, such Person
shall promptly repay such amounts to the Seller, without interest.
SECTION 6.04. LIABILITY OF ADMINISTRATOR; INDEMNITIES. The
Administrator shall be liable in accordance herewith only to the extent of the
obligations specifically undertaken by the Administrator under this Agreement,
the Supplemental Sale and Servicing Agreement or the Administration Agreement.
The Administrator shall indemnify, defend and hold harmless
the Issuer, the Eligible Lender Trustee, the Indenture Trustee, the Servicers,
the holders of Certificates and the holders of Notes and any of the officers,
directors, employees and agents of the Issuer, the
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Eligible Lender Trustee, the Indenture Trustee and the Servicers from and
against any and all costs, expenses, losses, claims, damages and liabilities to
the extent that such cost, expense, loss, claim, damage or liability arose out
of, or was imposed upon any such Person through, the negligence, willful
misfeasance or bad faith of the Administrator in the performance of its duties
under this Agreement, the Supplemental Sale and Servicing Agreement or the
Administration Agreement or by reason of reckless disregard of its obligations
and duties hereunder or thereunder.
The Administrator shall pay reasonable compensation to the
Indenture Trustee and shall reimburse the Indenture Trustee for all reasonable
expenses, disbursements and advances, and indemnify, defend and hold harmless
the Indenture Trustee and its officers, directors, employees and agents from and
against all costs, expenses, losses, claims, damages and liabilities, to the
extent and in the manner provided in, and subject to the limitations of, Section
6.07 of the Indenture.
For purposes of this Section, in the event of the termination
of the rights and obligations of the Administrator (or any successor thereto
pursuant to Section 6.05) as Administrator pursuant to Section 8.01(b), or a
resignation by such Administrator pursuant to this Agreement, such Administrator
shall be deemed to be the Administrator pending appointment of a successor
Administrator pursuant to Section 8.02.
Indemnification under this Section shall survive the
resignation or removal of the Eligible Lender Trustee or the Indenture Trustee
or the termination of this Agreement, the Supplemental Sale and Servicing
Agreement and the Administration Agreement and shall include reasonable fees and
expenses of counsel and expenses of litigation. If the Administrator shall have
made any indemnity payments pursuant to this Section and the Person to or on
behalf of whom such payments are made thereafter collects any of such amounts
from others, such Person shall promptly repay such amounts to the Administrator,
without interest.
SECTION 6.05. MERGER OR CONSOLIDATION OF, OR
ASSUMPTION OF THE OBLIGATIONS OF, SELLER OR ADMINISTRATOR. Any Person (a) into
which the Seller or the Administrator, as the case may be, may be merged or
consolidated, (b) which may result from any merger or consolidation to which the
Seller or the Administrator, as the case may be, shall be a party or (c) which
may succeed to the properties and assets of the Seller or the Administrator, as
the case may be, substantially as a whole, shall be the successor to the Seller
or the Administrator, as the case may be, without the execution or filing of any
document or any further act by any of the parties to this Agreement or to the
Administration Agreement; PROVIDED, HOWEVER, that each of the Seller and the
Administrator hereby covenant that it will not consummate any of the foregoing
transactions except upon satisfaction of the following: (i) the surviving Seller
or Administrator, as the case may be, if other than Key Bank USA, National
Association (or affiliate thereof), executes an agreement of assumption to
perform every obligation of the Seller under this Agreement or the Administrator
under this Agreement and the Administration Agreement, as the case may be, (ii)
immediately after giving effect to such transaction, no representation or
warranty made pursuant to Section 3.01 or 6.01 shall have been
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breached and no Administrator Default, and no event that, after notice or lapse
of time, or both, would become an Administrator Default shall have occurred and
be continuing, (iii) the surviving Seller or Administrator, as the case may be,
if other than Key Bank USA, National Association (or affiliate thereof), shall
have delivered to the Eligible Lender Trustee and the Indenture Trustee an
Officers' Certificate and an Opinion of Counsel each stating that such
consolidation, merger or succession and such agreement of assumption comply with
this Section and that all conditions precedent, if any, provided for in this
Agreement relating to such transaction have been complied with, and that the
Rating Agency Condition shall have been satisfied with respect to such
transaction, (iv) the surviving Seller or Administrator, as the case may be,
shall have a consolidated net worth at least equal to that of the predecessor
Seller or Administrator, as the case may be, (v) unless Key Bank USA, National
Association(or affiliate thereof) is the surviving entity, such transaction will
not result in a material adverse Federal or state tax consequence to the Issuer,
the holders of Notes or the holders of Certificates and (vi) unless Key Bank
USA, National Association (or affiliate thereof) is the surviving entity, the
Seller or the Administrator, as the case may be, shall have delivered to the
Eligible Lender Trustee and the Indenture Trustee an Opinion of Counsel either
(A) stating that, in the opinion of such counsel, all financing statements and
continuation statements and amendments thereto have been executed and filed that
are necessary fully to preserve and protect the interest of the Eligible Lender
Trustee and Indenture Trustee, respectively, in the Financed Student Loans and
reciting the details of such filings, or (B) stating that, in the opinion of
such counsel, no such action shall be necessary to preserve and protect such
interests.
SECTION 6.06. LIMITATION ON LIABILITY OF SELLER, ADMINISTRATOR
AND OTHERS. (a) The Seller and any director or officer or employee or agent of
the Seller may rely in good faith on the advice of counsel or on any document of
any kind, prima facie properly executed and submitted by any Person respecting
any matters arising hereunder (provided that such reliance shall not limit in
any way the Seller's obligations under Section 3.02). The Seller shall not be
under any obligation to appear in, prosecute or defend any legal action that
shall not be incidental to its obligations under this Agreement, and that in its
opinion may involve it in any expense or liability.
(b) Neither the Administrator nor any of its directors,
officers, employees or agents shall be under any liability to the Issuer, the
holders of Notes or the holders of Certificates, the Indenture Trustee or the
Eligible Lender Trustee except as provided under this Agreement or the
Administration Agreement, for any action taken or for refraining from the taking
of any action pursuant to this Agreement or the Administration Agreement or for
errors in judgment; PROVIDED, HOWEVER, that this provision shall not protect the
Administrator or any such person against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties under this Agreement or under the Administration Agreement. The
Administrator and any of its directors, officers, employees or agents may rely
in good faith on the advice of counsel or on any document of any kind, prima
facie properly executed and submitted by any Person respecting any matters
arising hereunder or under the Administration Agreement.
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Except as provided in this Agreement or the Administration
Agreement, the Administrator shall not be under any obligation to appear in,
prosecute or defend any legal action that shall not be incidental to its duties
to administer the Financed Student Loans and the Trust in accordance with this
Agreement and the Administration Agreement, and that in its opinion may involve
it in any expense or liability; PROVIDED, HOWEVER, that the Administrator may
undertake any reasonable action that it may deem necessary or desirable in
respect of this Agreement and the other Basic Documents and the rights and
duties of the parties to this Agreement and the other Basic Documents and the
interests of the holders of Certificates under this Agreement and the holders of
the holders of Notes under the Indenture.
SECTION 6.07. SELLER MAY OWN CERTIFICATES OR NOTES. The Seller
and any Affiliate thereof may in its individual or any other capacity become the
owner or pledgee of Certificates or Notes with the same rights as it would have
if it were not the Seller or an Affiliate thereof, except as expressly provided
herein or in any other Basic Document.
SECTION 6.08. KEY BANK USA, NATIONAL ASSOCIATION NOT TO RESIGN
AS ADMINISTRATOR. Subject to the provisions of Section 6.05, Key Bank USA,
National Association shall not resign from the obligations and duties imposed on
it as Administrator under this Agreement and under the Administration Agreement
except upon determination that the performance of its duties under this
Agreement and under the Administration Agreement shall no longer be permissible
under applicable law or shall violate any final order of a court or
administrative agency with jurisdiction over Key Bank USA or its properties.
Notice of any such determination permitting the resignation of Key Bank USA,
National Association shall be communicated to the Eligible Lender Trustee and
the Indenture Trustee at the earliest practicable time (and, if such
communication is not in writing, shall be confirmed in writing at the earliest
practicable time) and any such determination shall be evidenced by an Opinion of
Counsel to such effect delivered to the Eligible Lender Trustee and the
Indenture Trustee concurrently with or promptly after such notice. No such
resignation shall become effective until the Indenture Trustee or a successor
Administrator shall have assumed the responsibilities and obligations of Key
Bank USA, National Association in accordance with Section 8.02.
ARTICLE VII
THE SERVICER
SECTION 7.01. REPRESENTATIONS OF SERVICER. The Servicer makes
the following representations on which the Issuer is deemed to have relied in
acquiring (through the Eligible Lender Trustee) the Financed Student Loans and
appointing the Servicer as servicer hereunder. The representations speak as of
the execution and delivery of this Agreement and as of the Closing Date, in the
case of the Initial Financed Student Loans, and as of the applicable Transfer
Date, in the case of the Additional Student Loans, but shall survive the sale,
transfer and
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assignment of the Financed Student Loans to the Eligible Lender Trustee on
behalf of the Issuer and the pledge thereof to the Indenture Trustee pursuant to
the Indenture.
(a) ORGANIZATION AND GOOD STANDING. The Servicer, in the case
of PHEAA, is duly organized and validly existing as an agency of the
Commonwealth of Pennsylvania and in the case of EFS, is duly organized and
validly existing as a corporation in the State of Indiana, in each case in good
standing under the laws of the state of its incorporation, with the power and
authority to own its properties and to conduct its business as such properties
are currently owned and such business is presently conducted, and had at all
relevant times, and has, the power, authority and legal right to service the
Financed Student Loans and to hold the Financed Student Loan Files as custodian.
(b) DUE QUALIFICATION. The Servicer is duly qualified to do
business and has obtained all necessary licenses and approvals in all
jurisdictions in which the ownership or lease of property or the conduct of its
business (including the servicing of the Financed Student Loans as required by
this Agreement) shall require such qualifications.
(c) POWER AND AUTHORITY. The Servicer has the power and
authority to execute and deliver this Agreement and to carry out its terms; and
the execution, delivery and performance of this Agreement have been duly
authorized by the Servicer by all necessary action. No registration with or
approval of any governmental agency (except, in the case of PHEAA, for the
approval as to form and legality by the Deputy Attorney General for the
Commonwealth of Pennsylvania, which approval is evidenced by the approval
memorandum attached hereto) is required for the due execution and delivery by,
and enforceability against, the Servicer of this Agreement.
(d) BINDING OBLIGATION. This Agreement constitutes a legal,
valid and binding obligation of the Servicer enforceable in accordance with its
terms.
(e) NO VIOLATION. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof shall not
conflict with, result in any breach of any of the terms and provisions of, nor
constitute (with or without notice or lapse of time or both) a default under,
its enabling legislation, any applicable articles of incorporation or by-laws of
the Servicer, or any indenture, agreement or other instrument to which the
Servicer is a party or by which it shall be bound; nor result in the creation or
imposition of any Lien upon any of its properties pursuant to the terms of any
such indenture, agreement or other instrument (other than this Agreement); nor
violate any law or, to the best of the Servicer's knowledge, any order, rule or
regulation applicable to the Servicer of any court or of any Federal or state
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Servicer or its properties.
(f) NO PROCEEDINGS. There are no proceedings or investigations
pending, or, to the Servicer's best knowledge, threatened, before any court,
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Servicer or its
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properties: (i) asserting the invalidity of this Agreement, the Indenture, any
of the other Basic Documents, the Notes or the Certificates, (ii) seeking to
prevent the issuance of the Notes or the Certificates or the consummation of any
of the transactions contemplated by this Agreement, the Indenture or any of the
other Basic Documents, (iii) seeking any determination or ruling that could
reasonably be expected to have a material and adverse effect on the performance
by the Servicer of its obligations under, or the validity or enforceability of,
this Agreement, the Indenture, any of the other Basic Documents, the Notes or
the Certificates or (iv) relating to the Servicer and which might adversely
affect the Federal or state income tax attributes of the Notes or the
Certificates.
(g) NO AMENDMENT OR WAIVER. No provision of a Financed Student
Loan has been waived, altered or modified in any respect, except pursuant to a
document, instrument or writing included in the Financed Student Loan File, and
no such amendment, waiver, alteration or modification causes such Financed
Student Loan not to conform to the other warranties contained in this Section or
those of the Seller contained in Section 3.01.
(h) LOCATION OF FINANCED STUDENT LOAN FILES. The Financed
Student Loan Files are kept in the offices of the Servicer specified in Schedule
C hereto, or at such other office specified in accordance with Section 3.04(b).
SECTION 7.02. INDEMNITIES OF SERVICER. The Servicer shall be
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer under this Agreement.
The Servicer shall pay for any loss, liability or expense,
including reasonable attorney's fees, that may be imposed on, incurred by or
asserted against the Issuer, the Eligible Lender Trustee, the Indenture Trustee,
the Seller, the Administrator, the holders of Certificates or the holders of
Notes or any of the officers, directors, employees and agents of the Issuer, the
Eligible Lender Trustee, the Indenture Trustee, the Administrator or the Seller
to the extent that such loss, liability or expense arose out of, or was imposed
upon any such Person through, the negligence, willful misfeasance or bad faith
of the Servicer in the performance of its obligations and duties under this
Agreement or the Supplemental Sale and Servicing Agreement or by reason of the
reckless disregard of its obligations and duties under this Agreement or the
Supplemental Sale and Servicing Agreement, where the final determination that
any such loss, liability or expense arose out of, or was imposed upon any such
Person through, any such negligence, willful misfeasance, bad faith or
recklessness on the part of the Servicer is established by a court of law, by an
arbitrator or by way of settlement agreed to by the Servicer. Notwithstanding
the foregoing, if the Servicer is rendered unable, in whole or in part, by a
force outside the control of the parties hereto (including acts of God, acts of
war, fires, earthquakes and other disasters) to satisfy its obligations under
this Agreement or the Supplemental Sale and Servicing Agreement, the Servicer
shall not be deemed to have breached any such obligation upon delivery of
written notice of such event to the other parties hereto, for so long as the
Servicer remains unable to perform such obligation as a result of such event.
This provision shall not be construed to limit the sovereign immunity of the
Commonwealth of Pennsylvania (in the case of PHEAA) or the
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Servicer's or any other party's rights, obligations, liabilities, claims or
defenses which arise as a matter of law or pursuant to any other provision of
this Agreement.
For purposes of this Section, in the event of the termination
of the rights and obligations of PHEAA or EFS (or any successor thereto pursuant
to Section 7.03) as Servicer pursuant to Section 8.01(a), or a resignation by
such Servicer pursuant to this Agreement, such Servicer shall be deemed to be
the Servicer pending appointment of a successor Servicer pursuant to Section
8.02.
Liability of the Servicer under this Section shall survive the
resignation or removal of the Eligible Lender Trustee or the Indenture Trustee
or the termination of this Agreement. If the Servicer shall have made any
payments pursuant to this Section and the Person to or on behalf of whom such
payments are made thereafter collects any of such amounts from others, such
Person shall promptly repay such amounts to the Servicer, without interest.
SECTION 7.03. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, SERVICER. The Servicer hereby agrees that, upon (a) any merger
or consolidation of the Servicer into another Person, (b) any merger or
consolidation to which the Servicer shall be a party resulting in the creation
of another Person or (c) any Person succeeding to the properties and assets of
the Servicer substantially as a whole, the Servicer shall (i) cause such Person
(if other than the Servicer) to execute an agreement of assumption to perform
every obligation of the Servicer hereunder and under the Supplemental Sale and
Servicing Agreement, (ii) deliver to the Eligible Lender Trustee and Indenture
Trustee an Officers' Certificate and an Opinion of Counsel each stating that
such consolidation, merger or succession and such agreement of assumption comply
with this Section and that all conditions precedent provided for in this
Agreement relating to such transaction have been complied with, (iii) cause the
Rating Agency Condition to have been satisfied with respect to such transaction
and (iv) cure any existing Servicer Default or any continuing event which, after
notice or lapse of time or both, would become a Servicer Default. Upon
compliance with the foregoing requirements, such Person shall be the successor
to the Servicer under this Agreement without further act on the part of any of
the parties to this Agreement.
SECTION 7.04. LIMITATION ON LIABILITY OF SERVICER AND OTHERS.
Neither the Servicer nor any of the directors, officers, employees or agents of
the Servicer shall be under any liability to the Issuer, the holders of Notes or
the holders of Certificates, except as provided under this Agreement or the
Supplemental Sale and Servicing Agreement, for any action taken or for
refraining from the taking of any action pursuant to this Agreement or the
Supplemental Sale and Servicing Agreement or for errors in judgment; PROVIDED,
HOWEVER, that this provision shall not protect the Servicer or any such person
against any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of duties or by reason
of reckless disregard of obligations and duties under this Agreement or the
Supplemental Sale and Servicing Agreement. The Servicer and any director,
officer, employee or agent of the Servicer may rely in good faith on any
document of any kind prima facie properly executed and submitted by any person
respecting any matters arising under this Agreement.
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Except as provided in this Agreement, the Servicer shall not
be under any obligation to appear in, prosecute or defend any legal action that
shall not be incidental to its duties to service the Financed Student Loans in
accordance with this Agreement and the Supplemental Sale and Servicing
Agreement, and that in its opinion may involve it in any expense or liability;
PROVIDED, HOWEVER, that the Servicer may undertake any reasonable action that it
may deem necessary or desirable in respect of this Agreement and the other Basic
Documents and the rights and duties of the parties to this Agreement and the
other Basic Documents and the interests of the holders of Certificates under
this Agreement and the holders of Notes under the Indenture.
SECTION 7.05. NEITHER PHEAA NOR EFS TO RESIGN AS SERVICER.
Subject to the provisions of Section 7.03, neither PHEAA nor EFS shall resign
from the obligations and duties hereby imposed on it as Servicer under this
Agreement and the Supplemental Sale and Servicing Agreement except upon
determination that the performance of its duties under this Agreement and the
Supplemental Sale and Servicing Agreement shall no longer be permissible under
applicable law. Notice of any such determination permitting the resignation of
PHEAA or EFS shall be communicated to the Eligible Lender Trustee and the
Indenture Trustee at the earliest practicable time (and, if such communication
is not in writing, shall be confirmed in writing at the earliest practicable
time) and any such determination shall be evidenced by an Opinion of Counsel to
such effect delivered to the Eligible Lender Trustee and the Indenture Trustee
concurrently with or promptly after such notice. No such resignation shall
become effective until the Indenture Trustee or a Successor Servicer shall have
assumed the responsibilities and obligations of PHEAA or EFS in accordance with
Section 8.02.
ARTICLE VIII
DEFAULT
SECTION 8.01. SERVICER DEFAULT; ADMINISTRATOR DEFAULT. (a)
SERVICER DEFAULT. If any one of the following events (a "Servicer Default")
shall occur and be continuing:
(1) any failure by the Servicer (i) to deliver to the
Indenture Trustee for deposit in any of the Trust Accounts any payment required
by the Basic Documents or (ii) in the event that daily deposits into the
Collection Account are not required, to deliver to the Administrator any payment
required by the Basic Documents, which failure in case of either clause (i) or
(ii) continues unremedied for three Business Days after written notice of such
failure is received by the Servicer from the Eligible Lender Trustee, the
Indenture Trustee or the Administrator or after discovery of such failure by an
officer of the Servicer; or
(2) any failure by the Servicer duly to observe or to perform
in any material respect any other covenants or agreements of the Servicer set
forth in this Agreement or any other Basic Document, which failure shall (i)
materially and adversely affect the rights of the
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holders of Notes or the holders of Certificates and (ii) continues unremedied
for a period of 60 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given (A) to the Servicer by
the Indenture Trustee, the Eligible Lender Trustee, the other Servicer or the
Administrator or (B) to the Servicer, and to the Indenture Trustee and the
Eligible Lender Trustee by the holders of Notes or the holders of Certificates,
as applicable, representing not less than 25% of the Outstanding Amount of the
Notes or 25% of the outstanding Certificate Balance;
(3) an Insolvency Event occurs with respect to the Servicer;
or
(4) any failure by the Servicer to comply with any
requirements under the Higher Education Act resulting in a loss of its
eligibility as a third-party servicer;
then, and in each and every case, so long as the Servicer Default shall not have
been remedied, either the Indenture Trustee, or the holders of Notes evidencing
not less than 25% of the Outstanding Amount of the Notes, by notice then given
in writing to the Servicer (and to the Indenture Trustee and the Eligible Lender
Trustee if given by the holders of Notes) may terminate all the rights and
obligations (other than the obligations set forth in Section 7.02 hereof) of the
Servicer under this Agreement and the Supplemental Sale and Servicing Agreement.
On or after the receipt by the Servicer of such written notice, all authority
and power of the Servicer under this Agreement and the Supplemental Sale and
Servicing Agreement, whether with respect to the Notes, the Certificates or the
Financed Student Loans or otherwise, shall, without further action, pass to and
be vested in the Indenture Trustee or such successor Servicer as may be
appointed under Section 8.02; and, without limitation, the Indenture Trustee and
the Eligible Lender Trustee are hereby authorized and empowered to execute and
deliver, for the benefit of the predecessor Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and endorsement of the
Financed Student Loans and related documents, or otherwise. The predecessor
Servicer shall cooperate with the successor Servicer, the Indenture Trustee and
the Eligible Lender Trustee in effecting the termination of the responsibilities
and rights of the predecessor Servicer under this Agreement and the Supplemental
Sale and Servicing Agreement, including the transfer to the successor Servicer
for administration by it of all cash amounts that shall at the time be held by
the predecessor Servicer for deposit, or shall thereafter be received by it with
respect to a Financed Student Loan. All reasonable costs and expenses (including
attorneys' fees) incurred in connection with transferring the Financed Student
Loan Files to the successor Servicer and amending this Agreement and any other
Basic Documents to reflect such succession as Servicer pursuant to this Section
shall be paid by the predecessor Servicer upon presentation of reasonable
documentation of such costs and expenses. Upon receipt of notice of the
occurrence of a Servicer Default, the Eligible Lender Trustee shall give notice
thereof to the Rating Agencies.
(b) ADMINISTRATOR DEFAULT. If any one of the following events
(an "Administrator Default") shall occur and be continuing:
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(1) (i) in the event that daily deposits into the Collection
Account are not required, any failure by the Administrator to deliver to the
Indenture Trustee for deposit in any of the Trust Accounts any Available Funds
required to be paid on or before the Business Day immediately preceding any
Monthly Servicing Payment Date or Distribution Date, as applicable, or (ii) any
failure by the Administrator to direct the Indenture Trustee to make any
required distributions from any of the Trust Accounts, which failure in case of
either clause (i) or (ii) continues unremedied for three Business Days after
written notice of such failure is received by the Administrator from the
Indenture Trustee or the Eligible Lender Trustee or after discovery of such
failure by an officer of the Administrator; or
(2) any failure by the Administrator duly to observe or to
perform in any material respect any other covenants or agreements of the
Administrator set forth in this Agreement, the Administration Agreement or any
other Basic Document, which failure shall (i) materially and adversely affect
the rights of the holders of Notes or the holders of Certificates and (ii)
continues unremedied for a period of 60 days after the date on which written
notice of such failure, requiring the same to be remedied, shall have been given
(A) to the Administrator by the Indenture Trustee or the Eligible Lender Trustee
or (B) to the Administrator and to the Indenture Trustee and the Eligible Lender
Trustee by the holders of Notes or the holders of Certificates, as applicable,
representing not less than 25% of the Outstanding Amount of the Notes or 25% of
the outstanding Certificate Balance; or
(3) an Insolvency Event occurs with respect to the
Administrator;
then, and in each and every case, so long as the Administrator Default shall not
have been remedied, either the Indenture Trustee, or the holders of Notes
evidencing not less than 25% of the Outstanding Amount of the Notes, by notice
then given in writing to the Administrator (and to the Indenture Trustee and the
Eligible Lender Trustee if given by the holders of Notes) may terminate all the
rights and obligations (other than the obligations set forth in Section 6.04
hereof) of the Administrator under this Agreement, the Supplemental Sale and
Servicing Agreement and the Administration Agreement. On or after the receipt by
the Administrator of such written notice, all authority and power of the
Administrator under this Agreement, the Supplemental Sale and Servicing
Agreement and the Administration Agreement, whether with respect to Notes, the
Certificates or the Financed Student Loans or otherwise, shall, without further
action, pass to and be vested in the Indenture Trustee or such successor
Administrator as may be appointed under Section 8.02; and, without limitation,
the Indenture Trustee and the Eligible Lender Trustee are hereby authorized and
empowered to execute and deliver, for the benefit of the predecessor
Administrator, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination. The
predecessor Administrator shall cooperate with the successor Administrator, the
Indenture Trustee and the Eligible Lender Trustee in effecting the termination
of the responsibilities and rights of the predecessor Administrator under this
Agreement, the Supplemental Sale and Servicing Agreement and the Administration
Agreement. All reasonable costs and expenses (including attorneys' fees)
incurred in connection
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with amending this Agreement, the Supplemental Sale and Servicing Agreement and
the Administration Agreement to reflect such succession as Administrator
pursuant to this Section shall be paid by the predecessor Administrator upon
presentation of reasonable documentation of such costs and expenses. Upon
receipt of notice of the occurrence of a Administrator Default, the Eligible
Lender Trustee shall give notice thereof to the Rating Agencies.
SECTION 8.02. APPOINTMENT OF SUCCESSOR. (a) Upon receipt by a
Servicer or the Administrator, as the case may be, of notice of termination
pursuant to Section 8.01, or the resignation by a Servicer or the Administrator,
as the case may be, in accordance with the terms of this Agreement, the
predecessor Servicer or Administrator, as the case may be, shall continue to
perform its functions as Servicer or Administrator, as the case may be, under
this Agreement or under this Agreement and the Administration Agreement, as the
case may be, in the case of termination, only until the date specified in such
termination notice or, if no such date is specified in a notice of termination,
until receipt of such notice and, in the case of resignation, until the later of
(x) the date 120 days from the delivery to the Eligible Lender Trustee and the
Indenture Trustee of written notice of such resignation (or written confirmation
of such notice) in accordance with the terms of this Agreement and (y) the date
upon which the predecessor Servicer or Administrator, as the case may be, shall
become unable to act as Servicer or Administrator, as the case may be, as
specified in the notice of resignation and accompanying Opinion of Counsel. In
the event of the termination hereunder of a Servicer or the Administrator, as
the case may be, the Issuer shall appoint a successor Servicer or Administrator,
as the case may be, acceptable to the Indenture Trustee, and the successor
Servicer or Administrator, as the case may be, shall accept its appointment by a
written assumption in form acceptable to the Indenture Trustee. In the event
that a successor Servicer or Administrator, as the case may be, has not been
appointed at the time when the predecessor Servicer or Administrator, as the
case may be, has ceased to act as Servicer or Administrator in accordance with
this Section, the Indenture Trustee without further action shall automatically
be appointed the successor Servicer or Administrator, as the case may be, and
the Indenture Trustee shall be entitled to the applicable portion of the
Servicing Fee and the applicable portion of any Excess Servicing Fees, or the
Administration Fee, as the case may be. Notwithstanding the above, the Indenture
Trustee shall, if it shall be unwilling or legally unable so to act, appoint or
petition a court of competent jurisdiction to appoint any established
institution whose regular business shall include the servicing of student loans,
as the successor to a Servicer under this Agreement or to the Administrator
under this Agreement and the Administration Agreement; PROVIDED, HOWEVER, that
such right to appoint or to petition for the appointment of any such successor
Servicer shall in no event relieve the Indenture Trustee from any obligations
otherwise imposed on it under the Basic Documents until such successor has in
fact assumed such appointment.
(b) Upon appointment, the successor Servicer or Administrator,
as the case may be (including the Indenture Trustee acting as successor Servicer
or Administrator, as the case may be), shall be the successor in all respects to
the predecessor Servicer or Administrator, as the case may be, and shall be
subject to all the responsibilities, duties and liabilities placed on the
predecessor Servicer or Administrator, as the case may be, that arise thereafter
or are related thereto and shall be entitled to an amount agreed to by such
successor Servicer or Administrator
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(which shall not exceed the applicable portion of the Servicing Fee and the
applicable portion of any Excess Servicing Fees, or the Administration Fee, as
the case may be, unless such compensation arrangements will not result in a
downgrading of Notes or the Certificates by any Rating Agency) and all the
rights granted to the predecessor Servicer or Administrator, as the case may be,
by the terms and provisions of this Agreement.
(c) Neither the Servicer nor the Administrator may resign
unless it is prohibited from serving as such by law as evidenced by an Opinion
of Counsel to such effect delivered to the Indenture Trustee and the Eligible
Lender Trustee. Notwithstanding the foregoing or anything to the contrary herein
or in the other Basic Documents, the Indenture Trustee, to the extent it is
acting as successor Servicer or Administrator pursuant hereto and thereto, shall
be entitled to resign to the extent a qualified successor Servicer or
Administrator has been appointed and has assumed all the obligations of the
Servicer or the Administrator, as the case may be, in accordance with the terms
of this Agreement and the other Basic Documents.
SECTION 8.03. NOTIFICATION TO NOTEHOLDERS AND
CERTIFICATEHOLDERS. Upon any termination of, or appointment of a successor to, a
Servicer or the Administrator, as the case may be, pursuant to this Article
VIII, the Eligible Lender Trustee shall give prompt written notice thereof to
the holders of Certificates and the Indenture Trustee shall give prompt written
notice thereof to holders of Notes and the Rating Agencies (which, in the case
of any such appointment of a successor, shall consist of prior written notice
thereof to the Rating Agencies).
SECTION 8.04. WAIVER OF PAST DEFAULTS. The holders of Notes
evidencing not less than a majority of the Outstanding Amount of the Notes (or
the holders of Certificates evidencing not less than a majority of the
outstanding Certificate Balance, in the case of any default which does not
adversely affect the Indenture Trustee or the holders of Notes) may, on behalf
of all the holders of Notes and the holders of Certificates, waive in writing
any default by the Servicer in the performance of its obligations hereunder, and
any default by the Administrator in the performance of its obligations hereunder
and under the Administration Agreement, and any consequences thereof, except a
default in making any required deposits to or payments from any of the Trust
Accounts (or giving instructions regarding the same) in accordance with this
Agreement. Upon any such waiver of a past default, such default shall cease to
exist, and any Servicer Default or Administrator Default arising therefrom shall
be deemed to have been remedied for every purpose of this Agreement and the
Administration Agreement. No such waiver shall extend to any subsequent or other
default or impair any right consequent thereto.
ARTICLE IX
TERMINATION
SECTION 9.01. TERMINATION. (a) OPTIONAL PURCHASE OF ALL
FINANCED STUDENT LOANS. As of the last day of any Collection Period immediately
preceding a Distribution Date as
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of which the sum of the then outstanding Pool Balance is 5% or less of the
Initial Pool Balance, the Seller shall have the option to purchase the Trust
Estate, other than the Trust Accounts; PROVIDED, HOWEVER, that, unless Moody's
agrees otherwise, the Seller may not effect any such purchase so long as the
rating on its long-term debt obligations is less than Baa3 by Moody's, unless
the Eligible Lender Trustee and the Indenture Trustee shall have given notice to
each of the Rating Agencies and shall have received an Opinion of Counsel to the
effect that such purchase would not constitute a fraudulent conveyance. To
exercise such option, the Seller shall deposit pursuant to Section 5.04 in the
Collection Account an amount equal to the aggregate Purchase Amount for the
Financed Student Loans and the related rights with respect thereto, plus the
appraised value of any such other property held by the Trust other than the
Trust Accounts, such value to be determined by an appraiser mutually agreed upon
by the Seller and the Eligible Lender Trustee, and shall succeed to all
interests in and to the Trust; PROVIDED, HOWEVER, that the Seller may not effect
such purchase if the aggregate Purchase Amount to be so deposited in the
Collection Account does not equal or exceed an amount equal to the sum of (i)
the unpaid principal amount of the Notes then outstanding plus accrued and
unpaid interest thereon at the applicable Note Interest Rates to the date of
exercise and the amount of unpaid Noteholders' Interest Index Carryover with
respect thereto and (ii) the unpaid Certificate Balance, plus accrued and unpaid
interest thereon at the Certificate Rate to the date of exercise and the amount
of unpaid Certificateholders' Interest Index Carryover with respect thereto.
(b) INSOLVENCY OF THE SELLER. Upon any sale of the assets of
the Trust pursuant to Section 9.02 of the Trust Agreement, the Administrator
shall instruct the Indenture Trustee to deposit the net proceeds from such sale
after all payments and reserves therefrom (including the expenses of such sale)
have been made (the "Insolvency Proceeds") in the Collection Account. On the
Distribution Date, or, if such proceeds are not so deposited on a Distribution
Date, on the first Distribution Date following the date on which the Insolvency
Proceeds are deposited in the Collection Account, the Administrator shall
instruct the Indenture Trustee to make the following distributions (after the
application on such Distribution Date of the amount of Available Funds and
amounts on deposit in the Reserve Account pursuant to Sections 5.05 and 5.06)
from the Insolvency Proceeds and any funds remaining on deposit in the Reserve
Account (including the proceeds of any sale of investments therein as described
in the following sentence):
(i) to the holders of the Notes, any unpaid Noteholders'
Interest Distribution Amount for such Distribution Date;
(ii) to the holders of the Notes, the outstanding principal
balance of the Notes;
(iii) to the holders of the Certificates, any unpaid
Certificateholders' Interest Distribution Amount for such Distribution
Date;
(iv) to the holders of the Certificates, the Certificate
Balance;
(v) to the Servicers, any unpaid Excess Servicing Fees;
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(vi) to the holders of the Notes, any unpaid Noteholders'
Interest Index Carryover; and
(vii) to the holders of the Certificates, any unpaid
Certificateholders' Interest Index Carryover.
Any investments on deposit in the Reserve Account which will not mature on or
before such Distribution Date shall be sold by the Indenture Trustee at such
time as will result in the Indenture Trustee receiving the proceeds from such
sale not later than the Business Day preceding such Distribution Date. Any
Insolvency Proceeds related to Financial Student Loans remaining after the
deposits described above shall be paid to the Seller.
(c) AUCTION OF FINANCED STUDENT LOANS. Any Financed Student
Loans remaining in the Trust as of the end of the Collection Period immediately
preceding the December 2008 Distribution Date will be offered for sale by the
Indenture Trustee. KeyCorp, its affiliates (other than the Seller), PHEAA, TERI
and unrelated third parties may offer bids to purchase such Financed Student
Loans on such Distribution Date; provided, however, that KeyCorp and its
affiliates may not bid more than an amount determined by KeyCorp in good faith
to be equal to the fair market value of such Financed Student Loans as of the
end of the Collection Period immediately preceding such Distribution Date. If at
least two bids are received, the Indenture Trustee will solicit and resolicit
bids from all participating bidders until only one bid remains or the remaining
bidders decline to resubmit bids. The Indenture Trustee shall accept the highest
of such remaining bids if it is equal to or in excess of the Minimum Purchase
Amount. If at least two bids are not received or the highest bid after the
resolicitation process is completed is not equal to or in excess of the Minimum
Purchase Amount, the Indenture Trustee will not consummate such sale. In
connection with the determination of the Minimum Purchase Amount, the Indenture
Trustee may consult, and, at the direction of the Seller, shall consult, with a
financial advisor (which may be the Administrator) to determine if the fair
market value of the Financed Student Loans has been offered. The proceeds of any
such sale will be applied in the order of priority set forth in Section 5.04(b)
of the Indenture. If the sale is not consummated in accordance with the
foregoing, the Indenture Trustee may, but shall not be under any obligation to,
solicit bids to purchase the Financed Student Loans on future Distribution Dates
upon terms similar to those described above.
(d) NOTICE. As described in Article IX of the Trust Agreement,
notice of any termination of the Trust shall be given by the Administrator to
the Eligible Lender Trustee and the Indenture Trustee as soon as practicable
after the Administrator has received notice thereof.
(e) SUCCESSION. Following the satisfaction and discharge of
the Indenture and the payment in full of the principal of and interest on the
Notes, the holders of Certificates will succeed to the rights of the holders of
Notes hereunder other than Section 5.06(b) and the Eligible Lender Trustee will
succeed to the rights of, and assume the obligations of, the Indenture Trustee
pursuant to this Agreement and any other Basic Documents.
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ARTICLE X
[Reserved]
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. AMENDMENT. This Agreement may be amended by the
Seller, the Servicers, the Administrator and the Eligible Lender Trustee, with
the consent of the Indenture Trustee, but without the consent of any of the
holders of Notes or the holders of Certificates (which shall not be unreasonably
withheld), to cure any ambiguity, to correct or supplement any provisions in
this Agreement or for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions in this Agreement or of modifying in
any manner the rights of the holders of Notes or the holders of Certificates;
PROVIDED, HOWEVER, that such action shall not, as evidenced by an Opinion of
Counsel delivered to the Eligible Lender Trustee and the Indenture Trustee,
adversely affect in any material respect the interests of any holder of Notes or
holder of Certificates; PROVIDED, FURTHER, any such amendment which affects only
one Servicer shall be deemed to be agreed to by the unaffected Servicer and such
unaffected Servicer hereby agrees to execute appropriate instruments to document
such agreement.
This Agreement may also be amended from time to time by the
Seller, the Servicers, the Administrator and the Eligible Lender Trustee, with
the consent of the Indenture Trustee, the consent of the holders of Notes
evidencing not less than a majority of the Outstanding Amount of the Notes, the
consent of the holders of Certificates evidencing not less than a majority of
the Certificate Balance for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the holders of Notes or the holders of
Certificates; PROVIDED, HOWEVER, that no such amendment shall (a) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments with respect to Financed Student Loans or distributions
that shall be required to be made for the benefit of the holders of Notes or the
holders of Certificates or (b) reduce the aforesaid percentage of the
Outstanding Amount of the Notes and the Certificate Balance, holders of Notes or
the holders of Certificates of which are required to consent to any such
amendment, without the consent of all outstanding holders of Notes and holders
of Certificates; PROVIDED, FURTHER, any such amendment which affects only one
Servicer shall be deemed to be agreed to by the unaffected Servicer and such
unaffected Servicer hereby agrees to execute appropriate instruments to document
such agreement.
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Promptly after the execution of any such amendment or consent
(or, in the case of the Rating Agencies, five Business Days prior thereto), the
Eligible Lender Trustee shall furnish written notification of the substance of
such amendment or consent to each holder of Certificates, the Indenture Trustee
and each of the Rating Agencies.
It shall not be necessary for the consent of holders of
Certificates or holders of Notes pursuant to this Section to approve the
particular form of any proposed amendment or consent, but it shall be sufficient
if such consent shall approve the substance thereof.
Prior to the execution of any amendment to this Agreement, the
Eligible Lender Trustee and the Indenture Trustee shall be entitled to receive
and rely upon an Opinion of Counsel stating that the execution of such amendment
is authorized or permitted by this Agreement and the Opinion of Counsel referred
to in Section 11.02(i)(1). The Eligible Lender Trustee and the Indenture Trustee
may, but shall not be obligated to, enter into any such amendment which affects
the Eligible Lender Trustee's or the Indenture Trustee's, as applicable, own
rights, duties or immunities under this Agreement or otherwise.
SECTION 11.02. PROTECTION OF INTERESTS IN TRUST. (a) The
Seller shall execute and file such financing statements and cause to be executed
and filed such continuation statements, all in such manner and in such places as
may be required by law fully to preserve, maintain, and protect the interest of
the Issuer, the Eligible Lender Trustee and the Indenture Trustee in the
Financed Student Loans and in the proceeds thereof. The Seller shall deliver (or
cause to be delivered) to the Eligible Lender Trustee and the Indenture Trustee
file-stamped copies of, or filing receipts for, any document filed as provided
above, as soon as available following such filing.
(b) Neither the Seller nor the Servicer shall change its name,
identity or corporate structure in any manner that would, could or might make
any financing statement or continuation statement filed in accordance with
paragraph (a) above seriously misleading within the meaning of Section 9-402(7)
of the UCC, unless it shall have given the Eligible Lender Trustee and the
Indenture Trustee at least five days' prior written notice thereof and shall
have promptly filed appropriate amendments to all previously filed financing
statements or continuation statements.
(c) The Seller and the Servicer shall have an obligation to
give the Eligible Lender Trustee and the Indenture Trustee at least 60 days'
prior written notice of any relocation of its principal executive office if, as
a result of such relocation, the applicable provisions of the UCC would require
the filing of any amendment of any previously filed financing or continuation
statement or of any new financing statement and shall promptly file any such
amendment. Each Servicer shall at all times maintain each office from which it
shall service Financed Student Loans, and its principal executive office, within
the United States of America.
(d) The Servicer shall maintain accounts and records as to
each Financed Student Loan it services, as specified on Schedules A and B,
accurately and in sufficient detail to
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permit (i) the reader thereof to know at any time the status of such Financed
Student Loan, including payments and recoveries made and payments owing (and the
nature of each) and (ii) reconciliation between payments or recoveries on (or
with respect to) each Financed Student Loan it services, as specified on
Schedules A and B and the amounts from time to time deposited in the Collection
Account in respect of such Financed Student Loan.
(e) The Servicer shall maintain its computer systems so that,
from and after the time of sale under this Agreement of the Financed Student
Loans it services, the Servicer's master computer records (including any backup
archives) that refer to a Financed Student Loan shall indicate clearly the
interest of the Issuer, the Eligible Lender Trustee and the Indenture Trustee in
such Financed Student Loan and that such Financed Student Loan is owned by the
Eligible Lender Trustee on behalf of the Issuer and has been pledged to the
Indenture Trustee. Indication of the Issuer's, the Eligible Lender Trustee's and
the Indenture Trustee's interest in a Financed Student Loan shall be deleted
from or modified on a Servicer's computer systems when, and only when, the
related Financed Student Loan shall have been paid in full or repurchased.
(f) If at any time the Seller or the Administrator shall
propose to sell, grant a security interest in, or otherwise transfer any
interest in student loans to any prospective purchaser, lender or other
transferee, the Servicer shall give to such prospective purchaser, lender or
other transferee computer tapes, records or printouts (including any restored
from backup archives) that, if they shall refer in any manner whatsoever to any
Financed Student Loan, shall indicate clearly that such Financed Student Loan
has been sold and is owned by the Eligible Lender Trustee on behalf of the
Issuer and has been pledged to the Indenture Trustee.
(g) Upon reasonable notice, the Servicer shall permit the
Indenture Trustee and its agents at any time during normal business hours to
inspect, audit (subject to the timing limitations imposed by paragraph 3 of the
Supplemental Sale and Servicing Agreement) and make copies of and abstracts from
such Servicer's records regarding any Financed Student Loan it services.
(h) Upon request at any time the Eligible Lender Trustee or
the Indenture Trustee shall have reasonable grounds to believe that such request
would be necessary in connection with its performance of its duties under the
Basic Documents, the Servicer shall furnish to the Eligible Lender Trustee or to
the Indenture Trustee (in each case, with a copy to the Administrator), within
five Business Days, a list of all Financed Student Loans (by borrower social
security number, type of loan and date of issuance) then held as part of the
Trust, and the Administrator shall furnish to the Eligible Lender Trustee or to
the Indenture Trustee, within 20 Business Days thereafter, a comparison of such
list to the list of Initial Financed Student Loans set forth in Schedule A as of
the Closing Date, and, for each Financed Student Loan that has been added to or
removed from the pool of loans held by the Eligible Lender Trustee on behalf of
the Issuer, information as to the date as of which and circumstances under which
each such Financed Student Loan was so added or removed.
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(i) The Seller shall deliver to the Eligible Lender Trustee
and the Indenture Trustee:
(1) promptly after the execution and delivery of this
Agreement and of each amendment thereto and on each Transfer Date, an Opinion of
Counsel either (A) stating that, in the opinion of such counsel, all financing
statements and continuation statements have been executed and filed that are
necessary fully to preserve and protect the interest of the Eligible Lender
Trustee and the Indenture Trustee in the Financed Student Loans, and reciting
the details of such filings or referring to prior Opinions of Counsel in which
such details are given, or (B) stating that, in the opinion of such counsel, no
such action shall be necessary to preserve and protect such interest; and
(2) within 120 days after the beginning of each calendar year
beginning with the first calendar year beginning more than three months after
the Cutoff Date, an Opinion of Counsel, dated as of a date during such 120-day
period, either (A) stating that, in the opinion of such counsel, all financing
statements and continuation statements have been executed and filed that are
necessary fully to preserve and protect the interest of the Eligible Lender
Trustee and the Indenture Trustee in the Financed Student Loans, and reciting
the details of such filings or referring to prior Opinions of Counsel in which
such details are given, or (B) stating that, in the opinion of such counsel, no
such action shall be necessary to preserve and protect such interest; PROVIDED
that a single Opinion of Counsel may be delivered in satisfaction of the
foregoing requirement and that of Section 3.06(b) of the Indenture.
Each Opinion of Counsel referred to in clause (1) or (2) above
shall specify (as of the date of such opinion and given all applicable laws as
in effect on such date) any action necessary to be taken in the following year
to preserve and protect such interest.
(j) The Seller shall, to the extent required by applicable
law, cause the Certificates and the Notes to be registered with the Commission
pursuant to Section 12(b) or Section 12(g) of the Exchange Act within the time
periods specified in such sections.
SECTION 11.03. NOTICES. All demands, notices, instructions,
directions and communications upon or to the Seller, the Administrator, the
Servicers, the Eligible Lender Trustee, the Indenture Trustee or the Rating
Agencies under this Agreement shall be in writing, personally delivered or
mailed by certified mail, return receipt requested, (or in the form of telex or
facsimile notice, followed by written notice delivered as aforesaid) and shall
be deemed to have been duly given upon receipt (a) in the case of the Seller or
the Administrator, to Key Bank USA, National Association, 800 Superior Avenue,
Fourth Floor, Cleveland, Ohio 44114, Attention: Key Education Resources, KeyCorp
Student Loan Trust 1999-A (telephone: (216) 828-9342; facsimile: (216)
828-9301), (b) in the case of PHEAA, as Servicer, to Pennsylvania Higher
Education Assistance Agency, 1200 North 7th Street, Harrisburg, Pennsylvania
17102-1398, Attention: Senior Vice President, Marketing and Client Affairs
(telephone: (717) 720-2000; facsimile: (717) 257-5162), (c) in the case of EFS,
to EFS Services, Inc., ______________________; (d) in the case of the Issuer or
the Eligible Lender Trustee, at the
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Corporate Trust Office of the Eligible Lender Trustee, (e) in the case of the
Indenture Trustee, at its Corporate Trust Office, (f) in the case of Moody's, to
Moody's Investors Service, Inc., 99 Church Street, New York, New York 10007,
Attention: ABS Monitoring Department (telephone: (212) 553-0300; facsimile:
(212) 553-4600), and (g) in the case of Fitch, to Fitch IBCA, Inc., One State
Street Plaza, New York, New York 10004, telephone: (212) 908-0500), facsimile:
(212) 480-4435) as to each of the foregoing, at such other address as shall be
designated by written notice to the other parties.
SECTION 11.04. ASSIGNMENT. Notwithstanding anything to the
contrary contained herein, except as provided in Sections 6.05 and 7.03 and as
provided in the provisions of this Agreement concerning the resignation of a
Servicer or the Administrator, this Agreement may not be assigned by the Seller,
the Administrator or any Servicer. This Agreement may only be assigned by the
Eligible Lender Trustee to its permitted successor pursuant to the Trust
Agreement.
SECTION 11.05. LIMITATIONS ON RIGHTS OF OTHERS. The provisions
of this Agreement are solely for the benefit of the Seller, the Servicers, the
Issuer and the Eligible Lender Trustee and for the benefit of the holders of
Certificates, the Indenture Trustee and the holders of Notes, as third party
beneficiaries, and nothing in this Agreement, whether express or implied, shall
be construed to give to any other Person any legal or equitable right, remedy or
claim in the Trust Estate or under or in respect of this Agreement or any
covenants, conditions or provisions contained herein.
SECTION 11.06. SEVERABILITY. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 11.07. SEPARATE COUNTERPARTS. This Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 11.08. HEADINGS. The headings of the various Articles
and Sections herein are for convenience of reference only and shall not define
or limit any of the terms or provisions hereof.
SECTION 11.09. GOVERNING LAW. This Agreement shall be
construed in accordance with the laws of the State of New York, without
reference to its conflict of law provisions, and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance with such
laws.
SECTION 11.10. ASSIGNMENT TO INDENTURE TRUSTEE. The Seller
hereby acknowledges and consents to any mortgage, pledge, assignment and grant
by the Issuer to the
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Indenture Trustee pursuant to the Indenture for the benefit of the holders of
the Notes of a security interest in all right, title and interest of the Issuer
in, to and under the Financed Student Loans and/or the assignment of any or all
of the Issuer's rights and obligations hereunder to the Indenture Trustee.
SECTION 11.11. NONPETITION COVENANTS. (a) Notwithstanding any
prior termination of this Agreement, the Servicers, the Administrator and the
Seller shall not, prior to the date which is one year and one day after the
termination of this Agreement with respect to the Issuer, acquiesce, petition or
otherwise invoke or cause the Issuer to invoke the process of any court or
government authority for the purpose of commencing or sustaining a case against
the Issuer under any Federal or state bankruptcy, insolvency or similar law or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official of the Issuer or any substantial part of its property, or
ordering the winding up or liquidation of the affairs of the Issuer.
(b) Notwithstanding any prior termination of this Agreement,
the Servicers shall not, prior to the date which is one year and one day after
the termination of this Agreement with respect to the Seller, acquiesce,
petition or otherwise invoke or cause the Seller to invoke the process of any
court or government authority for the purpose of commencing or sustaining a case
against the Seller under any insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Seller or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Seller.
SECTION 11.12. LIMITATION OF LIABILITY OF ELIGIBLE LENDER
TRUSTEE AND INDENTURE TRUSTEE. (a) Notwithstanding anything contained herein to
the contrary, this Agreement has been signed by The First National Bank of
Chicago not in its individual capacity but solely in its capacity as Eligible
Lender Trustee of the Issuer and, subject to the succeeding paragraph, in no
event shall The First National Bank of Chicago in its individual capacity or,
except as expressly provided in the Trust Agreement, as beneficial owner of the
Issuer have any liability for the representations, warranties, covenants,
agreements or other obligations of the Issuer hereunder or in any of the
certificates, notices or agreements delivered pursuant hereto as to all of which
recourse shall be had solely to the assets of the Issuer.
(b) Except as provided in subsection (d) of this section,
notwithstanding anything contained herein to the contrary, this Agreement has
been signed by The First National Bank of Chicago not in its individual capacity
but solely in its capacity as Eligible Lender Trustee of the Issuer and in no
event shall The First National Bank of Chicago in its individual capacity or,
except as expressly provided in the Trust Agreement, as beneficial owner of the
Issuer have any liability for the representations, warranties, covenant,
agreements or other obligations of the Issuer hereunder or in any of the
certificates, notices or agreements delivered pursuant hereto as to all of which
recourse shall be had solely to the assets of the Issuer.
(c) Notwithstanding anything contained herein to the contrary,
this Agreement has been accepted by Bankers Trust Company not in its individual
capacity but solely as
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Indenture Trustee and in no event shall Bankers Trust Company have any liability
for the representations, warranties, covenants, agreements or other obligations
of the Issuer hereunder or in any of the certificates, notices or agreements
delivered pursuant hereto, as to all of which recourse shall be had solely to
the assets of the Issuer.
(d) Notwithstanding any other provision in this Agreement or
the other Basic Documents, nothing in this Agreement or the other Basic
Documents shall be construed to limit the legal responsibility of the Eligible
Lender Trustee or the Indenture Trustee to the U.S. Secretary of Education or a
Guarantor for any violations of statutory or regulatory requirements that may
occur with respect to loans held by the Eligible Lender Trustee or the Indenture
Trustee, pursuant to or to otherwise comply with their obligation under the
Higher Education Act or implementing regulations.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers as of the day and
year first above written.
KEYCORP STUDENT LOAN TRUST 1999-A,
By: THE FIRST NATIONAL BANK OF
CHICAGO, not in its individual
capacity but solely as Eligible
Lender Trustee on behalf of the Trust,
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
KEY BANK USA, NATIONAL ASSOCIATION,
Seller,
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
PENNSYLVANIA HIGHER EDUCATION ASSISTANCE
AGENCY, Servicer,
By:
----------------------------------
Name:
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Title:
Approved as to form and legality:
- -------------------------------
PHEAA Chief Counsel
Approved as to form and legality:
- --------------------------------
Deputy Attorney General
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EFS SERVICES, INC., Servicer,
By:
--------------------------
Name: ___________________
Title: ___________________
THE FIRST NATIONAL BANK OF
Chicago, not in its
individual capacity but
solely as Eligible Lender
Trustee,
By:
--------------------------
Name:
Title:
KEY BANK USA, NATIONAL ASSOCIATION,
Administrator,
By:
--------------------------
Name:
Title:
Acknowledged and accepted
as of the day and year
first above written:
BANKERS TRUST COMPANY, not
in its individual capacity
but solely as Indenture Trustee,
By:
------------------------
Name:
Title:
Acknowledged and accepted
as of the day and year
first above written:
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BANKERS TRUST COMPANY, not in its
individual capacity but solely
in its capacity as securities
intermediary under Section 5.01,
By:
------------------------
Name:
Title:
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{Form of PHEAA Approval Memo
to be supplied by PHEAA}
<PAGE> 66
APPENDIX A
DEFINITIONS AND USAGE
USAGE
The following rules of construction and usage shall be
applicable to any instrument that is governed by this Appendix:
(a) All terms defined in this Appendix shall have the defined
meanings when used in any instrument governed hereby and in any certificate or
other document made or delivered pursuant thereto unless otherwise defined
therein.
(b) As used herein, in any instrument governed hereby and in
any certificate or other document made or delivered pursuant thereto, accounting
terms not defined in this Appendix or in any such instrument, certificate or
other document, and accounting terms partly defined in this Appendix or in any
such instrument, certificate or other document to the extent not defined, shall
have the respective meanings given to them under generally accepted accounting
principles as in effect on the date of such instrument. To the extent that the
definitions of accounting terms in this Appendix or in any such instrument,
certificate or other document are inconsistent with the meanings of such terms
under generally accepted accounting principles, the definitions contained in
this Appendix or in any such instrument, certificate or other document shall
control.
(c) The words "hereof," "herein," "hereunder" and words of
similar import when used in an instrument refer to such instrument as a whole
and not to any particular provision or subdivision thereof; references in an
instrument to "Article," "Section" or another subdivision or to an attachment
are, unless the context otherwise requires, to an article, section or
subdivision of or an attachment to such instrument; and the term "including"
means "including without limitation."
(d) The definitions contained in this Appendix are equally
applicable to both the singular and plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms.
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(e) Any agreement, instrument or statute defined or referred
to below or in any agreement or instrument that is governed by this Appendix
means such agreement or instrument or statute as from time to time amended,
modified or supplemented, including (in the case of agreements or instruments)
by waiver or consent and (in the case of statutes) by succession of comparable
successor statutes and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein.
References to a Person are also to its permitted successors and assigns.
DEFINITIONS
"ACCRUED EXPECTED EXPENSE PAYMENT" means for any Transfer Date
on which Other Student Loans are transferred to the Trust an amount equal to (x)
the product of (i) the applicable Expected Rate multiplied by (ii) the sum of
principal balances of the Notes and Certificates as of such Transfer Date
divided by (y) a fraction the numerator of which is the number of days between
such Transfer Date and the last day of the preceding Collection Period and the
denominator of which is 365 (or 366 in the case of a leap year).
"ACT" has the meaning specified in Section 11.03(a) of the
Indenture.
"ADDITIONAL FUNDING" means those expenditures made on behalf
of the Issuer from the Pre-Funding Account and the Escrow Account and made with
Available Loan Purchase Funds on Transfer Dates during the Funding Period and
from the Escrow Account and Available Loan Purchase Funds on Transfer Dates
during the period which begins on the day following the end of the Funding
Period and ends on the Loan Purchase Termination Date, in each case consisting
of amounts paid to the Seller to acquire Additional Student Loans as of the
applicable Subsequent Cutoff Dates and to pay Guarantee Fee Advances.
"ADDITIONAL STUDENT LOANS" means the Subsequent Pool Student
Loans, the Other Subsequent Student Loans and the Other Student Loans.
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"ADMINISTRATION AGREEMENT" means the Administration Agreement
dated as of January 1, 1999, among the Issuer, the Indenture Trustee and the
Administrator.
"ADMINISTRATION FEE" has the meaning specified in Section 3 of
the Administration Agreement.
"ADMINISTRATOR" means Key Bank USA, National Association, a
national banking association, in its capacity as administrator of the Issuer and
the Financed Student Loans.
"ADMINISTRATOR DEFAULT" has the meaning specified in Section
8.01(b) of the Sale and Servicing Agreement.
"ADMINISTRATOR'S CERTIFICATE" means an Officers' Certificate
of the Administrator delivered pursuant to Section 4.08(c) of the Sale and
Servicing Agreement, substantially in the form of Exhibit C thereto.
"AFFILIATE" means, with respect to any specified Person, any
other Person controlling or controlled by or under common control with such
specified Person. For the purposes of this definition, "control" when used with
respect to any specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"ASA" means the Massachusetts Higher Education Assistance
Corporation now doing business as American Student Assistance Corporation, a
Massachusetts non-profit corporation.
"ASSIGNED AGREEMENTS" means the following agreements, as the
same may be amended and restated from time to time, (i) the Deposit Agreement
dated as of January 28, 1992, between TERI and the Seller (as successor to
Ameritrust Company National Association), (ii) the Security Agreement dated as
of January 28, 1992, between TERI and the Seller (as successor to Ameritrust
Company National Association), (iii) the Letter Agreement dated as of January
28, 1992, between LSAS and the Seller (as successor to Ameritrust Company
National Association), (iv) the Trust Agreement dated as of July 14, 1992 and
restated as of July 1, 1994, among the Seller, LSAS and First Bank (N.A.),
Milwaukee,
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Wisconsin, as trustee, (v) the LAL/BEL Guarantee Agreements dated as of January
28, 1992 and December 21, 1992, between the Seller and TERI, and (vi) the
Private Guarantee Agreement dated as of March 23, 1995, among the Seller, TERI,
Society National Bank, Indiana and Wilmington Trust Company, (vii) Consolidated
Deposit Agreement and Consolidated Security Agreement each dated November 1,
1995 between TERI and Society National Bank, (viii) Alternative DEAL Surety Bond
Numbers 1994-A, 1994-B, 1995-A and 1996-A, dated February 23, 1994, October 4,
1994, July 1, 1995 and July 1, 1996, respectively, issued by HICA to KeyBank of
Maine, Society National Bank and Seller, respectively; and (ix) Pledged
Collateral Account Control Agreement dated ____________ among TERI, Seller and
McDonald Investments Inc., A KeyCorp Company, to the extent necessary to permit
the Trust to realize its rights and benefits under the assignment of the
agreements referred to in clauses (i) through (x) above.
"ASSIGNED RIGHTS" has the meaning specified in Section 2.01 of
the Sale and Servicing Agreement.
"AUCTION PURCHASE AMOUNT" with respect to the Financed Student
Loans means the aggregate unpaid principal balance owed by the applicable
borrowers thereon plus accrued interest thereon to the date of purchase less the
amount on deposit in the Reserve Account as of such date.
"AUTHORIZED OFFICER" means (i) with respect to the Issuer, any
officer of the Eligible Lender Trustee who is authorized to act for the Eligible
Lender Trustee in matters relating to the Issuer pursuant to the Basic Documents
and who is identified on the list of Authorized Officers delivered by the
Eligible Lender Trustee to the Indenture Trustee on the Closing Date (as such
list may be modified or supplemented from time to time thereafter), (ii) with
respect to the Administrator, any officer of the Administrator or any of its
Affiliates who is authorized to act for the Administrator in matters relating to
itself or to the Issuer and to be acted upon by the Administrator pursuant to
the Basic Documents and who is identified on the list of Authorized Officers
delivered by the Administrator to the Indenture Trustee on the Closing Date (as
such list may be modified or supplemented from time to time thereafter), (iii)
with respect to the Seller, any officer of the Seller or any of its Affiliates
who is authorized to act for the Seller in matters relating to or to be acted
upon by the Seller pursuant to
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the Basic Documents and who is identified on the list of Authorized Officers
delivered by the Seller to the Indenture Trustee on the Closing Date (as such
list may be modified or supplemented from time to time thereafter) and (iv) with
respect to the Servicer, any officer of the Servicer who is authorized to act
for the Servicer in matters relating to or to be acted upon by the Servicer
pursuant to the Basic Documents and who is identified on the list of Authorized
Officers delivered by the Servicer to the Indenture Trustee on the Closing Date
(as such list may be modified or supplemented from time to time thereafter).
"AVAILABLE FUNDS" means, with respect to a Distribution Date
or any Monthly Servicing Payment Date, the sum of the following amounts received
with respect to the then elapsed portion of the related Collection Period to the
extent not previously distributed:
(i) all collections received by the Servicers on the Financed
Student Loans (including any Guarantee Payments received with respect
to such Financed Student Loans), but net of (x), any Federal
Origination Fee and Federal Consolidation Loan Rebate payable to the
Department on Federal Consolidation Loans disbursed after October 1,
1993, and (y) any collections in respect of principal on the Financed
Student Loans applied by the Trust to repurchase guaranteed loans from
the Guarantors in accordance with the Guarantee Agreements;
(ii) any Interest Subsidy Payments and Special Allowance
Payments received by the Eligible Lender Trustee during the then
elapsed portion of such Collection Period with respect to the Financed
Federal Loans;
(iii) all Liquidation Proceeds and all recoveries in respect
of Liquidated Student Loans which were written off in prior Collection
Periods or prior months of such Collection Period;
(iv) the aggregate Purchase Amounts received for those
Financed Student Loans repurchased by the Seller or purchased by a
Servicer under an obligation which arose during the elapsed portion of
such Collection Period;
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(v) the aggregate amounts, if any, received from the Seller or
a Servicer, as the case may be, as reimbursement of non-guaranteed
interest amounts, or, lost Interest Subsidy Payments and Special
Allowance Payments, with respect to the Financed Federal Student Loans
pursuant to Section 3.02 or 4.06, respectively of the Sale and
Servicing Agreement;
(vi) amounts deposited by the Seller into the Collection
Account in connection with the making of Consolidation Loans pursuant
to Section 2.03 of the Sale and Servicing Agreement;
(vii) with respect to the first Distribution Date, the portion
of the Negative Carry Initial Deposit transferred from the Subsequent
Pool Pre-Funding Subaccount to the Collection Account;
(viii) Investment Earnings for such Distribution Date;
(ix) amounts withdrawn from the Reserve Account in excess of
the Specified Reserve Account Balance and deposited into the Collection
Account;
(x) amounts withdrawn from the Escrow Account and deposited
into the Collection Account; and
(xi) with respect to the Distribution Date on or immediately
after the end of the Funding Period, the amount transferred from the
Pre-Funding Account to the Collection Account.
provided, however, that Available Funds will exclude (A) all payments
and proceeds (including Liquidation Proceeds) of any Financed Student
Loans, the Purchase Amount of which has been included in Available
Funds for a prior Distribution Date and (B) following the end of the
Funding Period and prior to the Loan Purchase Termination Date, amounts
withdrawn from the Collection Account to purchase Other Student Loans
or pay Guarantee Fee Advances pursuant to Sections 2.02A and 5.05(d) of
the Sale and Servicing Agreement during the period following the
preceding Distribution Date and ending on or prior to such Distribution
Date; provided, further, that if on any Distribution Date there would
not be sufficient funds, after application of Available Funds and
amounts available
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from the Reserve Account and the Pre-Funding Account (1) to pay any of
the items specified in clauses (i) through (iii) of Section 5.05(c) of
the Sale and Servicing Agreement for such Distribution Date and (2) if
the principal balance of the Notes (after giving effect to any
distributions thereon on such Distribution Date) is less than or equal
to the Note Collateralization Amount, to pay the Certificateholders'
Interest Distribution Amount for such Distribution Date, then Available
Funds for such Distribution Date will include, in addition to the
Available Funds amounts on deposit in the Collection Account on the
Determination Date relating to such Distribution Date which would have
constituted Available Funds for the Distribution Date succeeding such
Distribution Date up to the amount necessary to pay, in the case of
clause (1) above such items and in the case of clause (2) above such
Certificateholders' Interest Distribution Amount, and the Available
Funds for such succeeding Distribution Date will be adjusted
accordingly.
"AVAILABLE LOAN PURCHASE FUNDS" means with respect to any
Collection Period and any Transfer Date after the Funding Period, the excess of
Available Funds (without giving effect to the second proviso thereof) for the
Collection Period relating to the Distribution Date next succeeding such
Transfer Date that are on deposit in the Collection Account on such Transfer
Date (before giving effect to any application thereof) over the Accrued Expected
Expense Payment for such Distribution Date.
"BASIC DOCUMENTS" means the Trust Agreement, the Indenture,
the Sale and Servicing Agreement, the Supplemental Sale and Servicing Agreement,
the Administration Agreement, the Certificate Depository Agreement, the Note
Depository Agreement, the Guarantee Agreements and other documents and
certificates delivered in connection with any thereof.
["BAR EXAM LOAN" means a Bar Examination Loan made by the
Seller to an eligible borrower pursuant to the Programs.]
"BENEFIT PLAN" has the meaning specified in Section 3.04 of
the Trust Agreement.
"BOOK-ENTRY CERTIFICATE" means a beneficial interest in the
Certificates, ownership and transfers of which shall be made
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through book entries by a Clearing Agency as described in Section 3.11 of the
Trust Agreement.
"BOOK-ENTRY NOTE" means a beneficial interest in the Notes,
ownership and transfers of which shall be made through book entries by a
Clearing Agency as described in Section 2.10 of the Indenture.
"BUSINESS DAY" means any day other than a Saturday, a Sunday
or a day on which banking institutions or trust companies in New York, New York
or Cleveland, Ohio, are authorized or obligated by law, regulation or executive
order to remain closed.
"CERTIFICATE" means a Floating Rate Asset Backed Certificate
issued pursuant to the Trust Agreement, substantially in the Form of Exhibit A
thereto.
"CERTIFICATE BALANCE" means as of the Closing Date the Initial
Certificate Balance for the Certificates and, thereafter, the Initial
Certificate Balance for the Certificates, reduced by all amounts allocable to
principal previously distributed to the holders of the Certificates.
"CERTIFICATE DEPOSITORY AGREEMENT" means the agreement dated
as of the Closing Date among the Trust, the Eligible Lender Trustee, the
Administrator and The Depository Trust Company, as the initial Clearing Agency,
substantially in the form of Exhibit B to the Trust Agreement.
"CERTIFICATE OWNER" means, with respect to a Book-Entry
Certificate, the Person who is the beneficial owner of such Book-Entry
Certificate, as reflected on the books of the Clearing Agency, or on the books
of a Person maintaining an account with such Clearing Agency (directly as a
Clearing Agency Participant or as an indirect participant, in each case in
accordance with the rules of such Clearing Agency).
"CERTIFICATE PAYING AGENT" means any paying agent or co-paying
agent appointed pursuant to Section 3.09 of the Trust Agreement, which shall
initially be the Eligible Lender Trustee.
"CERTIFICATE RATE" means, with respect to any Interest Period,
the interest rate per annum [(computed on the basis of the actual number of days
elapsed in such Interest Period over a
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year of 365 days (or 366 in a leap year)] [(computed on the basis of the actual
number of days elapsed in the related Interest Period divided by 360)] equal to
the lesser of (i) [the weighted average of the T-Bill Rates within such Interest
Period] [Three-Month LIBOR for such Interest Period] plus ___% and (ii) the
Student Loan Rate for such Interest Period.
"CERTIFICATE REGISTER" and "CERTIFICATE REGISTRAR" means the
register mentioned and the registrar appointed pursuant to Section 3.04 of the
Trust Agreement.
"CERTIFICATE UNDERWRITING AGREEMENT" means the Certificate
Underwriting Agreement dated as of January ___, 1999 between the Seller and the
Underwriters.
"CERTIFICATEHOLDER" means a Person in whose name a Certificate
is registered in the Certificate Register.
"CERTIFICATEHOLDERS' AVAILABLE INTEREST DISTRIBUTION AMOUNT"
means for the Certificates on any Distribution Date, an amount equal to (x) the
sum of (1) Available Funds for such Distribution Date, (2) the amount, if any,
withdrawn from the Pre-Funding Account pursuant to Section 5.08(d) of the Sale
and Servicing Agreement on such Distribution Date, and (3) the amounts withdrawn
from the Reserve Account pursuant to Section 5.06(b)(vi) of the Sale and
Servicing Agreement on such Distribution Date minus (y) the amount required to
be distributed pursuant to clauses (i) through (iii) of Section 5.05(c) of the
Sale and Servicing Agreement, including any Noteholders' Priority Principal
Distribution Amount actually distributed.
"CERTIFICATEHOLDERS' AVAILABLE PRINCIPAL DISTRIBUTION AMOUNT"
means on the Final Maturity Date for the Certificates, an amount equal to (x)
the sum of (1) the Available Funds for such Distribution Date, and (2) the
amounts withdrawn from the Reserve Account pursuant to Section 5.06(b)(ix) of
the Sale and Servicing Agreement minus (y) the amounts required to be
distributed pursuant to clauses (i) through (vii) of Section 5.05(c) of the Sale
and Servicing Agreement.
"CERTIFICATEHOLDERS' DISTRIBUTION AMOUNT" means, with respect
to any Distribution Date, the Certificateholders' Interest Distribution Amount
for such Distribution Date plus, for each Distribution Date on and after which
the Notes have been paid in
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full, the Certificateholders' Principal Distribution Amount for such
Distribution Date.
"CERTIFICATEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, with
respect to any Distribution Date, the excess of (i) the Certificateholders'
Interest Distribution Amount on the preceding Distribution Date over (ii) the
amount of interest actually distributed to the holders of the Certificates on
such preceding Distribution Date, plus interest on the amount of such excess
interest due to the holders of the Certificates, to the extent permitted by law,
at the applicable Certificate Rate from such preceding Distribution Date to the
current Distribution Date.
"CERTIFICATEHOLDERS' INTEREST DISTRIBUTION AMOUNT" means, with
respect to any Distribution Date, the sum of (i) the amount of interest accrued
at the applicable Certificate Rate for the related Interest Period on the
outstanding Certificate Balance on the immediately preceding Distribution Date,
after giving effect to all distributions of principal to holders of the
Certificates on such Distribution Date (or, in the case of the first
Distribution Date, on the Closing Date) and (ii) the Certificateholders'
Interest Carryover Shortfall for such Distribution Date; PROVIDED, HOWEVER, that
the Certificateholders' Interest Distribution Amount will not include any
Certificateholders' Interest Index Carryover.
"CERTIFICATEHOLDERS' INTEREST INDEX CARRYOVER" means, with
respect to any Distribution Date as to which the Certificate Rate for such
Distribution Date is based on the Student Loan Rate, the amount equal to the
excess, if any, of (a) the amount of interest on the Certificates that would
have accrued in respect of the related Interest Period had interest been
calculated based on [the T-Bill Rate, if such Certificates are T-Bill Indexed
Securities] [and/or] [Three-Month LIBOR if such Certificates are LIBOR Indexed
Securities] over (b) the amount of interest on such Certificates actually
accrued in respect of such Interest Period based on the Student Loan Rate,
together with the unpaid portion of any such excess from prior Distribution
Dates (and interest accrued thereon, to the extent permitted by law, calculated
based on [the T-Bill Rate in the case of T-Bill Indexed Securities] or
[Three-Month LIBOR, in the case of LIBOR Indexed Securities]); PROVIDED,
HOWEVER, that, on the Final Maturity Date, the Certificateholders' Interest
Index Carryover will be equal to the lesser of (i) the Certificateholders'
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Interest Index Carryover on such date determined as described above and (ii) the
amount of funds, if any, required and available to be distributed to the holders
of the Certificates on such date pursuant to Sections 5.05(c)(x) of the Sale and
Servicing Agreement.
"CERTIFICATEHOLDERS' PERCENTAGE" means, a fraction, expressed
as a percentage, the numerator of which is the principal balance of the
Certificates issued on the Closing Date and the denominator of which is the sum
of the principal amount of the Notes issued on the Closing Date and the
principal balance of the Certificates issued on the Closing Date.
"CERTIFICATEHOLDERS' PRINCIPAL DISTRIBUTION AMOUNT" means, on
each Distribution Date on and after which the principal balance of the Notes has
been paid in full, the Principal Distribution Amount for such Distribution Date
(or, in the case of the Distribution Date on which the principal balance of the
Notes is paid in full, any remaining Principal Distribution Amount not otherwise
distributed to the holders of such Notes on such Distribution Date); PROVIDED,
HOWEVER, that the Certificateholders' Principal Distribution Amount for the
Certificates will in no event exceed the Certificate Balance for the
Certificates. In addition, on the Final Maturity Date for the Certificates, the
principal required to be distributed to the holders of the Certificates will
include the amount required to reduce the outstanding principal balance of the
Certificates to zero.
"CLASS A-1 NOTE" means a Floating Rate Class A-1 Asset Backed
Note issued pursuant to the Indenture, substantially in the form of Exhibit A-1
thereto.
"CLASS A-2 NOTE" means a Floating Rate Class A-2 Asset Backed
Note issued pursuant to the Indenture, substantially in the form of Exhibit A-2
thereto.
"CLEARING AGENCY" means an organization registered as a
"clearing agency" pursuant to Section 17A of the Exchange Act.
"CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank,
other financial institution or other Person for whom from time to time a
Clearing Agency effects book-entry transfers and pledges of securities deposited
with the Clearing Agency.
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"CLOSING DATE" means February ___, 1999.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and Treasury Regulations promulgated thereunder.
"COLLATERAL" has the meaning specified in the Granting Clause
of the Indenture.
"COLLECTION ACCOUNT" means the account designated as such,
established and maintained pursuant to Section 5.01 of the Sale and Servicing
Agreement.
"COLLECTION PERIOD" means, with respect to the first
Distribution Date, the period beginning on the Cutoff Date and ending on May 31,
1999 and with respect to each subsequent Distribution Date, the Collection
Period means the three calendar months immediately following the end of the
previous Collection Period.
"COMMISSION" means the Securities and Exchange Commission.
"CONSOLIDATION LOANS" means Federal Consolidation Loans and
Private Consolidation Loans, collectively.
"CORPORATE TRUST OFFICE" means (i) with respect to the
Indenture Trustee, the principal office of the Indenture Trustee at which at any
particular time its corporate trust business shall be administered, which office
at the Closing Date is located at Four Albany Street, New York, New York 10006,
Attention: Corporate Trust and Agency Group, Structured Finance Team (telephone:
(212) 250-6652; facsimile: (212) 250-6439) or at such other address as the
Indenture Trustee may designate from time to time by notice to the Noteholders
and the Seller, or the principal corporate trust office of any successor
Indenture Trustee (the address of which the successor Indenture Trustee will
notify the Noteholders and the Seller) and (ii) with respect to the Eligible
Lender Trustee, the principal corporate trust office of the Eligible Lender
Trustee located at One First National Plaza, Suite 0126, Chicago, Illinois
60670, Attention: Corporate Trust Administration (telephone: (312) 407-1892;
facsimile: (312) 407-1708); or at such other address as the
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Eligible Lender Trustee may designate by notice to the Certificateholders and
the Seller, or the principal corporate trust office of any successor Eligible
Lender Trustee (the address of which the successor Eligible Lender Trustee will
notify the Certificateholders and the Seller).
"CUTOFF DATE" means January 1, 1999.
"DEFAULT" means any occurrence that is, or with notice or the
lapse of time or both would become, an Event of Default.
"DEFINITIVE CERTIFICATES" has the meaning specified in Section
3.11 of the Trust Agreement.
"DEFINITIVE NOTES" has the meaning specified in Section 2.10
of the Indenture.
"DELIVERY" or "DELIVER" when used with respect to Trust
Account Property means the following and such additional or alternative
procedures as may hereafter become appropriate to effect the complete transfer
of ownership of any such Collateral to the Indenture Trustee, free and clear of
any adverse claims, consistent with changes in applicable law or regulations or
the interpretation thereof:
(a) with respect to bankers' acceptances, commercial paper, negotiable
certificates of deposit and other obligations that constitute instruments and
are susceptible of physical delivery ("Physical Property"):
(i) transfer of possession thereof to the Indenture Trustee
endorsed to, or registered in the name of, the Indenture Trustee, or
its nominee or endorsed in blank;
(b) with respect to a certificated security:
(i) delivery thereof in bearer form to the Indenture Trustee;
or
(ii) delivery thereof in registered form to the Indenture
Trustee and
(A) the certificate is endorsed to the Indenture Trustee or in
blank by effective endorsement; or
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(B) the certificate is registered in the name of the Indenture
Trustee, upon original issue or registration of transfer by the issuer;
(c) with respect to an uncertificated security:
(i) the delivery of the uncertificated security to the
Indenture Trustee; or
(ii) the issuer has agreed that it will comply with
instructions originated by the Indenture Trustee, without further
consent by the registered owner;
(d) with respect to any security issued by the U.S. Treasury, the
Federal Home Loan Mortgage Corporation or by the Federal National Mortgage
Association that is a book-entry security held through the Federal Reserve
System pursuant to Federal book-entry regulations:
(i) a Federal Reserve Bank by book entry credits the
book-entry security to the securities account (as defined in 31 CFR
Part 357) of a participant (as defined in 31 CFR Part 357) which is
also a securities intermediary; and
(ii) the participant indicates by book entry that the
book-entry security has been credited to the Indenture Trustee's
securities account, as applicable;
(e) with respect to a security entitlement:
(i) the Indenture Trustee, becomes the entitlement holder; or
(ii) the securities intermediary has agreed that it will
comply with entitlement orders originated by the Indenture Trustee;
(f) without further consent by the entitlement holder for the purpose
of clauses (b) and (c) hereof "delivery" means:
(i) with respect to a certificated security:
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(A) the Indenture Trustee, acquires possession
thereof;
(B) another person (other than a securities
intermediary) either acquires possession thereof on behalf of
the Indenture Trustee or, having previously acquired
possession thereof, acknowledges that it holds for the
Indenture Trustee; or
(C) a securities intermediary acting on behalf of the
Indenture Trustee acquires possession of thereof, only if the
certificate is in registered form and has been specially
endorsed to the Indenture Trustee by an effective endorsement;
(ii) with respect to an uncertificated security:
(A) the issuer registers the Indenture Trustee as the
registered owner, upon original issue or registration of
transfer; or
(B) another person (other than a securities
intermediary) either becomes the registered owner thereof on
behalf of the Indenture Trustee, or, having previously become
the registered owner, acknowledges that it holds for the
Indenture Trustee;
(g) for purposes of this definition, except as otherwise indicated, the
following terms shall have the meaning assigned to each such term in the UCC:
(i) "certificated security"
(ii) "effective endorsement"
(iii) "entitlement holder"
(iv) "instrument"
(v) "securities account"
(vi) "securities entitlement"
(vii) "securities intermediary"
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(viii)"uncertificated security"
(h) in each case of Delivery contemplated herein, the Indenture Trustee
shall make appropriate notations on its records, and shall cause same to be made
of the records of its nominees, indicating that securities are held in trust
pursuant to and as provided in this Agreement.
"DEPARTMENT" means the United States Department of Education,
an agency of the Federal government.
"DEPOSITOR" means the Seller in its capacity as Depositor
under the Trust Agreement.
"DEPOSITORY" has the meaning specified in Section 2.04 of the
Indenture.
"DETERMINATION DATE" means, with respect to any Monthly
Servicing Payment Date or Distribution Date, as the case may be, the third
Business Day preceding such Monthly Servicing Payment Date or Distribution Date.
"DISTRIBUTION DATE" means, with respect to each Collection
Period, the twenty-seventh day of each March, June, September and December or,
if such day is not a Business Day, the immediately following Business Day,
commencing on June 28, 1999.
"DTC" means the Depository Trust Company, a New York
Corporation.
"ECMC" means Educational Credit Management Corporation.
"EFS" means EFS Services, Inc., a wholly-owned subsidiary of
EFS, Inc. of Indiana.
"ELIGIBLE DEPOSIT ACCOUNT" means either (a) a segregated
account with an Eligible Institution or (b) a segregated trust account with the
corporate trust department of a depository institution organized under the laws
of the United States of America or any one of the States (or any domestic branch
of a foreign bank), having corporate trust powers and acting as trustee for
funds deposited in such account, so long as any of the securities of such
depository institution have a
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credit rating from at least two nationally recognized Rating Agencies in one of
their respective generic rating categories which signifies investment grade.
"ELIGIBLE INSTITUTION" means a depository institution (which
may be the Seller (or any Affiliate of the Seller), the Eligible Lender Trustee
(or any Affiliate of the Eligible Lender Trustee) or the Indenture Trustee)
organized under the laws of the United States of America or any one of the
States (or any domestic branch of a foreign bank), (a) which has (i) a
short-term senior unsecured debt rating of P-1 or better by Moody's, or any
other long-term, short-term or certificate of deposit rating acceptable to the
Rating Agencies and (ii) if rated by Fitch (A) a long term senior unsecured debt
rating of AAA by Fitch and (B) short-term senior of F-1+ by Fitch and (b) whose
deposits are insured by the FDIC. If so qualified, the Seller, any Affiliate of
the Seller, the Eligible Lender Trustee, or any Affiliate of the Eligible Lender
Trustee or Indenture Trustee may be considered an Eligible Institution.
"ELIGIBLE INVESTMENTS" mean book-entry securities, negotiable
instruments or securities represented by instruments in bearer or registered
form which evidence:
(a) direct obligations of, and obligations fully guaranteed as
to timely payment by, the United States of America;
(b) demand deposits, time deposits or certificates of deposit
of any depository institution or trust company incorporated under the
laws of the United States of America or any State (or any domestic
branch of a foreign bank) and subject to supervision and examination by
Federal or state banking or depository institution authorities
(including depository receipts issued by any such institution or trust
company as custodian with respect to any obligation referred to in
clause (a) above or portion of such obligation for the benefit of the
holders of such depository receipts); PROVIDED, HOWEVER, that at the
time of the investment or contractual commitment to invest therein
(which shall be deemed to be made again each time funds are reinvested
following each Distribution Date, as the case may be), the commercial
paper or other short-term senior unsecured debt obligations (other than
such obligations the rating of which
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is based on the credit of a Person other than such depository
institution or trust company) thereof shall have a credit rating from
Moody's in the highest investment category granted thereby and, if
rated by Fitch, in the highest investment category granted by Fitch;
(c) commercial paper having, at the time of the investment or
contractual commitment to invest therein, a rating from Moody's in the
highest investment category granted thereby and, if rated by Fitch, in
the highest investment category granted by Fitch;
(d) investments in money market funds (including funds for
which the Indenture Trustee or the Eligible Lender Trustee or any of
their respective Affiliates or any of Seller's Affiliates is an
investment manager or advisor) having a rating from Moody's of Aaa and
if rated by Fitch from Fitch of AAA;
(e) bankers' acceptances issued by any depository institution
or trust company referred to in clause (b) above;
(f) repurchase obligations with respect to any security that
is a direct obligation of, or fully guaranteed by, the United States of
America or any agency or instrumentality thereof the obligations of
which are backed by the full faith and credit of the United States of
America, in either case entered into with (i) a depository institution
or trust company (acting as principal) described in clause (b) above;
and
(g) any other investment permitted by each of the Rating
Agencies as set forth in writing delivered to the Indenture Trustee.
"ELIGIBLE LENDER TRUSTEE" means The First National Bank of
Chicago, a national banking association, not in its individual capacity but
solely as eligible lender trustee under the Trust Agreement.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
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"ESCROW ACCOUNT" means the account designated as such,
established and maintained pursuant to Section 5.01 of the Sale and Servicing
Agreement.
"EVENT OF DEFAULT" has the meaning specified in Section 5.01
of the Indenture.
"EXCESS SERVICING FEE" has the meaning specified in Schedule C
to the Sale and Servicing Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXECUTIVE OFFICER" means, with respect to any corporation,
the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
President, any Executive Vice President, any Senior Vice President, any Vice
President, the Secretary or the Treasurer of such corporation; and with respect
to any partnership, any general partner thereof.
"EXPECTED INTEREST COLLECTIONS" means, with respect to any
Collection Period, the sum of (i) the amount of interest accrued, net of amounts
required by the Higher Education Act to be paid to the Department or to be
repaid to borrowers, with respect to the Financed Student Loans for such
Collection Period (whether or not such interest is actually paid), (ii) all
Interest Subsidy Payments and Special Allowance Payments expected to be received
by the Eligible Lender Trustee for such Collection Period (whether or not
actually received) with respect to the Financed Student Loans and (iii)
Investment Earnings for such Collection Period.
"EXPECTED RATE" means with respect to any Transfer Dates after
the end of the Funding Period on which Other Student Loans are transferred to
the Trust, the sum of the weighted average of the Note Interest Rates and the
Certificate Rate for the Notes and Certificates, respectively, as of the first
day of the related Collection Period plus ____%.
"EXPENSES" means any and all liabilities, obligations, losses,
damages, taxes, claims, actions and suits, and any and all reasonable costs,
expenses and disbursements (including reasonable legal fees and expenses) of any
kind and nature whatsoever which may at any time be imposed on, incurred by, or
asserted against the Eligible Lender Trustee or any of its
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officers, directors or agents in any way relating to or arising out of the Trust
Agreement, the other Basic Documents, the Trust Estate, the administration of
the Trust Estate or the action or inaction of the Eligible Lender Trustee under
the Trust Agreement or the other Basic Documents.
"FDIC" means the Federal Deposit Insurance Corporation.
"FEDERAL CONSOLIDATION LOAN" means a loan made by the Seller
to an eligible borrower that represents the refinancing of Financed Federal
Loans of such borrower in accordance with the applicable terms and conditions of
the Program and the Higher Education Act.
"FEDERAL CONSOLIDATION LOAN REBATE" means the monthly fee
payable to the Department by the holder of Federal Consolidation Loans made (x)
on or after October 1, 1993, but prior to October 1, 1998 equal to 1.05% per
annum and (y) on or after October 1, 1998 equal to .62% per annum, in each case
on the outstanding balance of such Federal Consolidation Loan.
"FEDERAL GUARANTOR" means PHEAA, ASA, ECMC and NSLP.
"FEDERAL ORIGINATION FEE" means the origination fee payable to
the Department by the lender with respect to any Financed Federal Loan
(including Federal Consolidation Loans) made on or after October 1, 1993, equal
to 0.50% of the initial principal balance of such loan.
"52 WEEK T-BILL RATE" means, on any date of determination, the
bond equivalent rate of 52-week Treasury bills auctioned at the final auction
held prior to the preceding June 1.
"FINAL MATURITY DATE" means (i) for the Class A-1 Notes, the
_______ ______ Distribution Date, (ii) for the Class A-2 Notes the _______
______ Distribution Date and (iii) for the Certificates, the _______ ______
Distribution Date.
"FINAL SUBSEQUENT TRANSFER DATE" means the last Transfer Date
on which Subsequent Pool Student Loans are transferred to the Trust but no later
than the Special Determination Date.
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"FINANCED FEDERAL LOANS" means those Financed Student Loans
that are guaranteed as to the payment of principal and interest by PHEAA, ASA,
ECMC or NSLP and are reinsured by the Department and are listed on Schedule A to
the Sale and Servicing Agreement, as such Schedule may be supplemented from time
to time.
"FINANCED PRIVATE LOANS" means those Financed Student Loans
that are guaranteed as to the payment of principal and interest by TERI or HICA
and are not reinsured by the Department or any other governmental entity and are
listed on Schedule A to the Sale and Servicing Agreement, as such Schedule may
be supplemented from time to time.
"FINANCED STUDENT LOAN" means any law school, medical school,
dental school, graduate business school or other graduate school student loan
listed on Schedule A of the Sale and Servicing Agreement as such Schedule may be
supplemented from time to time.
"FINANCED STUDENT LOAN FILES" means the documents specified in
Section 3.03 of the Sale and Servicing Agreement.
"FITCH" means Fitch IBCA, Inc.
"FUNDING PERIOD" means the period beginning on the Closing
Date and ending on the first to occur of (a) the date on which an Event of
Default, a Servicer Default or an Administrator Default occurs, (b) the date on
which an Insolvency Event occurs with respect to the Seller, (c) the first date
on which the amounts on deposit in each Pre-Funding Account is zero, and (d) the
close of business on the last day of the Collection Period preceding the March
2001 Distribution Date.
"GRADUATE LOAN PROGRAMS" means [TO COME FROM KEY BANK].
["GRADUATE SCHOOL LOAN" means a Graduate [School] Loan made by
the Seller to an eligible borrower pursuant to the Programs.]
"GRANT" means mortgage, pledge, bargain, sell, warrant,
alienate, remise, release, convey, assign, transfer, create, and grant a lien
upon and a security interest in and right of set-off against, deposit, set over
and confirm pursuant to the Indenture.
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A Grant of the Collateral or of any other agreement or instrument shall include
all rights, powers and options (but none of the obligations) of the Granting
party thereunder, including the immediate and continuing right to claim for,
collect, receive and give receipt for principal and interest payments in respect
of the Collateral and all other moneys payable thereunder, to give and receive
notices and other communications, to make waivers or other agreements, to
exercise all rights and options, to bring Proceedings in the name of the
Granting party or otherwise and generally to do and receive anything that the
Granting party is or may be entitled to do or receive thereunder or with respect
thereto.
"GUARANTEE AGREEMENTS" means (i) in the case of PHEAA, the
National Guaranty Agreement and the Lender Participation Agreement for
Consolidation Loans, in each case dated as of June 13, 1998, between PHEAA and
the Eligible Lender Trustee on behalf of the Issuer, (ii) in the case of ASA,
the Holder Guarantee Agreement dated as of July 13, 1998, between ASA and the
Eligible Lender Trustee on behalf of the Issuer, (iii) in the case of ECMC, the
Holder Agreement for Payment on Guarantee dated as of the Closing Date, between
ECMC and the Eligible Lender Trustee on behalf of the Issuer, (iv) in the case
of NSLP, the Lender Agreement for Guaranteed Educational Loans With Federal
Reinsurance and the Lender Agreement for Guarantee of Federal Consolidation
Loans with Federal Reinsurance, each dated as of July 13, 1998 between NSLP and
the Eligible Lender Trustee on behalf of the Issuer, (v) in the case of TERI,
the Guarantee Agreement dated as of July 13, 1998, among TERI, the Seller and
the Eligible Lender Trustee on behalf of the Issuer and (vi) in the case of
HICA, the Endorsement to Alternative Dental Educational Assistance Loan Surety
Bond Numbers 1994-A, 1994-B, 1995-A and 1996-A dated as of July 13, 1998 and
executed by HICA, relative to such Surety Bonds which were assigned by the
Seller to the Eligible Lender Trustee on behalf of the Issuer.
"GUARANTEE FEE ADVANCE" means a loan made by the Seller to a
borrower of a Financed Private Loan, at the borrower's option, at the time such
borrower commences repayment of such Financed Private Loan to finance the cost
of the fee imposed with respect to such loan at such time.
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"GUARANTEE PAYMENT" means any payment made by a Guarantor
pursuant to a Guarantee Agreement in respect of a Financed Student Loan.
"GUARANTORS" means PHEAA, ASA, ECMC, NSLP, TERI and HICA.
"HICA" means HEMAR Insurance Company of America, a South
Dakota corporation.
"HIGHER EDUCATION ACT" means the Higher Education Act of 1965,
as amended, together with any rules, regulations and interpretations thereunder.
"INDENTURE" means the Indenture dated as of January 1, 1999,
between the Issuer and the Indenture Trustee.
"INDENTURE TRUSTEE" means Bankers Trust Company, a New York
banking corporation, not in its individual capacity but solely as Indenture
Trustee under the Indenture.
"INDENTURE TRUST ESTATE" means all money, instruments, rights
and other property that are subject or intended to be subject to the lien and
security interest of the Indenture for the benefit of the Noteholders (including
all property and interests granted to the Indenture Trustee), including all
proceeds thereof.
"INDEPENDENT" means, when used with respect to any specified
Person, that the Person (a) is in fact independent of the Issuer, any other
obligor upon the Notes, the Seller and any Affiliate of any of the foregoing
Persons, (b) does not have any direct financial interest or any material
indirect financial interest in the Issuer, any such other obligor, the Seller or
any Affiliate of any of the foregoing Persons and (c) is not connected with the
Issuer, any such other obligor, the Seller or any Affiliate of any of the
foregoing Persons as an officer, employee, promoter, underwriter, trustee,
partner, director or person performing similar functions.
"INDEPENDENT CERTIFICATE" means a certificate or opinion to be
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.01 of the
Indenture, made
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by an Independent appraiser or other expert appointed by an Issuer Order and
approved by the Indenture Trustee in the exercise of reasonable care, and such
opinion or certificate shall state that the signer has read the definition of
"Independent" in the Indenture and that the signer is Independent within the
meaning thereof.
"INDEX MATURITY" shall have the meaning set forth in the
definition of "Three-Month LIBOR".
"INITIAL CERTIFICATE BALANCE" means $__________.
"INITIAL FINANCED STUDENT LOANS" has the meaning specified in
Section 2.01 of the Sale and Servicing Agreement.
"INITIAL POOL BALANCE" means, the sum of the Pool Balance as
of the Cutoff Date, which is $________, plus as of each Subsequent Cutoff Date
the principal balance of each Subsequent Pool Student Loan sold to the Eligible
Lender Trustee on behalf of the Issuer on each Transfer Date during the Funding
Period.
"INSOLVENCY EVENT" means, with respect to a specified Person,
(a) the filing of a decree or order for relief by a court having jurisdiction in
the premises in respect of such Person or any substantial part of its property
in an involuntary case under any applicable Federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or
ordering the winding-up or liquidation of such Person's affairs, and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or (b) the commencement by such Person of a voluntary case under any
applicable Federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by such Person to the entry of an order for
relief in an involuntary case under any such law, or the consent by such Person
to the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or the making by such Person of any general
assignment for the benefit of creditors, or the failure by such Person generally
to
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pay its debts as such debts become due, or the taking of action by such
Person in furtherance of any of the foregoing.
"INTEREST COLLECTIONS" shall have the meaning specified in
Section 5.03 of the Sale and Servicing Agreement.
"INTEREST PERIOD" means, with respect to a Distribution Date,
the period from and including the Closing Date or the most recent Distribution
Date on which interest on the Notes or the Certificates, as the case may be, has
been distributed to but excluding the current Distribution Date.
"INTEREST SUBSIDY PAYMENTS" means payments, designated as
such, consisting of interest subsidies by the Department in respect of the
Financed Federal Loans to the Eligible Lender Trustee on behalf of the Trust in
accordance with the Higher Education Act.
"INVESTMENT EARNINGS" means, with respect to any Distribution
Date, the investment earnings (net of losses and investment expenses) on amounts
on deposit in the Trust Accounts to be deposited into the Collection Account on
or prior to such Distribution Date pursuant to Section 5.01(b) of the Sale and
Servicing Agreement.
"ISSUER" means KeyCorp Student Loan Trust 1999-A (formerly
named KeyCorp Student Loan Trust 1998-A) until a successor replaces it and,
thereafter, means the successor.
"ISSUER ORDER" and "ISSUER REQUEST" means a written order or
request signed in the name of the Issuer by any one of its Authorized Officers
and delivered to the Indenture Trustee.
["LAW LOAN" means a Law School Loan made by the Seller to an
eligible borrower pursuant to the Programs.]
"LIBOR DETERMINATION DATE" means the second Business Day prior
to the commencement of each Interest Period. For purposes of this definition a
"Business Day" is any day on which banks in London and New York City are open
for the transaction of business.
"LIBOR INDEXED SECURITIES" means _______________.
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"LIEN" means a security interest, lien, charge, pledge, equity
or encumbrance of any kind, other than tax liens and any other liens, if any,
which attach to the respective Financed Student Loan by operation of law as a
result of any act or omission by the related Obligor.
"LIQUIDATED STUDENT LOAN" means any defaulted Financed Student
Loan liquidated by the Servicer which services such Financed Student Loan (which
shall not include any Financed Student Loan on which Guarantee Payments are
received) or which such Servicer has, after using all reasonable efforts to
realize upon such Financed Student Loan, determined to charge off.
"LIQUIDATION PROCEEDS" means, with respect to any Liquidated
Student Loan, the moneys collected in respect thereof from whatever source,
other than Recoveries, net of the sum of any amounts expended by the Servicer
which serviced such Liquidated Student Loan in connection with such liquidation
and any amounts required by law to be remitted to the borrower on such
Liquidated Student Loan.
"LOAN PURCHASE TERMINATION DATE" means the first to occur of
(i) the date on which an Event of Default occurs under the Indenture, a Servicer
Default occurs under the Sale and Servicing Agreement or an Administrator
Default occurs under the Sale and Servicing Agreement or the Administration
Agreement, (ii) the date on which an Insolvency Event with respect to the Seller
occurs, or (iii) the last day of the Collection Period preceding the March 2002
Distribution Date.
"LOCK-IN PERIOD" means the period of days preceding any
Distribution Date during which the Note Interest Rates or Certificate Rates, as
applicable, in effect on the first day of such period shall remain in effect
until the end of the Interest Period related to such Distribution Date.
"MAXIMUM TERI PAYMENTS AMOUNT" means an amount equal to 19% of
the Initial Pool Balance.
"MINIMUM PURCHASE AMOUNT" means the greatest of (i) the
Auction Purchase Amount, (ii) the fair market value of the Financed Student
Loans as of the end of the Collection Period immediately preceding such
Distribution Date, and (iii) the aggregate unpaid principal amount of the Notes
and unpaid
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principal balance of the Certificates plus, in each case, accrued and unpaid
interest thereon on the related Distribution Date and any amount to be paid
pursuant to Section 5.04(b) FIRST and SECOND of the Indenture.
"MONTHLY SERVICING PAYMENT DATE" means the twenty-seventh day
of each calendar month, or, if such day is not a Business Day, the immediately
following Business Day, commencing on March 1, 1999.
"MOODY'S" means Moody's Investors Service, Inc.
"91-DAY TREASURY BILLS" means direct obligations of the United
States with a maturity of thirteen weeks.
"NEGATIVE CARRY INITIAL DEPOSIT" means $____________.
"NET GOVERNMENT RECEIVABLE" means, with respect to any
Distribution Date, the sum of the amount of Interest Subsidy Payments and
Special Allowance Payments due from the Department less the amount owed to the
Department for Federal Origination Fee and Federal Consolidation Loan Rebate as
of the end of the related Collection Period.
"NOTE COLLATERALIZATION AMOUNT" means, with respect to any
Distribution Date, the sum of (i) the Pool Balance as of the end of the related
Collection Period, (ii) the Pre-Funded Amount as of the end of the related
Collection Period, (iii) the amount on deposit in the Reserve Account after
giving effect to distributions on such Distribution Date, and (iv) the Net
Government Receivable.
"NOTE DEPOSITORY AGREEMENT" means the agreement dated as of
the Closing Date relating to the Notes, substantially in the form of Exhibit B
to the Indenture, among the Issuer, the Indenture Trustee, the Administrator and
The Depository Trust Company, as the initial Clearing Agency.
"NOTE INTEREST RATE" means, with respect to any Interest
Period, (w) in the case of the Class A-1 Notes, the interest rate per annum
[(computed on the basis of the actual number of days elapsed in such Interest
Period over a year of 365 days (or 366 in a leap year)] [(computed on the basis
of the actual number of days elapsed in the related Interest Period
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divided by 360)] equal to the lesser of (i) [the weighted average of the T-Bill
Rates within such Interest Period] [Three-Month LIBOR] plus ___% and (ii) the
Student Loan Rate for such Interest Period, (x) in the case of the Class A-2
Notes, the interest rate per annum [(computed on the basis of the actual number
of days elapsed in such Interest Period over a year of 365 days (or 366 in a
leap year)] [(computed on the basis of the actual number of days elapsed in the
related Interest Period divided by 360)] equal to the lesser of (i) [the
weighted average of the T-Bill Rates within such Interest Period] [Three-Month
LIBOR] plus ___% and (ii) the Student Loan Rate for such Interest Period.
"NOTE OWNER" means, with respect to a Book-Entry Note, the
Person who is the owner of such Book-Entry Note, as reflected on the books of
the Clearing Agency, or on the books of a Person maintaining an account with
such Clearing Agency (directly as a Clearing Agency Participant or as an
indirect participant, in each case in accordance with the rules of such Clearing
Agency).
"NOTE REGISTER" and "NOTE REGISTRAR" have the respective
meanings specified in Section 2.04 of the Indenture.
"NOTE UNDERWRITING AGREEMENT" means the Note Underwriting
Agreement dated as of January __, 1999 between the Seller and the Underwriters.
"NOTEHOLDER" means the Person in whose name a Note is
registered in the Note Register.
"NOTEHOLDERS' AVAILABLE INTEREST DISTRIBUTION AMOUNT" means on
any Distribution Date, an amount equal to (x) the sum of (1) Available Funds for
such Distribution Date, (2) the amounts withdrawn from the Pre-Funding Account
pursuant to Section 5.08(d) of the Sale and Servicing Agreement on such
Distribution Date, and (3) the amounts withdrawn from the Reserve Account
pursuant to Section 5.06(b)(v) of the Sale and Servicing Agreement on such
Distribution Date minus (y) the amount required to be distributed pursuant to
clauses (i) and (ii) of Section 5.05(c) of the Sale and Servicing Agreement,
including any Noteholders' Priority Principal Distribution Amount actually
distributed.
"NOTEHOLDERS' AVAILABLE PRINCIPAL DISTRIBUTION AMOUNT" means
on the Final Maturity Date for each class of Notes, an
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amount equal to (x) the sum of (1) the Available Funds for such Distribution
Date and (2) the amount, if any, withdrawn from the Reserve Account pursuant to
Sections 5.06(b)(vii) or (viii) of the Sale and Servicing Agreement minus (y)
the amounts required to be distributed pursuant to clauses (i) through (v) of
Section 5.05(c) of the Sale and Servicing Agreement, including the Noteholders'
Priority Principal Distribution Amount for such class of Notes actually
distributed.
"NOTEHOLDERS' DISTRIBUTION AMOUNT" means, with respect to any
Distribution Date, the sum of the Noteholders' Interest Distribution Amount and
the Noteholders' Principal Distribution Amount for such Distribution Date.
"NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, with
respect to any Distribution Date, the excess of (i) the sum of the Noteholders'
Interest Distribution Amount on the preceding Distribution Date over (ii) the
amount of interest actually distributed to the holders of the Notes on such
preceding Distribution Date, plus interest on the amount of such excess interest
due to the holders of the Notes, to the extent permitted by law, at the weighted
average of the Note Interest Rates for the Notes from such preceding
Distribution Date to the current Distribution Date.
"NOTEHOLDERS' INTEREST DISTRIBUTION AMOUNT" means, with
respect to any Distribution Date, the sum of (i) the aggregate amount of
interest accrued at the applicable Note Interest Rate for the related Interest
Period on the outstanding principal balance of each class of Notes on the
immediately preceding Distribution Date after giving effect to all principal
distributions to Noteholders of such class on such date (or, in the case of the
first Distribution Date, on the Closing Date) and (ii) the Noteholders' Interest
Carryover Shortfall for such Distribution Date; provided, that the Noteholders'
Interest Distribution Amount will not include any Noteholders' Interest Index
Carryover.
"NOTEHOLDERS' INTEREST INDEX CARRYOVER" means, with respect to
any Distribution Date as to which the Note Interest Rate for the Notes for such
Distribution Date is based on the Student Loan Rate, the amount equal to the
excess, if any, of (a) the amount of interest on such Notes that would have
accrued in respect of the related Interest Period had interest been
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calculated based on [the T-Bill Rate, if such Notes are T-Bill Indexed
Securities] or [Three-Month LIBOR if such Notes are LIBOR Indexed Securities],
over (b) the amount of interest on such Notes actually accrued in respect of
such Interest Period based on the Student Loan Rate, together with the unpaid
portion of any such excess from prior Distribution Dates (and interest accrued
thereon, to the extent permitted by law, at the applicable rate calculated based
on [the T-Bill Rate, in the case of T-Bill Indexed Securities] or [Three-Month
LIBOR, in the case of LIBOR Indexed Securities]); PROVIDED, HOWEVER, that on the
Final Maturity Date for such Notes, the Noteholders' Interest Index Carryover
for such Notes will be equal to the lesser of (i) the Noteholders' Interest
Index Carryover on such date determined as described above and (ii) the amount
of funds, if any, required and available to be distributed to the holders for
such Notes on such date pursuant to Sections 5.05(c)(ix) and 5.06(e) of the Sale
and Servicing Agreement.
"NOTEHOLDERS' PERCENTAGE" means a fraction, expressed as a
percentage, the numerator of which is the principal amount of the Notes issued
on the Closing Date and the denominator of which is the sum of the principal
amount of the Notes issued on the Closing Date and the principal balance of the
Certificates issued on the Closing Date.
"NOTEHOLDERS' PRINCIPAL DISTRIBUTION AMOUNT" means, with
respect to any Distribution Date, the Principal Distribution Amount for such
Notes for such Distribution Date; PROVIDED, HOWEVER, that the Noteholders'
Principal Distribution Amount for the Notes will not exceed the outstanding
principal balance of the Notes. In addition, (i) on the Final Maturity Date for
each related class of Notes, the principal required to be distributed to such
class of Notes will include the amount required to reduce the outstanding
principal balance of such class of Notes to zero, and (ii) on the related
Distribution Date following a sale of the Financed Student Loans pursuant to
Section 9.01(a) or (c) of the Sale and Servicing Agreement, the principal
required to be distributed to the holders of Class A-2 Notes will include the
amount required to reduce the outstanding principal balance of the Class A-2
Notes to zero. In the event that the outstanding balance of the Notes is in
excess of the Note Collateralization Amount, the Noteholders' Principal
Distribution Amount will be reduced by the amount of any Noteholders' Priority
Principal Distribution Amount.
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"NOTEHOLDERS' PRIORITY PRINCIPAL DISTRIBUTION AMOUNT" means,
with respect to any Distribution Date, the excess of (i) the aggregate
outstanding principal balance of the Notes (after giving effect to any
distributions on such Distribution Date) over (ii) the Note Collateralization
Amount.
"NOTES" means the Class A-1 Notes and Class A-2 Notes.
"OBLIGOR" on a Financed Student Loan means the borrower or
co-borrowers of such Financed Student Loan and any other Person who owes
payments in respect of such Financed Student Loan, including the Guarantor
thereof and, with respect to any Interest Subsidy Payment or Special Allowance
Payment, if any, thereon, the Department.
"OFFICERS' CERTIFICATE" means (i) in the case of the Issuer, a
certificate signed by any two Authorized Officers of the Eligible Lender
Trustee, under the circumstances described in, and otherwise complying with, the
applicable requirements of Section 11.01 of the Indenture, and delivered to the
Indenture Trustee, (ii) in the case of the Seller or the Administrator, a
certificate signed by any two Authorized Officers of the Seller or the
Administrator, as appropriate and (iii) in the case of the Servicer, a
certificate signed by any two Authorized Officers of the Servicer.
"OPINION OF COUNSEL" means (i) with respect to the Issuer, one
or more written opinions of counsel who may, except as otherwise expressly
provided in the Indenture, be employees of or counsel to the Issuer and who
shall be satisfactory to the Indenture Trustee, and which opinion or opinions
shall be addressed to the Indenture Trustee as Indenture Trustee, shall comply
with any applicable requirements of Section 11.01 of the Indenture, and shall be
in form and substance satisfactory to the Indenture Trustee and (ii) with
respect to the Seller, the Administrator or a Servicer, one or more written
opinions of counsel who may be an employee of or counsel to the Seller, the
Administrator or such Servicer, which counsel shall be acceptable to the
Indenture Trustee, the Eligible Lender Trustee or the Rating Agencies, as
applicable.
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"OTHER ADDITIONAL PRE-FUNDED AMOUNT" means, with respect to
any Distribution Date, the amount on deposit in the Other Additional Pre-Funding
Subaccount.
"OTHER ADDITIONAL PRE-FUNDING SUBACCOUNT" has the meaning set
forth in Section 5.08 of the Sale and Servicing Agreement.
"OTHER STUDENT LOANS" means the Serial Loans (including
Consolidation Loans) made by the Seller to an eligible borrower who has one or
more existing loans under the Programs that are Financed Student Loans and are
transferred or to be transferred to the Eligible Lender Trustee on behalf of the
Issuer during the period which begins after the Funding Period and ends on the
Loan Purchase Termination Date pursuant to Section 2.02A of the Sale and
Servicing Agreement, each of which shall be identified on Schedule A, to the
related Transfer Agreement which Schedule A may be in the form of microfiche or
computer tape.
"OTHER SUBSEQUENT STUDENT LOANS" means the Serial Loans
(including Consolidation Loans but not including Subsequent Pool Student Loans)
made by the Seller to an eligible borrower who has one or more existing loans
under the Programs that are Financed Student Loans and are transferred or to be
transferred to the Eligible Lender Trustee on behalf of the Issuer during the
Funding Period pursuant to Section 2.02 of the Sale and Servicing Agreement,
each of which shall be identified on Schedule A, to the related Transfer
Agreement which Schedule A may be in the form of microfiche or computer tape.
"OUTSTANDING" means, as of the date of determination, all
Notes theretofore authenticated and delivered under the Indenture except:
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in
the necessary amount has been theretofore deposited with the Indenture
Trustee or any Paying Agent in trust for the Noteholders thereof
(PROVIDED, HOWEVER, that if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to the Indenture); and
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(iii) Notes in exchange for or in lieu of other Notes which
have been authenticated and delivered pursuant to the Indenture unless
proof satisfactory to the Indenture Trustee is presented that any such
Notes are held by a bona fide purchaser;
PROVIDED that in determining whether the Noteholders of the requisite
Outstanding Amount of the Notes have given any request, demand, authorization,
direction, notice, consent or waiver hereunder or under any other Basic
Document, Notes owned by the Issuer, any other obligor upon the Notes, the
Seller or any Affiliate of any of the foregoing Persons shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the Indenture
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes that a
Responsible Officer of the Indenture Trustee either actually knows to be so
owned or has received written notice thereof shall be so disregarded. Notes so
owned that have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Indenture Trustee the pledgee's
right so to act with respect to such Notes and that the pledgee is not the
Issuer, any other obligor upon the Notes, the Seller or any Affiliate of any of
the foregoing Persons.
"OUTSTANDING AMOUNT" means the aggregate principal amount of
all Notes Outstanding at the date of determination.
"PAYING AGENT" means the Indenture Trustee or any other Person
that meets the eligibility standards for the Indenture Trustee specified in
Section 6.11 of the Indenture and is authorized by the Issuer to make the
payments to and distributions from the Collection Account and payments of
principal of and interest and any other amounts owing on the Notes on behalf of
the Issuer.
"PERSON" means any individual, corporation, estate,
partnership, joint venture, association, joint stock company, trust (including
any beneficiary thereof), unincorporated organization or government or any
agency or political subdivision thereof.
"PHEAA" means the Pennsylvania Higher Education Assistance
Agency, an agency of the Commonwealth of Pennsylvania.
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"PHYSICAL PROPERTY" has the meaning assigned to such term in
the definition of "Delivery" above.
"POOL BALANCE" means, at any time, the aggregate principal
balance of the Financed Student Loans at the end of the preceding Collection
Period (including accrued interest thereon for such Collection Period to the
extent such interest will be capitalized upon commencement of repayment), after
giving effect to the following without duplication: (i) all payments received by
the Trust related to the Financed Student Loans during such Collection Period
from or on behalf of borrowers, Guarantors and the Department, (ii) all Purchase
Amounts received by the Trust related to the Financed Student Loans for such
Collection Period from the Seller or the Servicers, (iii) all Additional
Fundings made from the applicable Escrow Account and the applicable Pre-Funding
Account or the Available Loan Purchase Funds with respect to such Collection
Period and (iv) all losses realized on Financed Student Loans liquidated during
such Collection Period.
"POOL FACTOR" means as of the close of business on a
Distribution Date (i) for the Class A-1 Notes, a seven-digit decimal figure
equal to the outstanding principal balance of the Class A-1 Notes divided by the
original outstanding principal balance of the Class A-1 Notes, (ii) for the
Class A-2 Notes, a seven-digit decimal figure equal to the outstanding principal
balance of the Class A-2 Notes divided by the original outstanding principal
balance of the Class A-2 Notes and (iii) for the Certificates, a seven-digit
decimal figure equal to the Certificate Balance of the Certificates divided by
the Initial Certificate Balance of the Certificates. The Pool Factor for each
class of Securities will be 1.0000000 as of the Closing Date; thereafter, the
Pool Factor for each class of Securities will decrease to reflect reductions in
the outstanding principal balance of such classes of Securities.
"PREDECESSOR NOTE" means, with respect to any particular Note,
every previous Note evidencing all or a portion of the same debt as that
evidenced by such particular Note; and, for the purpose of this definition, any
Note authenticated and delivered under Section 2.05 of the Indenture and in lieu
of a mutilated, lost, destroyed or stolen Note shall be deemed to evidence the
same debt as the mutilated, lost, destroyed or stolen Note.
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"PRE-FUNDED AMOUNT" means, with respect to any Distribution
Date, the amount on deposit in the Pre-Funding Account.
"PRE-FUNDING ACCOUNT" means the account designated as such,
established and maintained pursuant to Section 5.01 of the Sale and Servicing
Agreement (including, unless otherwise expressly stated, the Subsequent Pool
Pre-Funding Subaccount and the Other Additional Pre-Funding Subaccount).
"PRINCIPAL DISTRIBUTION AMOUNT" means, with respect to any
Distribution Date, the amount by which the sum of the outstanding principal
balance of the Notes and the Certificates exceeds the Specified Collateral
Balance for such Distribution Date.
"PRIVATE CONSOLIDATION GUARANTEE FEE" means, with respect to
each Private Consolidation Loan, a fee charged to the borrower to discharge the
underlying Financed Private Loans and included in the original principal amount
of such Private Consolidation Loan.
"PRIVATE CONSOLIDATION LOAN" means a loan made by the Seller
to an eligible borrower that represents the refinancing of Private Financed
Loans of such borrower in accordance with the terms of the Programs.
"PROCEEDING" means any suit in equity, action at law or other
judicial or administrative proceeding.
"PROGRAMS" means the Graduate Loan Programs, as in effect from
time to time.
"PURCHASE AMOUNT" means, as of the close of business on the
last day of a Collection Period, ________% of the amount required to prepay in
full the respective Financed Student Loan, if it is an Initial Financed Student
Loan, ________% of the amount required to prepay in full the respective Financed
Student Loan, if it is a Subsequent Pool Student Loan and 100% of the amount
required to prepay in full the respective Financed Student Loan if it is an
Other Subsequent Student Loan or an Other Student Loan, in each case under the
terms thereof including all
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accrued interest thereon and any lost Interest Subsidy Payments and Special
Allowance Payments with respect thereto.
"PURCHASE PRICE" means, with respect to any Financed Student
Loan, (i) in the case of any Initial Financed Student Loan, an amount equal to
________% of the aggregate principal balance of such Initial Financed Student
Loan as of the Cutoff Date (ii) in the case of any Student Loan in the
Subsequent Pool, an amount equal to ________% of the aggregate principal balance
of such Student Loan as of the related Subsequent Cutoff Date, and (iii) in the
case of any Other Subsequent Student Loan or Other Student Loan, 100% of the
aggregate principal balance thereof as the related Subsequent Cutoff Date. For
purposes of the foregoing calculation, the aggregate principal balance of each
Financed Student Loan includes accrued interest thereon from the date of
origination to, with respect to each Initial Financed Student Loan, the Cutoff
Date, and to, with respect to each Additional Student Loan, the related
Subsequent Cutoff Date, in each case expected to be capitalized upon repayment.
"PURCHASED STUDENT LOAN" means a Financed Student Loan
purchased as of the close of business on the last day of a Collection Period by
a Servicer pursuant to Section 4.06 of the Sale and Servicing Agreement or
repurchased by the Seller pursuant to Section 3.02 of the Sale and Servicing
Agreement.
"RATING AGENCY" means each of Moody's and Fitch. If any such
organization or successor is no longer in existence, "Rating Agency" shall be a
nationally recognized statistical rating organization or other comparable Person
designated by the Seller, notice of which designation shall be given to the
Indenture Trustee, the Eligible Lender Trustee and the Servicer.
"RATING AGENCY CONDITION" means, with respect to any action,
that each Rating Agency shall have been given 10 days' prior notice thereof (or
such shorter period as shall be acceptable to the Rating Agencies) and that none
of the Rating Agencies shall have notified the Seller, the Servicers, the
Eligible Lender Trustee and the Indenture Trustee in writing that such action
will in and of itself result in a reduction or withdrawal of the then current
rating of the Notes or the Certificates.
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"REALIZED LOSSES" means the excess of the aggregate principal
balance of any Liquidated Student Loan plus accrued but unpaid interest thereon
over Liquidation Proceeds to the extent allocable to principal.
"RECORD DATE" means, with respect to a Distribution Date or
Redemption Date, the close of business on the twenty-sixth day of the calendar
month in which such Distribution Date or Redemption Date occurs.
"RECOVERIES" means, with respect to any Liquidated Student
Loan, moneys collected in respect thereof, from whatever source, during any
Collection Period following the Collection Period in which such Financed Student
Loan became a Liquidated Student Loan, net of the sum of any amounts expended by
the Servicer for the account of any Obligor and any amounts required by law to
be remitted to the Obligor.
"REDEMPTION DATE" means (a) in the case of a redemption of
Notes pursuant to Section 10.01(a) of the Indenture, the Distribution Date on
which the Funding Period ends (or the Distribution Date on or immediately
following the last day of the Funding Period, if the Funding Period does not end
on a Distribution Date) or (b) in the case of a payment to Noteholders pursuant
to Section 10.01(b) of the Indenture, the Distribution Date specified by the
Administrator or the Issuer pursuant to Section 10.01(b) of the Indenture.
"REDEMPTION PRICE" means [(a) in the case of a redemption of
the Notes pursuant to Section 10.01(a) of the Indenture, an amount equal to the
unpaid principal amount of the Notes, plus accrued and unpaid interest thereon
at the applicable Note Interest Rate to but excluding the Redemption Date and
the amount of the Noteholders' Interest Index Carryover with respect thereto, or
(b) in the case of a payment made to Noteholders pursuant to Section 10.01(b) of
the Indenture, the amount to be so paid, but not in excess of the amount
specified in clause (a) above.]
"REFERENCE BANK" means a leading bank (i) engaged in
transactions in Eurodollar deposits in the international Eurocurrency market,
(ii) not controlling, controlled by or under common control with the
Administrator and (iii) having an established place of business in London.
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"RESERVE ACCOUNT" means the account designated as such,
established and maintained pursuant to Section 5.01 of the Sale and Servicing
Agreement.
"RESERVE ACCOUNT INITIAL DEPOSIT" means $_________.
"RESPONSIBLE OFFICER" means, with respect to the Indenture
Trustee, any officer within the Corporate Trust Office of the Indenture Trustee,
including any Vice President, Assistant Vice President, Secretary, Assistant
Secretary, or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers,
with direct responsibility for the administration of the Indenture and the other
Basic Documents on behalf of the Indenture Trustee and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
"SALE AND SERVICING AGREEMENT" means the Sale and Servicing
Agreement dated as of January 1, 1999 among the Issuer, the Seller, the
Administrator, the Eligible Lender Trustee and the Servicers.
"SCHEDULES OF FINANCED STUDENT LOANS" means the listing of the
Financed Student Loans set forth in Schedules A and B to the Sale and Servicing
Agreement and to the Indenture (which Schedules may be in the form of
microfiche), as amended or supplemented on each Transfer Date to reflect the
sale to the Eligible Lender Trustee on behalf of the Trust of the Additional
Student Loans.
"SECURITIES" means the Class A-1 Notes, Class A-2 Notes and
the Certificates.
"SELLER" means Key Bank USA, National Association, a national
banking association.
"SERIAL LOANS" means additional student loans, including
Consolidation Loans, which are made under the Programs to a borrower who is also
a borrower under at least one Initial Financed Student Loan or Subsequent Pool
Student Loan.
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"SERVICER" means PHEAA, in its capacity as servicer of the
Financed Student Loans it services or EFS, as servicer of the Financed Student
Loans it services, as applicable.
"SERVICER DEFAULT" means an event specified in Section 8.01(a)
of the Sale and Servicing Agreement.
"SERVICER'S REPORT" means any report of a Servicer delivered
pursuant to Section 4.08(a) or (b) of the Sale and Servicing Agreement,
substantially in the form acceptable to the Administrator.
"SERVICING FEE" has the meaning specified in Schedule C to the
Sale and Servicing Agreement.
"SLS LOAN" means a Financed Federal Loan designated as such
that is made under the Federal Supplemental Loans for Students Program pursuant
to the Higher Education Act.
"SPECIAL ALLOWANCE PAYMENTS" means payments, designated as
such, consisting of effective interest subsidies by the Department in respect of
the Financed Federal Loans to the Eligible Lender Trustee on behalf of the Trust
in accordance with the Higher Education Act.
"SPECIAL DETERMINATION DATE" means June 15, 1999.
"SPECIFIED COLLATERAL BALANCE" means, with respect to any
Distribution Date, the sum of (a) the Pool Balance as of the last day of the
related Collection Period plus (b) the Pre-Funded Amount, as of the last day of
the related Collection Period for such Distribution Date. In the event that the
Financed Student Loans are not sold pursuant to Section 9.01(c) of the Sale and
Servicing Agreement with respect to any Distribution Date occurring on or after
the March 2009 Distribution Date, the Specified Collateral Balance will be zero.
"SPECIFIED RESERVE ACCOUNT BALANCE" means _________.
"STAFFORD LOAN" means a Financed Federal Loan designated as
such that is made under the Federal Stafford Loan Program in accordance with the
Higher Education Act.
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"STATE" means any one of the 50 States of the United States of
America or the District of Columbia.
"STATISTICAL CUTOFF DATE" means January 1, 1999.
"STUDENT LOAN RATE" means for any class of Securities for any
Interest Period a rate equal to the product of (a) the quotient obtained by
dividing (i) 365 (or 366 in a leap year) by (ii) the actual number of days
elapsed in such Interest Period and (b) the percentage equivalent of a fraction,
(i) the numerator of which is equal to Expected Interest Collections for the
Collection Period relating to such Interest Period less the Servicing Fees and
the Administration Fee payable on the related Distribution Date and any
Servicing Fees paid on the two preceding Monthly Servicing Payment Dates during
the related Collection Period and (ii) the denominator of which is the
outstanding principal balance of the Securities as of the first day of such
Interest Period.
"SUBSEQUENT CUTOFF DATE" means the day as of which principal
and interest accruing with respect to an Additional Student Loan are transferred
to the Eligible Lender Trustee on behalf of the Issuer pursuant to Section 2.02
and 2.02A of the Sale and Servicing Agreement.
"SUBSEQUENT POOL PRE-FUNDED AMOUNT" means, with respect to any
Distribution Date, the amount on deposit in the Subsequent Pool Pre-Funding
Subaccount other than the Negative Carry Initial Deposit or any portion thereof.
"SUBSEQUENT POOL PRE-FUNDING SUBACCOUNT" has the meaning set
forth in Section 5.08 of the Sale and Servicing Agreement.
"SUBSEQUENT POOL STUDENT LOANS" means any law school, medical
school, dental school, graduate business school and other graduate school
student loans listed on the Schedule of Subsequent Pool Student Loans on the
Closing Date as set forth in Schedule B to the Sale and Servicing Agreement
(which Schedules may be in the form of microfiche), which student loans the
Seller intends to transfer to the Eligible Lender Trustee on behalf of the
Issuer pursuant to Section 2.02 of the Sale and Servicing Agreement, each of
which shall be identified on Schedule A to the related Transfer Agreement.
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"SUCCESSOR ADMINISTRATOR" has the meaning specified in Section
3.07(e) of the Indenture.
"SUCCESSOR SERVICER" has the meaning specified in Section
3.07(e) of the Indenture.
"SUPPLEMENTAL SALE AND SERVICING AGREEMENT" means the
Supplemental Sale and Servicing Agreement dated as of January 1, 1999, among the
Seller, the Administrator, the Trust, the Eligible Lender Trustee, the Indenture
Trustee and the Servicers.
"T-BILL INDEXED SECURITIES" means __________________.
"T-BILL RATE" means, on any day, the weighted average per
annum discount rate (expressed on a bond equivalent basis and applied on a daily
basis) for 91-day Treasury Bills sold at the most recent 91-day Treasury Bill
auction prior to such date as reported by the U.S. Treasury Department. In the
event that the results of the auctions of 91-day Treasury Bills cease to be
published or reported as provided above, or that no such auction is held in a
particular week, then the "T-Bill Rate" in effect as a result of the last such
publication or report shall remain in effect until such time, if any, as the
results of auctions of 91-day Treasury Bills shall again be so published or
reported or such an auction is held, as the case may be. The T-Bill Rate shall
be subject to a Lock-In Period of six Business Days.
"TELERATE PAGE 3750" means the display page so designated on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices).
"TERI" means The Education Resources Institute, Inc., a
Massachusetts non-profit corporation.
"THREE-MONTH LIBOR" means the London interbank offered rate
for deposits in U.S. dollars having a maturity of three months commencing on the
related LIBOR Determination Date (the "Index Maturity") which appears on
Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR Determination
Date. If such rate does not appear on Telerate Page 3750, the rate for that day
will be determined on the basis of the rates at which deposits in U.S. dollars,
having the Index Maturity and in a principal amount of not less than U.S.
$1,000,000, are offered at approximately 11:00
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a.m., London time, on such LIBOR Determination Date to prime banks in the London
interbank market by the Reference Banks. The Administrator will request the
principal London office of each of such Reference Banks to provide a quotation
of its rate. If at least two such quotations are provided, the rate for that day
will be the arithmetic mean of the quotations. If fewer than two quotations are
provided, the rate for that day will be the arithmetic mean of the rates quoted
by major banks in New York City, selected by the Administrator, at approximately
11:00 a.m., New York City time, on such LIBOR Determination Date for loans in
U.S. dollars to leading European banks having the Index Maturity and in a
principal amount equal to an amount of not less than U.S. $1,000,000; provided
that if the banks selected as aforesaid are not quoting as mentioned in this
sentence, Three-Month LIBOR in effect for the applicable Interest Period will be
Three-Month LIBOR in effect for the previous Interest Period.
"TIA" means the Trust Indenture Act of 1939, as amended.
"TRANSFER AGREEMENT" has the meaning specified in Section
2.02(b) of the Sale and Servicing Agreement.
"TRANSFER DATE" means the Closing Date, the fifteenth day (or,
if such day is not a Business Day, the next succeeding Business Day) of any
month or any other date designated by the Seller as a date on which Additional
Student Loans will be conveyed to the Eligible Lender Trustee on behalf of the
Trust prior to the Loan Purchase Termination Date pursuant to Section 2.02 or
2.02A of the Sale and Servicing Agreement.
"TRANSFERRED BALANCE" has the meaning assigned to such term in
Sections 5.05(d) and 5.08 of the Sale and Servicing Agreement.
"TREASURY REGULATIONS" means regulations, including proposed
or temporary regulations, promulgated under the Code. References in any document
or instrument to specific provisions of proposed or temporary regulations shall
include analogous provisions of final Treasury Regulations or other successor
Treasury Regulations.
"TRUST" means the Issuer, established pursuant to the Trust
Agreement.
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"TRUST ACCOUNTS" means the Collection Account, the Escrow
Account, the Pre-Funding Account and the Reserve Account.
"TRUST ACCOUNT PROPERTY" means the Trust Accounts, all amounts
and investments held from time to time in any Trust Account (whether in the form
of deposit accounts, Physical Property, book-entry securities, uncertificated
securities or otherwise), including the Reserve Account Initial Deposit and the
Pre-Funded Amount and all proceeds of the foregoing.
"TRUST AGREEMENT" means the Amended and Restated Trust
Agreement dated as of January 1, 1999, between the Depositor and the Eligible
Lender Trustee.
"TRUST CERTIFICATE" means a Certificate.
"TRUST ESTATE" means all right, title and interest of the
Trust (or the Eligible Lender Trustee on behalf of the Trust) in and to the
property and rights assigned to the Trust pursuant to Article II of the Sale and
Servicing Agreement, all funds on deposit from time to time in the Trust
Accounts and all other property of the Trust from time to time, including any
rights of the Eligible Lender Trustee and the Trust pursuant to the Sale and
Servicing Agreement, the Supplemental Sale and Servicing Agreement and the
Administration Agreement.
"TRUST INDENTURE ACT" or "TIA" means the Trust Indenture Act
of 1939 as in force on the date hereof, unless otherwise specifically provided.
"UCC" means, unless the context otherwise requires, the
Uniform Commercial Code, as in effect in the relevant jurisdiction, as amended
from time to time.
"UNDERWRITERS" shall mean Credit Suisse First Boston
Corporation and McDonald Investments Inc., a KeyCorp company.
"UNDERWRITING AGREEMENT" shall mean the Note Underwriting
Agreement or the Certificate Underwriting Agreement, as applicable.
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SCHEDULE A
TO THE
SALE AND SERVICING AGREEMENT
SCHEDULE OF INITIAL FINANCED STUDENT LOANS
[Set forth name of Servicer servicing each Initial Financed Student Loan]
Delivered to Indenture Trustee.
<PAGE> 110
SCHEDULE B
TO THE
SALE AND SERVICING AGREEMENT
SCHEDULE OF SUBSEQUENT POOL STUDENT LOANS
[Set forth name of Servicer servicing each Subsequent Pool Student Loan]
Delivered to Indenture Trustee
<PAGE> 111
SCHEDULE C
TO THE
SALE AND SERVICING AGREEMENT
LOCATION OF FINANCED STUDENT LOAN FILES - PHEAA
Documents relating to the Financed Student Loans being
serviced by PHEAA (including original notes) are stored at PHEAA's facility at
1200 North 7th Street, Harrisburg, Pennsylvania 17102.
LOCATION OF FINANCED STUDENT LOAN FILES - EFS
[To come]
<PAGE> 112
SCHEDULE D
TO THE
SALE AND SERVICING AGREEMENT
SERVICING PROVISIONS TO BE AUDITED
Sections 3.03, 3.04, 4.01, 4.02, 4.03, 4.06, 4.08, 5.02 and 5.03 of the Sale and
Servicing Agreement.
ADMINISTRATIVE PROVISIONS TO BE AUDITED
Sections 4.04, 4.08, 5.05, 5.06, 5.07 and 5.08 of the Sale and Servicing
Agreement.
Sections 1(a)(xx), 1(b)(iii), 2 and 3 of the Administration Agreement.
<PAGE> 113
EXHIBIT A
TO THE
SALE AND SERVICING AGREEMENT
Form of Noteholders' Statement
pursuant to Section 5.07(b) of Sale
and Servicing Agreement (capitalized
terms used herein are defined in
Appendix A thereto)
- --------------------------------------
Distribution Date:___________________
(i) Amount of principal being paid or distributed in respect of the
Class A-1 Notes:___________ ($_______ per $1,000 original principal amount of
Class A-1 Notes)
(ii) Amount of principal being paid or distributed in respect of the
Class A-2 Notes:___________ ($_______ per $1,000 original principal amount of
Class A-2 Notes)
(iii) Amount of interest being paid or distributed in respect of the
Class A-1 Notes:___________ ($_______ per $1,000 original principal amount of
Class A-1 Notes)
(iv) Amount of interest being paid or distributed in respect of the
Class A-2 Notes:___________ ($_______ per $1,000 original principal amount of
Class A-2 Notes)
(v) Amount of Noteholders' Interest Index Carryover being paid or
distributed (if any) and amount remaining (if any):
(1) Distributed to Class A-1 Noteholders: _______($_______ per
$1,000 original principal amount of Class A-1 Notes)
(2) Distributed to Class A-2 Noteholders: _______($_______ per
$1,000 original principal amount of Class A-2 Notes)
(3) Balance on Class A-1 Notes:__________ ($_______ per $1,000
original principal amount of Class A-1 Notes)
(4) Balance on Class A-2 Notes:__________ ($_______ per $1,000
original principal amount of Class A-2 Notes)
<PAGE> 114
(vi) Pool Balance at the end of the related Collection
Period:________
(vii) After giving effect to distributions on this
Distribution Date:
(a) (1) outstanding principal amount of Class A-1
Notes:____________
(2) Pool Factor for the Class A-1 Notes:_______
(b) (1) outstanding principal amount of Class A-2
Notes:____________
(2) Pool Factor for the Class A-2 Notes:_______
(c) (1) Certificate Balance:________________
(2) Pool Factor for the Certificates:_________
(viii) Note Interest Rate for the Class A-1 Notes:
(a) In general:
[(1) T-Bill Rate for the period from the previous
Distribution Date to this Distribution Date was _____%;][1]
or
[(1) Three-Month LIBOR for the period from the
previous Distribution Date to this Distribution Date was ___%
and] [2]
[(2)] the Student Loan Rate was _____%. [1][2]
(b) Note Interest Rate for the Class A-2 Notes:______% (based
on [T-Bill Rate][Three-Month LIBOR][Student Loan Rate])
(ix) Note Interest Rate for the Class A-2 Notes:
(a) In general:
________________
[ 1 This Calculation not required unless the T-Bill Rate for such Interest
Period is 100 basis points greater than the T-Bill Rate of the preceding
Determination Date or the 52 Week Treasury Bill Rate is 100 basis points less
than the T-Bill Rate as of such Determination Date.]
[2 This Calculation not required unless Three-Month LIBOR for such Interest
Period is 100 basis points greater than Three-Month LIBOR of the preceding
Determination Date.]
<PAGE> 115
[(1) T-Bill Rate for the period from the previous
Distribution Date to this Distribution Date was __%][1]
or
[(1) Three-Month LIBOR for the period from the
previous Distribution Date to this Distribution Date was ___%
and] [2}
(2) the Student Loan Rate was __% [1][2}
(b) Note Interest Rate for the Class A-2 Notes __% (based on
[T-bill Rate] [Three-Month LIBOR][Student Loan Rate]
(x) (a) Amount of Servicing Fee for related Collection
Period:____________ ($_______ per $1,000 original principal amount ________ of
Class A-1 Notes, $_________ per $1,000 original principal balance of
Class A-2 Notes;
(b) Amount of Excess Servicing Fee being distributed and
remaining balance (if any):
(1) Distributed: $____________ ($_______ per $1,000
original principal amount of Class A-1 Notes, and $_________
per $1,000 original principal balance of Class A-2 Notes;
(2) Balance owed to the holders of Notes: $__________
($_____ per $1,000 original principal amount of Class A-1
Notes, and $_____________ per $1,000 original principal
balance of Class A-2 Notes)
(xi) Amount of Administration Fee for related Collection
Period:____________ ($_______ per $1,000 original principal amount of Class A-1
Notes, and $_________ per $1,000 original principal balance of Class A-2 Notes;
(xii) (a) Aggregate amount of Realized Losses (if any) for the related
Collection Period:
(b) Balance of Financed Student Loans that are delinquent in
each delinquency period as of the end of the related Collection Period: _______
[(xiii) Amount in the Pre-Funding Account:_________](3)
- -----------------------------
(3) To be included for each Distribution Date during the Funding Period.
<PAGE> 116
[(xiv) (a) Amount remaining in the Subsequent Pool Pre-Funding
Subaccount not used to acquire Subsequent Pool Student Loans: ______;
(b) Amount of (a) to be paid to the holders of the Class A-1
Notes: __________](4)
(c) Amount of (a) to be paid to the holders of the Class A-2
Notes: ________; and
[(xv) Amount in the Pre-Funding Account at the end of the
Funding Period to be distributed as a payment of principal in respect
of the Notes:__________](5)
- -------------------------
(4) To be included for First Distribution Date only.
(5) To be included for the Distribution Date on or immediately following the
end of the Funding Period.
<PAGE> 117
EXHIBIT B
TO THE
SALE AND SERVICING AGREEMENT
Form of Certificateholders' Statement
pursuant to Section 5.07(b) of Sale
and Servicing Agreement (capitalized
terms used herein are defined in
Appendix A thereto)
- ---------------------------------------
Distribution Date:___________________
(i) Amount of principal being paid or distributed in respect of the
Certificates:___________ ($_______ per $1,000 original principal amount of the
Certificates)(6)
(ii) Amount of interest being paid or distributed in respect of the
Certificates:______________ ($_______ per $1,000 original principal amount of
Certificates)
(iii) Amount of Certificateholders' Interest Index Carryover being paid
or distributed (if any) and amount remaining (if any):
(1) Distributed: ______________ ($_______ per $1,000 original
principal amount of Certificates)
(2) Balance: ______________ ($_______ per $1,000 original
principal amount of Certificates)
(iv) Pool Balance at the end of related Collection Period:
(v) After giving effect to distributions on this Distribution Date:
(a) (1) outstanding principal amount of Class A-1
Notes:____________
(2) Pool Factor for Class A-1 Notes:____________
(b) (1) outstanding principal amount of Class A-2
Notes:____________
(2) Pool Factor for Class A-2 Notes:____________
- ------------------
(6) Only after the Notes have been paid in full.
<PAGE> 118
(c) (1) Certificate Balance:______________
(2) Certificate Pool Factor:____________
(vi) Certificate Rate:
(a) In general:
[(1) T-Bill Rate for the period from the previous
Distribution Date to this Distribution Date was _____%;][1]
[(2) Three-Month LIBOR for the period from the
previous Distribution Date to this Distribution Date was __%
and][2]
(3) the Student Loan Rate was _____%.[1][2]
(b) Certificate Rate:______% (based on [T-Bill Rate]
[Three-Month LIBOR][Student Loan Rate])
(vii) (a) Amount of Servicing Fee for the related Collection Period:
____________ ($_______ per $1,000 original principal amount of
Certificates):___________
(b) Amount of Excess Servicing Fee being distributed and
remaining balance (if any):
(1) Distributed: $______________ ($_______ per $1,000
original principal amount of Certificates).
(2) Balance owed to the holders of the Certificates:
$______________ ($_______ per $1,000 original
principal amount of Certificates).
(viii) Amount of Administration Fee for the related Collection Period:
____________ ($_______ per $1,000 original principal amount of Certificates)
(ix) (a) Aggregate amount of Realized Losses (if any) for the related
Collection Period:______________
(b) Balance of Financed Student Loans that are delinquent in
each delinquency period as of the end of the related Collection
Period:__________
(x) Amount in the Reserve Account:____________
<PAGE> 119
(xi) Amount in the Pre-Funding Account:_________(7)
(xii) (a) Amount remaining in the Subsequent Pool Pre-Funding
Subaccount not used to acquire Subsequent Pool Student Loans: ______;
(b) Amount of (a) to be paid to Certificateholders:
________(8)
- ------------------
7/ To be included for each Distribution Date during the Funding Period.
8/ To be included for First Distribution Date only.
<PAGE> 120
EXHIBIT C
TO THE
SALE AND SERVICING AGREEMENT
FORM OF ADMINISTRATOR'S CERTIFICATE
[To be provided]
<PAGE> 121
EXHIBIT D
TO THE
SALE AND SERVICING AGREEMENT
ASSIGNMENT
For value received, in accordance with the Sale and Servicing
Agreement (the "Sale and Servicing Agreement") dated as of January 1, 1999,
among the undersigned, as seller (the "Seller") and as administrator (the
"Administrator"), KeyCorp Student Loan Trust 1999-A (the "Trust"), The First
National Bank of Chicago, not in its individual capacity but solely as Eligible
Lender Trustee (the "Eligible Lender Trustee"), Pennsylvania Higher Education
Assistance Agency, as servicer ("Servicer")and EFS Services, Inc., as servicer
("Servicer"), the undersigned does hereby sell, assign, transfer and otherwise
convey unto the Eligible Lender Trustee on behalf of the Trust, without recourse
(subject to the obligations set forth in the Sale and Servicing Agreement), all
right, title and interest of the undersigned in and to (i) the Initial Financed
Student Loans and all obligations of the Obligors thereunder including all
monies paid thereunder on or after the Cutoff Date, (ii) the Assigned Rights,
(iii) all funds on deposit from time to time in the Trust Accounts, including
the Reserve Account Initial Deposit, the Negative Carry Initial Deposit and the
Pre-Funded Amounts and in all investments and proceeds thereof (including all
income thereon) and (iv) the proceeds of any and all of the foregoing (including
proceeds derived from the voluntary or involuntary conversion of any of the
Initial Financed Student Loans into cash or other liquidated property, such as
proceeds from the applicable Guarantee Agreement. The foregoing sale does not
constitute and is not intended to result in any assumption by the Eligible
Lender Trustee or the Trust of any obligation of the Seller to the Obligor with
respect to Initial Financed Student Loans or any other person in connection with
the Initial Financed Student Loans or any agreement or instrument relating to
any of them.
In addition, the undersigned, by execution of this instrument,
hereby endorses the promissory notes evidencing each Initial Financed Student
Loan described in Schedule A to the Sale and Servicing Agreement in favor of the
Eligible Lender Trustee on behalf of the Trust, without recourse (subject to the
obligations set forth in the Sale and Servicing Agreement) against the
undersigned. This endorsement may be effected by attaching a facsimile hereof to
each or any of such promissory notes.
This Assignment is made pursuant to and upon the
representations, warranties and agreements on the part of the undersigned
contained in the Sale and Servicing Agreement and is to be governed by the Sale
and Servicing Agreement.
Capitalized terms used but not defined herein shall have the
meaning assigned to them in Appendix A to the Sale and Servicing Agreement,
which also contains rules as to usage that shall be applicable herein.
IN WITNESS WHEREOF, the undersigned has caused this Assignment
to be duly executed as of _____________ __, 1999.
<PAGE> 122
KEY BANK USA, NATIONAL
ASSOCIATION, as Seller
By:
----------------------
Name:
Title:
<PAGE> 123
EXHIBIT E
TO THE
SALE AND SERVICING AGREEMENT
TRANSFER AGREEMENT
TRANSFER No. ____ OF ADDITIONAL STUDENT LOANS dated as of
_________, 1999, among KEYCORP STUDENT LOAN TRUST 1999-A, a New York trust (the
"Issuer"), KEY BANK USA, NATIONAL ASSOCIATION, a national banking association,
as seller (the "Seller"), THE FIRST NATIONAL BANK OF CHICAGO, a national banking
association, as seller, not in its individual capacity but solely as Eligible
Lender Trustee of the Issuer (the "Eligible Lender Trustee"), and KEY BANK USA,
NATIONAL ASSOCIATION, a national banking association, as administrator (the
"Administrator").
W I T N E S S E T H:
WHEREAS the Issuer, the Seller, the Eligible Lender Trustee,
the Administrator and the Servicers (as defined in the Appendix A to the Sale
and Servicing Agreement) are parties to the Sale and Servicing Agreement dated
as of January 1, 1999 (as amended or supplemented, the "Sale and Servicing
Agreement");
WHEREAS the Seller, as depositor, and the Eligible Lender
Trustee are parties to the Amended and Restated Trust Agreement dated as of
January 1, 1999 (as amended or supplemented, the "Trust Agreement");
WHEREAS pursuant to the Sale and Servicing Agreement, the
Seller wishes to convey the Additional Student Loans referred to in Section 2 of
this Agreement (the "Additional Student Loans") to the Eligible Lender Trustee
on behalf of the Issuer; and
WHEREAS, the Eligible Lender Trustee and the Issuer are
willing to accept such conveyance subject to the terms and conditions hereof.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS AND USAGE. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings ascribed to them in
Appendix A to the Sale and Servicing Agreement, which also contains rules of
construction and usage that shall be applicable herein.
In addition, the following terms have the following meanings:
"SUBSEQUENT CUTOFF DATE" means, with respect to each
Additional Student Loan, the date specified as such on Schedule A
hereto.
<PAGE> 124
"TRANSFER DATE" means, with respect to the Additional Student
Loans, ______________, 199_.
2. SCHEDULES OF FINANCED STUDENT LOANS. Attached hereto as
Schedule A is a supplement to Schedule A to the Sale and Servicing Agreement
listing the Additional Student Loans to be conveyed on the Transfer Date to the
Eligible Lender Trustee on behalf of the Issuer pursuant to this Agreement.
3. CONVEYANCE OF ADDITIONAL STUDENT LOANS. In consideration of
the Issuer's delivery to or upon the order of the Seller of $__________, the
Seller does hereby sell, transfer, assign, set over and otherwise convey,
without recourse (except as expressly provided in the Sale and Servicing
Agreement), to the Eligible Lender Trustee on behalf of the Issuer:
(a) all right, title and interest of the Seller in and to each
Additional Student Loan, and all moneys received thereon, on and after
the related Subsequent Cutoff Date; and
(b) the proceeds of any and all of the foregoing.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller
hereby represents and warrants to the Issuer as of the date of this Agreement
and as of the Transfer Date that:
(a) ORGANIZATION AND GOOD STANDING. The Seller is duly
organized and validly existing as a national banking association in
good standing under the laws of the United States of America, with the
power and authority to own its properties and to conduct its business
as such properties are currently owned and such business is presently
conducted, and had at all relevant times, and has, the power, authority
and legal right to acquire and own the Additional Student Loans.
(b) POWER AND AUTHORITY. The Seller has the corporate power
and authority to execute and deliver this Agreement and to carry out
its terms; the Seller has full corporate power and corporate authority
to sell and assign the property to be sold and assigned to and
deposited with the Issuer (or with the Eligible Lender Trustee on
behalf of the Issuer) and the Seller has duly authorized such sale and
assignment to the Issuer (or to the Eligible Lender Trustee on behalf
of the Issuer) by all necessary corporate action; and the execution,
delivery and performance of this Agreement have been duly authorized by
the Seller by all necessary corporate action.
(c) BINDING OBLIGATION. This Agreement constitutes a legal,
valid and binding obligation of the Seller enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency,
reorganization and similar laws relating to creditors' rights generally
or the rights of creditors of banks the deposit accounts of which are
insured by the FDIC and subject to general principles of equity.
<PAGE> 125
(d) NO VIOLATION. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof
do not conflict with, result in any breach of any of the terms and
provisions of, nor constitute (with or without notice or lapse of time
or both) a default under, the articles of association or by-laws of the
Seller, or any indenture, agreement or other instrument to which the
Seller is a party or by which it shall be bound which breach or default
would reasonably be expected to have a material adverse affect on the
condition of Key Bank USA, National Association, Financial or
otherwise, or adversely affect the transactions contemplated by this
Agreement or any other Basic Document; nor result in the creation or
imposition of any Lien upon any of its properties pursuant to the terms
of any such indenture, agreement or other instrument (other than
pursuant to the Basic Documents); nor violate any law or, to the
knowledge of the Seller, any order, rule or regulation applicable to
the Seller of any court or of any Federal or State regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Seller or its properties.
(e) NO PROCEEDINGS. There are no proceedings or to its best
knowledge investigations pending against the Seller or, to its best
knowledge, threatened against the Seller, before any court, regulatory
body, administrative agency or other governmental instrumentality
having jurisdiction over the Seller or its properties: (i) asserting
the invalidity of this Agreement, the Indenture or any of the other
Basic Documents, the Notes or the Certificates, (ii) seeking to prevent
the issuance of the Notes or the Certificates or the consummation of
any of the transactions contemplated by this Agreement, the Indenture
or any of the other Basic Documents, (iii) seeking any determination or
ruling that could reasonably be expected to have a material and adverse
effect on the performance by the Seller of its obligations under, or
the validity or enforceability of, this Agreement, the Indenture, any
of the other Basic Documents, the Notes or the Certificates or (iv)
seeking to affect adversely the Federal or State income tax attributes
of the Issuer, the Notes or the Certificates.
(f) ALL CONSENTS. All authorizations, consents, orders or
approvals of or registrations or declarations with any court,
regulatory body, administrative agency or other government
instrumentality required to be obtained, effected or given by the
Seller in connection with the execution and delivery by the Seller of
this Agreement and the performance by the Seller of the transactions
contemplated by this Agreement have been duly obtained, effected or
given and are in full force and effect.
(g) PRINCIPAL BALANCE. The aggregate principal balance of the
Additional Student Loans listed on Schedule A attached hereto and
conveyed to the Eligible Lender Trustee on behalf of the Issuer
pursuant to this Agreement as of their respective Subsequent Cutoff
Dates is $___________.
5. CONDITIONS PRECEDENT. The obligation of the Issuer to
acquire the Additional Student Loans hereunder is subject to the satisfaction,
on or prior to the Transfer Date, of the following conditions precedent:
<PAGE> 126
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the Seller in Section 4 of this
Agreement and in Section 3.01 of the Sale and Servicing Agreement shall
be true and correct as of the date of this Agreement and as of the
Transfer Date.
(b) SALE AND SERVICING AGREEMENT CONDITIONS. Each of the
conditions set forth in Section [2.02(b)] [2.02A(b)] of the Sale and
Servicing Agreement shall have been satisfied.
(c) DELIVERY OF ASSIGNMENT. The Seller shall have delivered an
Assignment substantially in the form of Annex A hereto.
(d) ADDITIONAL INFORMATION. The Seller shall have delivered to
the Issuer such information as was reasonably requested by the Issuer
to satisfy itself as to (i) the accuracy of the representations and
warranties set forth in Section 4 of this Agreement and in Section 3.01
of the Sale and Servicing Agreement and (ii) the satisfaction of the
conditions set forth in this Section 5.
6. RATIFICATION OF AGREEMENT. As supplemented by this
Agreement, the Sale and Servicing Agreement is in all respects ratified and
confirmed and the Sale and Servicing Agreement as so supplemented by this
Agreement shall be read, taken and construed as one and the same instrument.
7. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which together shall constitute but one and the same instrument.
8. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
9. HEADINGS. The section headings hereof have been inserted
for convenience of reference only and shall not be construed to affect the
meaning, construction or effect of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their respective duly authorized
officers as of the day and the year first above written.
KEYCORP STUDENT LOAN TRUST 1999-A,
by THE FIRST NATIONAL BANK
<PAGE> 127
OF CHICAGO, not in its
individual capacity but solely
as Eligible Lender Trustee,
By:
-------------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF
CHICAGO, not in its
individual capacity but
solely as Eligible Lender
Trustee,
By:
-------------------------------------
Name:
Title:
KEY BANK USA, NATIONAL ASSOCIATION, Seller,
By:
-------------------------------------
Name:
Title:
KEY BANK USA, NATIONAL ASSOCIATION,
Administrator,
By:
-------------------------------------
Name:
Title:
Acknowledged and accepted as
of the date first above written:
BANKERS TRUST COMPANY,
not in its individual
capacity but solely as
Indenture Trustee,
By:
--------------------------------
Name:
Title:
<PAGE> 128
SCHEDULE A
TO THE
TRANSFER AGREEMENT NO. ___
[List of Additional Student Loans and their related Subsequent Cutoff
Dates and the name of the Servicer servicing such Additional Student Loans]
<PAGE> 129
ANNEX A
TO THE TRANSFER AGREEMENT
ASSIGNMENT
For value received, in accordance with the Sale and Servicing
Agreement (the "Sale and Servicing Agreement") dated as of January 1, 1999,
among the undersigned, as seller (the "Seller") and as administrator (the
"Administrator"), KeyCorp Student Loan Trust 1999-A (the "Trust"), The First
National Bank of Chicago, not in its individual capacity but solely as Eligible
Lender Trustee (the "Eligible Lender Trustee"), Pennsylvania Higher Education
Assistance Agency, as servicer ("Servicer"), and EFS Services, Inc., as servicer
("Servicer"), and the Transfer Agreement No. _____ dated as of ____________,
199_, (the "Transfer Agreement") among the Seller, the Administrator, the Trust
and the Eligible Lender Trustee, the undersigned does hereby sell, assign,
transfer and otherwise convey unto the Eligible Lender Trustee on behalf of the
Trust, without recourse (subject to the obligations set forth in the Sale and
Servicing Agreement), all right, title and interest of the undersigned in and to
(i) the Additional Student Loans (as such term is defined in the Transfer
Agreement) and all monies received thereon, on and after each applicable
Subsequent Cutoff Date (as such term is defined in the Transfer Agreement) and
(ii) the proceeds of any and all of the foregoing (including but not limited to
proceeds derived from the voluntary or involuntary conversion of any of the
Additional Student Loans into cash or other liquidated property, such as
proceeds from the applicable Guarantee Agreement (as such term is defined in the
Transfer Agreement)). The foregoing sale does not constitute and is not intended
to result in any assumption by the Eligible Lender Trustee or the Trust of any
obligation of the Seller to the borrowers of such Additional Student Loans or
any other person in connection with the Additional Student Loans or any
agreement or instrument relating to any of them.
In addition, the undersigned, by execution of this instrument,
hereby endorses the promissory notes evidencing each Additional Student Loan
described in Schedule A to the Transfer Agreement in favor of the Eligible
Lender Trustee on behalf of the Trust, without recourse (subject to the
obligations set forth in the Sale and Servicing Agreement) against the
undersigned. This endorsement may be effected by attaching a facsimile hereof to
each or any of such promissory notes.
This Assignment is made pursuant to and upon the
representations, warranties and agreements on the part of the undersigned
contained in the Sale and Servicing Agreement and the Transfer Agreement and is
to be governed by the Sale and Servicing Agreement and the Transfer Agreement.
Capitalized terms used but not defined herein shall have the
meaning assigned to them in the Transfer Agreement.
IN WITNESS WHEREOF, the undersigned has caused this
to be duly executed as of _______________, 199_.
<PAGE> 130
KEY BANK USA, NATIONAL ASSOCIATION,
as Seller
By:
-------------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.2
SUPPLEMENTAL SALE AND SERVICING AGREEMENT
-----------------------------------------
This Supplemental Sale and Servicing Agreement (this "Agreement") is
made as of the 1st day of January, 1999 by and among KEY BANK USA, NATIONAL
ASSOCIATION ("Key Bank USA"), a national banking association and successor in
interest to Society National Bank ("Society"), in its capacity as seller of
certain graduate school student loans ("Student Loans") pursuant to the Sale and
Servicing Agreement as hereinafter defined ("Seller") and in its capacity as
Administrator pursuant to the Sale and Servicing Agreement and the
Administration Agreement as hereinafter defined (the "Administrator"); KEYCORP
STUDENT LOAN TRUST 1999-A, a New York trust (the "Trust") established pursuant
to the Trust Agreement as hereinafter defined; THE FIRST NATIONAL BANK OF
CHICAGO, a national banking association, not in its individual capacity but
solely as Eligible Lender Trustee under the Trust Agreement (the "Eligible
Lender Trustee"); BANKERS TRUST COMPANY, a New York banking corporation, not in
its individual capacity but solely as Indenture Trustee under the Indenture as
hereinafter defined (the "Indenture Trustee"); PENNSYLVANIA HIGHER EDUCATION
ASSISTANCE AGENCY, an agency of the Commonwealth of Pennsylvania, in its
capacity as a Servicer under the Sale and Servicing Agreement ("PHEAA"); and EFS
SERVICES, INC., an Indiana corporation, as a Servicer under the Sale and
Servicing Agreement ("EFS"); PHEAA and EFS are referenced herein individually as
a "Servicer" and collectively, as the "Servicers".
WHEREAS, the Trust was established pursuant to a certain Trust
Agreement, dated as of July 13, 1998, as amended and restated as of January 1,
1999 between Key Bank USA, as Depositor, and the Eligible Lender Trustee (the
"Trust Agreement");
WHEREAS, Seller has conveyed or will convey to the Eligible Lender
Trustee on behalf of the Trust all of its right, title and interest in and to
the Trust Student Loan Portfolio (as hereinafter defined) and its rights under
certain Assigned Agreement (as defined in the Sale and Servicing Agreement)
pursuant to a certain Sale and Servicing Agreement, dated as of January 1, 1999
by and among the Seller, the Administrator, the Trust, the Eligible Lender
Trustee, and the Servicers (the "Sale and Servicing Agreement");
WHEREAS, the Trust has conveyed a security interest in such Trust
Student Loan Portfolio to the Indenture Trustee pursuant to a certain Indenture,
dated as of January 1, 1999, by and between the Trust and the Indenture Trustee
(the "Indenture");
WHEREAS, Key Bank USA is the Administrator of the Trust pursuant to the
Sale and Servicing Agreement and a certain Administration Agreement, dated as of
January 1, 1999, by and among the Trust, the Indenture Trustee, and the
Administrator (the "Administration Agreement");
WHEREAS, PHEAA is the Servicer for a portion of the Trust Student Loan
Portfolio (the "PHEAA Serviced Loans") and EFS is the Servicer for the remaining
portion of the Trust Student Loan Portfolio (the "EFS Serviced Loans") as such
portions are specified in and pursuant to the Sale and Servicing Agreement;
<PAGE> 2
WHEREAS, the Student Loans constituting the Trust Student Loan
Portfolio were originated by Ameritrust Company National Association ("ATNA"),
Society or Key Bank USA and a portion of such Student Loans (the "Access Loans")
were originated under The Law Access(R) Program or The Access GroupSM Loan
Program administered by LSAS or LAI; Society is the successor in interest to
ATNA and Key Bank USA is the successor in interest to Society;
WHEREAS, the parties hereto desire to set forth their agreement with
respect to certain matters arising from the documents executed and delivered by
Key Bank USA, PHEAA, LAI and other parties relating to the Coordination
Agreement (as hereinafter defined).
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS. As used herein, the following words shall have the
meanings set forth below:
"ASA" means Massachusetts Higher Education Assistance Corporation, a
nonprofit corporation organized under the laws of the Commonwealth of
Massachusetts, doing business as American Student Assistance;
"Coordination Agreement" means, collectively, (i) the Coordination
Agreement, dated as of February 15, 1990, as amended, by and among LAI (as
successor to LSAS), PHEAA, ASA, TERI and Society (as successor by merger to
Ameritrust Company National Association) (the "1990 Coordination Agreement");
(ii) the Coordination Agreement, dated as of January 4, 1991, as amended, by and
among LAI (as successor to LSAS), PHEAA, ASA, TERI and Society (as successor by
merger to Ameritrust Company National Association) (the "1991 Coordination
Agreement"); (iii) the Coordination Agreement, dated as of January 28, 1992, as
amended, by and among LAI (as successor to LSAS), PHEAA, ASA, ELSI, TERI and
Society (as successor by merger to Ameritrust Company National Association) (the
"1992 Coordination Agreement"); (iv) the Coordination Agreement, dated as of
December 21, 1992, as amended, by and among LAI (as successor to LSAS), PHEAA,
ASA, ELSI, TERl and Society (the "1993-1995 Coordination Agreement"); and (v)
the Coordination Agreement, dated as of March 23, 1995, as amended, by and among
LAI, PHEAA, ASA, TERI and Society (the "1996-1998 Coordination Agreement");
"ECMC" means Education Credit Management Corporation, a
Minnesota not-for-profit corporation;
"ELSI" means Education Loan Services, Inc., a Massachusetts
corporation;
"HICA" means HEMAR Insurance Company of America, a South Dakota
corporation;
"Key/EFS Servicing Agreement" means (i) the Servicing Agreement, dated
May 1, 1997, by and between EFS and Key Bank USA, as amended from time to time
and including all servicing schedules and other exhibits, a copy of which is
attached hereto as EXHIBIT C, or (ii) after the expiration of the agreement
described in clause (i), the then current service agreement (including all
servicing schedules) between Key Bank USA and EFS pursuant to which EFS services
Student Loans
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<PAGE> 3
owned by Key Bank USA, or if no such service agreement exists, the last such
service agreement to be in existence, and any references to specific sections of
the Key/EFS Servicing Agreement shall mean the sections of the agreement
described in clause (i) of this definition or the substantially similar
provisions of the relevant agreement described in clause (ii) of this
definition;
"LAI" means Law Access, Inc., a nonstock corporation organized under
the laws of the State of Delaware, and the successor in interest to Law School
Admission Services, Inc. ("LSAS");
"NSLP" means Nebraska Student Loan Program, a Nebraska corporation;
"Remote Time-Sharing Services Program" means the various services and
programs made available by PHEAA to Key Bank USA pursuant to the Society RT-SS
Agreement;
"Society RT-SS Agreement" means (i) the Remote Time-Sharing Services
Agreement, dated January 28, 1992, by and between PHEAA and Society, as amended
from time to time, a copy of which is attached hereto as EXHIBIT A, or (ii)
after the expiration of the agreement described in clause (i), the then current
agreement relating to the provision of remote time-sharing services between
PHEAA and Key Bank USA, or if no such agreement exists, the last such agreement
to be in existence; and any references to specific sections of the Society RT-SS
Agreement shall mean the sections of the agreement described in clause (i) of
this definition or the substantially similar provisions of the relevant
agreement described in clause (ii) of this definition;
"Serial Loans" means additional student loans, including consolidation
loans, which are made by Key Bank USA to a borrower who is also a borrower under
at least one loan in the Trust Student Loan Portfolio;
"Society/PHEAA Servicing Agreement" means (i) the Servicing Agreement,
dated March 23, 1995, by and between PHEAA and Key Bank USA, as amended from
time to time and including all servicing schedules and other exhibits, a copy of
which is attached hereto as EXHIBIT B, or (ii) after the expiration of the
agreement described in clause (i), the then current service agreement (including
all servicing schedules) between Key Bank USA and PHEAA pursuant to which PHEAA
services Student Loans owned by Key Bank USA, or if no such service agreement
exists, the last such service agreement to be in existence, and any references
to specific sections of the Society/PHEAA Servicing Agreement shall mean the
sections of the agreement described in clause (i) of this definition or the
substantially similar provisions of the relevant agreement described in clause
(ii) of this definition;
"TERI" means The Education Resources Institute, Inc., a nonprofit
Corporation organized under the laws of the Commonwealth of Massachusetts; and
"Trust Student Loan Portfolio" means the portfolio of Student Loans
sold and conveyed by Key Bank USA, as Seller, to the Eligible Lender Trustee on
behalf of the Trust pursuant to the Sale and Servicing Agreement, specifically
including any Bar Examination Loans, Residency Loans, Serial Loans, guarantee
fee advances and consolidation loans now or hereafter transferred to the Trust
as "Additional Student Loans" as defined in the Sale and Servicing Agreement.
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<PAGE> 4
2. PERIODIC REPORTS. No later than the fifteenth day of each month, and
for so long as the Eligible Lender Trustee on behalf of the Trust shall own the
Trust Student Loan Portfolio, the Trust shall furnish to LAI or cause to be
furnished in an electronic form suitable to LAI, a record of all loans in the
Trust Student Loan Portfolio which are Access Loans (the "Record"), as of the
last day of the preceding month. Each Servicer acknowledges its responsibility
and ability to furnish the portion of the Record with respect to the PHEAA
Serviced Loans and the EFS Serviced Loans, respectively, on behalf of the Trust
(or on behalf of the Indenture Trustee in the event that the Indenture Trustee
becomes the owner of the Trust Student Loan Portfolio) as required by this
section. The Trust shall honor LAI's reasonable request for additional Records,
at LAI's expense. The Record shall be on a borrower level, by loan, and shall
include, but need not be limited to, the information required to be delivered by
Key Bank USA to LAI pursuant to the second paragraph of Section 10.7 of the
1996-1998 Coordination Agreement.
For so long as PHEAA and EFS are the Servicers of the Trust Student
Loan Portfolio, this Record requirement shall be satisfied by the delivery of a
report in substantially the forms of record layout provided with respect to
reports delivered by PHEAA on behalf of Key Bank USA pursuant to the second
paragraph of Section 10.7 of the 1996-1998 Coordination Agreement. PHEAA and EFS
each acknowledges and agrees that the costs and expenses to produce and
distribute the Record are part of the Data Transfer Fee payable to it pursuant
to the Sale and Servicing Agreement and agrees that no additional fees will be
payable by the Trust or the Administrator to produce and deliver the Record.
In addition to the foregoing Record, the parties hereto acknowledge and
agree that LAI may obtain from the Servicers at the sole cost and expense of LAI
such additional information as LAI may reasonably request concerning the loans
in the Trust Student Loan Portfolio which are Access Loans, including, but not
limited to, information on defaults, average principal balance, and complaints.
Any such request shall be made in writing to the Administrator, with a copy to
the Eligible Lender Trustee and the Servicers. The Trust shall not be obligated
to incur or pay any costs or expenses associated with the production or delivery
of such additional information, except that, if the additional information
requested by LAI is contained in any monthly or other periodic report produced
by a Servicer and delivered to the Trust (or to the Administrator on behalf of
the Trust) pursuant to the Sale and Servicing Agreement, the Trust shall provide
a copy of such report, or excerpts therefrom, to LAI and the Administrator shall
bear photocopying and postage charges for producing and mailing such copy.
The Indenture Trustee agrees to assume and perform the obligations of
the Trust under this section in the event that the Indenture Trustee forecloses
upon its security interest in and becomes the owner of the Trust Student Loan
Portfolio.
3. COOPERATION. With regard to the loans in the Trust Student Loan
Portfolio which are Access Loans, the Trust, the Indenture Trustee, the Eligible
Lender Trustee, the Servicers and the Administrator each agree to cooperate with
each other, with PHEAA, EFS and LAI, with the other parties to the Coordination
Agreement and with each of their internal or external auditors, or governmental
examiners, at the expense of the party requesting such cooperation, and to
provide any information regarding origination, disbursement, servicing, and data
collection relating to such loans as reasonably requested by the other parties,
their auditors, or governmental examiners as necessary
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<PAGE> 5
or desirable for the performance of an audit or examination. In that regard,
each party shall make available any necessary supporting records to each other
party and shall resolve any discrepancy claimed to exist in such records to the
reasonable satisfaction of the other party within 30 days of the date that the
other party has claimed that a discrepancy exists. Notwithstanding the
foregoing, the parties acknowledge that audit reviews conducted during heavy
processing periods may disrupt such operations. Accordingly, unless a party has
reason to believe that another party is in material breach of the performance of
its obligations under this Agreement, the Sale and Servicing Agreement, the
Administration Agreement, the Trust Agreement or the Indenture, reviews by
internal or external auditors shall only be scheduled during the months of
January, February, April, May, October or November.
4. CONFIDENTIALITY. Each party to this Agreement agrees to maintain the
confidentiality of all data, materials and information relating to The Access
GroupSM Loan Program and the Trust Student Loan Portfolio entrusted to it by
another party hereto or any party to any of the Coordination Agreement. Each
party also agrees not to use such data, materials and information for any
purpose other than the limited purpose of performing its obligations under this
Agreement, the Sale and Servicing Agreement, the Administration Agreement, the
Indenture, the Trust Agreement or the Coordination Agreement. This section shall
not be deemed to preclude the disclosure of (i) information relating to the
historical performance of the Trust Student Loan Portfolio (including, but not
limited to, statistical information relating to defaults, prepayments,
consolidations, deferrals and forbearances) by the Seller or the Administrator
or, with the consent of the Administrator, by the Eligible Lender Trustee or
Indenture Trustee, (ii) such information as in any of the Servicers',
Administrator's, Eligible Lender Trustee's or Indenture Trustee's discretion may
be required under any of the Sale and Servicing Agreement, the Trust Agreement,
the Indenture or the Administration Agreement to be disclosed to holders of any
securities issued by the Trust, (iii) such information as may be required to be
disclosed under applicable laws, rules, regulations or governmental orders, (iv)
information obtained by the Indenture Trustee in the performance of its
obligations as Indenture Trustee, provided that the Indenture Trustee shall
maintain the confidentiality of all account level and borrower level
information, including without limitation, the borrower's name, address and
social security number and the account balance and account history or (v)
disclosure by LAI of information in the Record or other information received by
LAI pursuant to Section 2 of this Agreement.
5. FUTURE PURCHASERS. The Trust, the Eligible Lender Trustee and the
Indenture Trustee each hereby agree that, in the event of any sale or other
transfer of the Access Loans included in the Trust Student Loan Portfolio to any
third party, the Trust, the Eligible Lender Trustee or the Indenture Trustee, as
the case may be, as seller (i) shall use reasonable efforts to obtain from the
purchaser or transferee of the Access Loans included in the Trust Student Loan
Portfolio an agreement in form and substance satisfactory to LAI pursuant to
which such purchaser or transferee agrees to observe and comply with the
obligations of the parties to this Agreement under Sections 3 and 4 hereof and
the obligations of the Trust, the Eligible Lender Trustee or the Indenture
Trustee, as the case may be, as seller under this clause (i) of Section 5 hereof
and (ii) shall obtain from any such purchaser or transferee an agreement to
provide LAI with prior notice of any future sale of the Access Loans included in
the Trust Student Loan Portfolio, or portion thereof, acquired by such purchaser
or transferee and an agreement to comply with the obligations of the Trust under
Section 2 and the obligations of the seller under this clause (ii) of Section 5
and under the last sentence of Section 8(b)(i) of this Agreement (provided,
however, that if the purchaser or transferee does not
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<PAGE> 6
retain PHEAA and/or EFS as servicers, the obligation to deliver "Reports" shall
be construed as an obligation to deliver reports containing information
substantially similar to the information contained in Reports).
6. PRIVATE GUARANTEE FEE. The Seller acknowledges and agrees that, with
respect to the Access Loans that are Privately Guaranteed Loans (as defined in
the 1992, 1993-1995 and 1996-1998 Coordination Agreement) that have not yet
entered repayment and are included in the Trust Student Loan Portfolio, the
Seller retains the obligation, pursuant to Section 9.2 of the 1992, 1993-1995
and 1996-1998 Coordination Agreement, to advance to the borrower an additional
private guarantee fee equal to 2% of the original principal amount of any such
Privately Guaranteed Loan made to a student since the commencement of the
1992-1993 Law Access(R) Program through the 1995-1996 Access Group(sm) Loan
Program, and, commencing with the 1996-1998 Access Group(sm) Loan Program a fee
of 4% of the original principal amount of each LAL Loan, 3% of each GAL Loan and
BEL Loan and 2% for each MAL Loan, DAL Loan and REL Loan. The proceeds of such
advances shall be remitted in accordance with the 1992, 1993-1995 and 1996-1998
Coordination Agreement and Assigned Agreement.
7. SERVICING OF TRUST STUDENT LOAN PORTFOLIO. It is the intent of the
parties hereto that the Trust Student Loan Portfolio be serviced by the
Servicers in substantially the same manner in all material respects as the
Servicers service Student Loans owned by the Seller. Each Servicer acknowledges
and agrees that all references in the Sale and Servicing Agreement to a
Servicer's "customary servicing procedures" or which require a Servicer to
follow such procedures as it follows when servicing comparable student loans,
shall be deemed to refer, in the case of PHEAA, to the procedures and actions
required under the Society/PHEAA Servicing Agreement, and in the case of EFS, to
the procedures and actions required under the Key/EFS Servicing Agreement.
Specifically, each Servicer agrees that in addition to, and not in lieu of, its
obligations under the Sale and Servicing Agreement, it shall observe and comply
with the terms, conditions and provisions of, and perform with respect to the
portion of the Trust Student Loan Portfolio each is servicing, the obligations
of the "Servicer" under, all of Sections 4 and 5, Sections 6.2 through and
including 6.9, Section 8.4, Section 11, and Sections 12.3 and 12.4 of the
Society/PHEAA Servicing Agreement in the case of PHEAA, and in the case of EFS,
the obligations of EFS as servicer under all of Sections 4 and 5, Sections 6.2
through and including 6.9, Section 8.4, Section 11 and Sections 12.3 and 12.4 of
the Key/EFS Servicing Agreement; provided, however, that (i) references in such
sections of the Society/PHEAA Servicing Agreement and the Key/EFS Servicing
Agreement to the "Owner" shall be deemed to refer to the Eligible Lender
Trustee, except that any reports, information or other communications to be
given to the "Owner" shall be given instead to the Administrator on behalf of
the Eligible Lender Trustee; (ii) with respect to Section 4.1, Correction of
Errors, of the Society/PHEAA Servicing Agreement and the Key/EFS Servicing
Agreement, the obligations of the "Owner" therein to pay costs of correcting
errors shall be assumed and performed by the Administrator, and (iii) with
respect to Section 4.10, Collections, of the Society/PHEAA Servicing Agreement
and the Key/EFS Servicing Agreement, the terms, conditions and provisions of the
Sale and Servicing Agreement shall control in the event of any inconsistency or
conflict between such Section 4.10 and the Sale and Servicing Agreement.
The Monthly Base Servicing Fee payable to the Servicers under the Sale
and Servicing Agreement shall be subject to reduction (or rebate, as
appropriate) to the same extent, in the same
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<PAGE> 7
manner and subject to the same terms and conditions as servicing fees payable to
PHEAA or EFS, as the case may be, may be reduced or subject to rebate under
Sections 5.4 and 5.6 of the Society/PHEAA Servicing Agreement in the case of
PHEAA and, in the case of EFS, under Sections 5.4 and 5.6 of the Key/EFS
Servicing Agreement. In addition, the Eligible Lender Trustee may declare a
"Servicer Default" under Section 8.01(a)(2) of the Sale and Servicing Agreement
(i) with respect to PHEAA, for failure of PHEAA to perform the Servicing
Standards as described in the third sentence in Section 5.6 of the Society/PHEAA
Servicing Agreement, or (ii) with respect to EFS, for failure of EFS to perform
the Servicing Standards as described in the third sentence in Section 5.6 of the
Key/EFS Servicing Agreement.
Except as provided above with respect to Section 4.10 of the
Society/PHEAA Servicing Agreement and the Key/EFS Servicing Agreement, in the
event of any inconsistency or conflict between the Society/PHEAA Servicing
Agreement and the Sale and Servicing Agreement or between the Key/EFS Servicing
Agreement and the Sale and Servicing Agreement, then the more specific of the
inconsistent or conflicting terms, conditions, provisions of standards shall
control over the more general term, condition, provision or standard, unless (i)
such more specific term, condition, provision or standard is contained in the
Society/PHEAA Servicing Agreement or the Key/EFS Servicing Agreement, as the
case may be, and to follow such Agreement would have a material adverse effect
on the Noteholders or Certificateholders, in which case the Sale and Servicing
Agreement shall control, or (ii) a Servicer shall have received notice from the
Administrator or, after any Administrator Default as defined in the Sale and
Servicing Agreement, from the Eligible Lender Trustee or Indenture Trustee, to
follow the term, condition, provision or standard set forth in the Sale and
Servicing Agreement, in which case the Sale and Servicing Agreement shall
control.
PHEAA shall make available to the Administrator the same Remote
Time-Sharing Services Program with respect to the Trust Student Loan Portfolio
as PHEAA makes available to Seller pursuant to the Society RT-SS Agreement with
respect to the Seller's student loan portfolio. In consideration of the
foregoing, each of PHEAA and the Administrator agree to observe and comply with
the obligations of the "Agency" and "Institution," respectively, contained in
sections 1, 2 and 6 through 10, inclusive, of the Society RT-SS Agreement.
8. BIDS/FIRST REFUSAL RIGHTS.
(a) PHEAA hereby waives, with respect to the Seller, the Trust, the
Eligible Lender Trustee, the Indenture Trustee or any other holder of the Access
Loans included in the Trust Student Loan Portfolio or any portion thereof, (i)
any requirement that all loans of a single borrower be sold to the same
purchaser if any of such borrower's loans are to be sold and (ii) any and all
rights PHEAA has or may have with respect to any sale or other transfer of the
Access Loans included in the Trust Student Loan Portfolio or any portion
thereof, including, without limitation, any right to bid upon, right of first
refusal or right to receive prior notice of bids or sale with respect to the
Access Loans included in the Trust Student Loan Portfolio and specifically waive
any and all rights it has or may have under Section 12.3 of each of the
1996-1998 Coordination Agreement, the 1993-1995 Coordination Agreement, the 1992
Coordination Agreement, the 1991 Coordination Agreement and the 1990
Coordination Agreement. The foregoing shall not be deemed to be a waiver of any
requirements set forth, or any rights granted PHEAA or LAI, in this Agreement.
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<PAGE> 8
(b) (i) In connection with any contemplated sale of all or any part of
the Access Loans included in the Trust Student Loan Portfolio by the Eligible
Lender Trustee on behalf of the Trust or by the Indenture Trustee, the seller
(being the Eligible Lender Trustee or Indenture Trustee, as applicable) shall
notify PHEAA, EFS, LAI, ASA and TERI of any proposed solicitation of bids or
offers to purchase the Access Loans included in the Trust Student Loan Portfolio
or the portion thereof offered for sale, such notice to be delivered not less
than thirty (30) days prior to the date upon which bids or offers are to be
received by such seller. Each of PHEAA, TERI and LAI shall be given an
opportunity to submit a bid or offer to purchase the Trust Student Loan
Portfolio within such thirty (30) day period and if no other bid exceeds
PHEAA's, TERI's or LAI's bid and if PHEAA's, TERI's or LAI's bid is equal to or
in excess of the Minimum Purchase Amount, as such term is used in the Sale and
Servicing Agreement, such seller shall convey the Trust Student Loan Portfolio
(or portion thereof offered for sale) to whichever of PHEAA, TERI or LAI, as the
case may be, submitted the highest bid. If no bids that are received pursuant to
any solicitation process are equal to or in excess of the Minimum Purchase
Amount, the Indenture Trustee will not consummate a sale of the Trust Student
Loan Portfolio. The seller shall require any purchaser or transferee who
acquires the Trust Student Loan Portfolio, or any portion thereof, to acquire
all loans of a borrower included in the Trust Student Loan Portfolio and not in
default, except that the seller may sell or transfer to a purchaser or
transferee all federally guaranteed loans of a borrower (i.e., loans guaranteed
by PHEAA, NSLP, ECMC, or ASA) and sell or transfer to a different purchaser or
transferee all privately guaranteed loans of the same borrower (i.e., loans
guaranteed by HICA or TERI).
(ii) The provisions of this subsection 8(b) shall not apply to
any sale or other transfer of the Trust Student Loan Portfolio, or any loan
therein, to Key Bank USA, the Administrator or a Servicer as may be required or
permitted under the Sale and Servicing Agreement or any Guarantor (as defined in
the Sale and Servicing Agreement) in connection with the enforcement of any
applicable Guarantee Agreement (as defined in the Sale and Servicing Agreement).
Key Bank USA acknowledges that if any Access Loan in the Trust Student Loan
Portfolio is reacquired by it, such loan shall from the time of such
reacquisition become subject to the restrictions and requirements on sale or
transfer of loans by Key Bank USA under the applicable Coordination Agreement.
(c) PHEAA acknowledges and agrees that this Agreement is intended to,
and does, fulfill or waive the obligations of Key Bank USA under the provisions
the Coordination Agreement requiring Key Bank USA to obtain an agreement from
subsequent transferees or secured parties to comply with certain provisions of
such Coordination Agreement.
9. CONSOLIDATION LOANS. Each of PHEAA and EFS, to the extent
applicable, acknowledge and agree that solely for purposes of allocating
consolidation loans that relate to Access Loans among lenders pursuant to
Section 8.1 of the 1996-1998 Coordination Agreement, Section 8.1 of the
1993-1995 Coordination Agreement, Section 8.1 of the 1992 Coordination Agreement
and any similar provision in any similar Agreement with respect to subsequent
academic years, Key Bank USA shall be deemed to be the owner of, and lender on,
all loans in the Trust Student Loan Portfolio.
10. REPRESENTATIONS AND WARRANTIES. Each party represents and warrants,
but only with respect to itself and to the best of its knowledge without
independent investigation, that (i) the
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<PAGE> 9
making and performance of this Agreement and the activities contemplated hereby
have been duly authorized by all necessary corporate action, and do not and will
not (a) violate any provision of its charter or bylaws; or (b) violate or result
in the breach of, or constitute a default or require any consent under, any
agreement or instrument by which it or any of its property may be bound or
affected; and (ii) this Agreement is the legal, valid and binding obligation of
such party, enforceable in accordance with the terms hereof subject to the
exercise of judicial discretion in accordance with general principles of equity,
to the valid exercise of the police powers of the several states of the United
States of America and of the constitutional powers of the United States of
America and the bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally. Each party with respect to itself
further represents and warrants that there is no pending or, to its actual
knowledge, threatened litigation that would materially affect that party's
ability to perform its obligations hereunder.
11. LIMITATION OF LIABILITY. (a) Notwithstanding anything contained
herein to the contrary, this instrument has been signed by The First National
Bank of Chicago not in its individual capacity but solely in its capacity as
Eligible Lender Trustee of the Trust and in no event shall The First National
Bank of Chicago in its individual capacity have any liability for the
representations, warranties, covenants, Agreement or other obligations of the
Trust hereunder, as to all of which recourse shall be had solely to the assets
of the Trust.
(b) Notwithstanding anything contained herein to the contrary, this
Agreement has been signed by Bankers Trust Company not in its individual
capacity but solely as Indenture Trustee and in no event shall Bankers Trust
Company in its individual capacity have any liability for the representations,
warranties, covenants, Agreement or other obligations of the Trust hereunder or
in any of the certificates, notices or Agreement delivered pursuant hereto, as
to all of which recourse shall be had solely to the assets of the Trust.
12. MISCELLANEOUS. (a) The obligations under this Agreement of each of
the parties are several and distinct, each party being responsible solely for
its own performance pursuant to the terms and conditions of this Agreement. Each
party agrees to pay for any loss, liability or expense, including reasonable
attorney's fees resulting from, or attributable to, any breach by that party of
its obligations arising under this Agreement where the final determination of
liability on the part of such party is established by an arbitrator (to which
such party has agreed to submit), by a court of law with appropriate
jurisdiction or by way of settlement agreed to by such party. This section shall
not be construed to limit any party's rights, obligations, liabilities, claims
or defenses which arise as a matter of law or pursuant to any other provision of
this Agreement.
(b) This Agreement shall be construed in accordance with and be
governed by the laws of the State of New York.
(c) This Agreement may not be assigned nor may any, obligations
hereunder be delegated by any party without the written consent of all other
parties, which consent shall not be unreasonably withheld; provided, however,
that this Agreement may not be assigned by a Servicer or Administrator nor may
any of the obligations of a Servicer or Administrator, respectively, be
delegated except in conjunction with an assignment by such Servicer of its
obligations under the Sale and Servicing Agreement or the Administrator of its
obligations under the Sale and Servicing
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<PAGE> 10
Agreement and the Administration Agreement, subject to the restrictions on such
an assignment contained therein.
(d) This Agreement may be simultaneously executed in several
counterparts each of which shall be an original and all of which shall
constitute but one and the same instrument.
(e) If any provision of this Agreement shall be held to be invalid
or unenforceable, such invalidity or unenforceability shall not affect or impair
the validity or enforceability of the remaining provisions of this Agreement,
which shall remain in full force and effect, and the parties hereto shall
continue to be bound thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers as of the date set forth above.
<TABLE>
<S> <C>
KEY BANK USA, NATIONAL ASSOCIATION,
Seller
By: ______________________________________________________
Darlene H. Dimitrijevs
Vice President
KEY BANK USA, NATIONAL ASSOCIATION,
Administrator
By: ______________________________________________________
Darlene H. Dimitrijevs
Vice President
KEYCORP STUDENT LOAN TRUST 1999-A
by The First National Bank of Chicago, not in its
individual capacity but solely as Eligible Lender Trustee
on behalf of the Trust,
By: ______________________________________________________
Name:_____________________________________________________
Title:____________________________________________________
</TABLE>
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<PAGE> 11
<TABLE>
<S> <C>
INDENTURE TRUSTEE
Bankers Trust Company, not in its individual capacity but
solely as Indenture Trustee
By: ______________________________________________________
Name:_____________________________________________________
Title:____________________________________________________
PENNSYLVANIA HIGHER EDUCATION
ASSISTANCE AGENCY
By: ______________________________________________________
Name:_____________________________________________________
Title:____________________________________________________
EFS SERVICES, INC.
By: ______________________________________________________
Name:_____________________________________________________
Title:____________________________________________________
</TABLE>
<TABLE>
<S> <C>
Approved as to form and legality this _____ Approved as to form and legality this _____
day of __________, 1999. day of __________, 1999.
___________________________________________ ___________________________________________
PHEAA Chief Counsel Deputy Attorney General
</TABLE>
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<PAGE> 1
Exhibit 10.3
ADMINISTRATION AGREEMENT dated as of January 1, 1999, among
KEYCORP STUDENT LOAN TRUST 1999-A, a New York trust (the "Issuer"), KEY BANK
USA, NATIONAL ASSOCIATION, a national banking association, as administrator (the
"Administrator"), and BANKERS TRUST COMPANY, a New York banking corporation, not
in its individual capacity but solely as Indenture Trustee (the "Indenture
Trustee").
W I T N E S S E T H
WHEREAS the Issuer is issuing two classes of Floating Rate
Asset Backed Notes (the "Notes") pursuant to the Indenture dated as of January
1, 1999 (the "Indenture"), between the Issuer and the Indenture Trustee
(capitalized terms used herein and not defined herein shall have the meanings
assigned to such terms in Appendix A to the Indenture, which also contains rules
of usage and construction that shall be applicable herein);
WHEREAS the Issuer has entered into certain agreements in
connection with the issuance of the Notes and the Certificates, including the
Sale and Servicing Agreement, the Supplemental Sale and Servicing Agreement, the
Note Depository Agreement, the Certificate Depository Agreement (the Certificate
Depository Agreement and the Note Depository Agreement being collectively
referred to herein as the "Depository Agreement"), the Guarantee Agreements and
the Indenture (all such agreements being collectively referred to herein as the
"Related Agreements");
WHEREAS, pursuant to the Related Agreements, the Issuer and
the Eligible Lender Trustee are required to perform certain duties in connection
with (a) the Notes and the Collateral therefor pledged pursuant to the Indenture
and (b) the Certificates (the registered holders of the Certificates being
referred to herein as the "Owners");
WHEREAS the Issuer and the Eligible Lender Trustee desire to
have the Administrator perform certain of the duties of the Issuer and the
Eligible Lender Trustee referred to in the preceding clause, and to provide such
additional services consistent with the terms of this Agreement and the Related
Agreements as the Issuer and the Eligible Lender Trustee may from time to time
request;
WHEREAS the Administrator has the capacity to provide the
services required hereby and is willing to perform such services for the Issuer
and the Eligible Lender Trustee on the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
<PAGE> 2
1. DUTIES OF THE ADMINISTRATOR.
(a) DUTIES WITH RESPECT TO THE INDENTURE AND DEPOSITORY
AGREEMENT. The Administrator shall perform all its duties as Administrator and
the duties of the Issuer under the Depository Agreement. In addition, the
Administrator shall consult with the Eligible Lender Trustee as the
Administrator deems appropriate regarding the duties of the Issuer under the
Indenture and the Depository Agreement. The Administrator shall monitor the
performance of the Issuer and shall advise the Eligible Lender Trustee when
action is necessary to comply with the Issuer's duties under the Indenture and
the Depository Agreement. The Administrator shall prepare for execution by the
Issuer or shall cause the preparation by other appropriate Persons of all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Issuer to prepare, file or deliver pursuant to the Indenture
and the Depository Agreement. In furtherance of the foregoing, the Administrator
shall take all appropriate action that is the duty of the Issuer to take
pursuant to the Indenture, including such of the foregoing as are required with
respect to the following matters (references are to sections of the Indenture):
(i) the duty to cause the Note Registrar to keep the Note
Register and to give the Indenture Trustee notice of any appointment of
a new Note Registrar and the location, or change in location, of the
Note Register (Section 2.04);
(ii) the fixing or causing to be fixed of any specified record
date and the notification of the Indenture Trustee and the holders of
the Notes with respect to special payment dates, if any (Section
2.07(c));
(iii) the preparation of or obtaining of the documents and
instruments required for authentication of the Notes and delivery of
the same to the Indenture Trustee (Section 2.02);
(iv) the preparation, obtaining or filing of the instruments,
opinions and certificates and other documents required for the release
of collateral (Section 2.09);
(v) the duty to cause the Note Registrar to maintain on behalf
of the Issuer an office in the Borough of Manhattan, City of New York,
for registration of transfer or exchange of Notes (Section 3.02);
(vi) the duty to cause newly appointed Paying Agents, if any,
to deliver to the Indenture Trustee the instrument specified in the
Indenture regarding funds held in trust (Section 3.03);
(vii) the direction to the Paying Agents to deposit moneys
with the Indenture Trustee (Section 3.03);
(viii) the obtaining and preservation of the Issuer's
qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of the Indenture, the Notes, the Collateral and each
other instrument and agreement included in the Indenture Trust Estate
(Section 3.04);
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<PAGE> 3
(ix) the preparation of all supplements, amendments, financing
statements, continuation statements, instruments of further assurance
and other instruments, in accordance with Section 3.05 of the
Indenture, necessary to protect the Indenture Trust Estate (Section
3.05);
(x) the delivery by the Issuer of the Opinion of Counsel on
the Closing Date and the annual delivery of Opinions of Counsel, in
accordance with Section 3.06 of the Indenture, as to the Indenture
Trust Estate, and the annual delivery of the Officers' Certificate of
the Issuer and certain other statements, in accordance with Section
3.09 of the Indenture, as to compliance with the Indenture (Sections
3.06 and 3.09);
(xi) the identification to the Indenture Trustee in an
Officers' Certificate of the Issuer of a Person with whom the Issuer
has contracted to perform its duties under the Indenture (Section
3.07(b));
(xii) the notification of the Indenture Trustee and the Rating
Agencies of a Servicer Default known to the Administrator pursuant to
the Sale and Servicing Agreement and, if such Servicer Default arises
from the failure of such Servicer to perform any of its duties under
the Sale and Servicing Agreement or the Supplemental Sale and Servicing
Agreement, the taking of all reasonable steps available to enforce the
Issuer's rights under the Basic Documents in respect of such failure
(Section 3.07(d));
(xiii) the preparation and obtaining of documents and
instruments required for the release of the Issuer from its obligations
under the Indenture (Section 3.10);
(xiv) the delivery of notice to the Indenture Trustee of each
Event of Default, any Default under Section 5.01(iii) of the Indenture
and each default by a Servicer, the Administrator or the Seller under
the Sale and Servicing Agreement known to the Administrator (Section
3.18);
(xv) the monitoring of the Issuer's obligations as to the
satisfaction and discharge of the Indenture and the preparation of an
Officers' Certificate of the Issuer and the obtaining of the Opinion of
Counsel and the Independent Certificate relating thereto (Section
4.01);
(xvi) the compliance with any written directive of the
Indenture Trustee with respect to the sale of the Indenture Trust
Estate in a commercially reasonable manner if an Event of Default shall
have occurred and be continuing (Section 5.04);
(xvii) the preparation of any written instruments required to
confirm more fully the authority of any co-trustee or separate trustee
and any written instruments necessary in connection with the
resignation or removal of any co-trustee or separate trustee (Sections
6.08 and 6.10);
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<PAGE> 4
(xviii) the furnishing of the Indenture Trustee with the names
and addresses of the holders of the Notes during any period when the
Indenture Trustee is not the Note Registrar (Section 7.01);
(xix) the preparation and, after execution by the Issuer, the
filing with the Commission, any applicable State agencies and the
Indenture Trustee of documents required to be filed on a periodic basis
with, and summaries thereof as may be required by rules and regulations
prescribed by, the Commission and any applicable State agencies and the
transmission of such summaries, as necessary, to the holders of the
Notes (Section 7.03);
(xx) the opening of one or more accounts in the Issuer's name,
the preparation of Issuer Orders, Officers' Certificates of the Issuer
and Opinions of Counsel and all other actions necessary with respect to
investment and reinvestment of funds in the Trust Accounts (Sections
8.02 and 8.03);
(xxi) the preparation of an Issuer Request and Officers'
Certificate of the Issuer and the obtaining of an Opinion of Counsel
and Independent Certificates, if necessary, for the release of the
Indenture Trust Estate (Sections 8.04 and 8.05);
(xxii) the preparation of Issuer Orders and the obtaining of
Opinions of Counsel with respect to the execution of supplemental
indentures and the mailing to the holders of the Notes of notices with
respect to such supplemental indentures (Sections 9.01, 9.02 and 9.03);
(xxiii) the preparation of or obtaining of the documents and
instruments required for the execution and authentication of new Notes
conforming to any supplemental indenture and the delivery of the same
to the Eligible Lender Trustee and the Indenture Trustee, respectively
(Section 9.06);
(xxiv) the notification of the holders of the Notes of
redemption of the Notes or the duty to cause the Indenture Trustee to
provide such notification (Section 10.02);
(xxv) the preparation of all Officers' Certificates of the
Issuer, Opinions of Counsel and Independent Certificates with respect
to any requests by the Issuer to the Indenture Trustee to take any
action under the Indenture (Section 11.01(a));
(xxvi) the preparation and delivery of Officers' Certificates
of the Issuer and the obtaining of Independent Certificates, if
necessary, for the release of property from the lien of the Indenture
(Section 11.01(b));
(xxvii) the preparation and delivery to the holders of the
Notes and the Indenture Trustee of any agreements with respect to
alternate payment and notice provisions (Section 11.06);
(xxviii) the recording of the Indenture, if applicable
(Section 11.15); and
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<PAGE> 5
(xxix) conducting on behalf of the Indenture Trustee any
auction of the Financed Student Loans (Section 4.04).
(b) DUTIES WITH RESPECT TO THE ISSUER. (i) In addition to the
duties of the Administrator set forth above and in the other Related Agreements,
the Administrator shall perform such calculations and shall prepare for
execution by the Issuer or the Eligible Lender Trustee or shall cause the
preparation by other appropriate Persons of all such documents, reports,
filings, instruments, certificates and opinions as it shall be the duty of the
Issuer or the Eligible Lender Trustee to prepare, file or deliver pursuant to
the Related Agreements, and at the request of the Eligible Lender Trustee shall
take all appropriate action that it is the duty of the Issuer to take pursuant
to the Related Agreements. Subject to Section 5 of this Agreement, and in
accordance with the directions of the Eligible Lender Trustee, the Administrator
shall administer, perform or supervise the performance of such other activities
in connection with the Collateral (including the Related Agreements) as are not
covered by any of the foregoing provisions and as are expressly requested by the
Eligible Lender Trustee and are reasonably within the capability of the
Administrator.
(ii) Notwithstanding anything in this Agreement or the Related
Agreements to the contrary, the Administrator shall be responsible for promptly
notifying the Eligible Lender Trustee in the event that any withholding tax is
imposed on the Issuer's payments (or allocations of income) to an Owner as
contemplated in Section 5.01(c) of the Trust Agreement. Any such notice shall
specify the amount of any withholding tax required to be withheld by the
Eligible Lender Trustee pursuant to such provision.
(iii) Notwithstanding anything in this Agreement or the
Related Agreements to the contrary, the Administrator shall be responsible for
performance of the duties of the Eligible Lender Trustee set forth in Section
5.04(a), (b), (c) and (d) of the Trust Agreement with respect to, among other
things, accounting and reports to Owners; PROVIDED, HOWEVER, that the Eligible
Lender Trustee shall retain responsibility for the distribution of the Schedule
K-1s necessary to enable each Owner to prepare its Federal and state income tax
returns.
(iv) The Administrator shall perform the duties of the
Administrator specified in Section 10.02 of the Trust Agreement required to be
performed in connection with the resignation or removal of the Eligible Lender
Trustee, and any other duties expressly required to be performed by the
Administrator under the Trust Agreement, the Sale and Servicing Agreement and
the other Related Agreements.
(v) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Administrator may enter into transactions
with or otherwise deal with any of its Affiliates; PROVIDED, HOWEVER, that the
terms of any such transactions or dealings shall be in accordance with any
directions received from the Issuer and shall be, in the Administrator's
opinion, no less favorable to the Issuer than would be available from
unaffiliated parties.
(c) NON-MINISTERIAL MATTERS. With respect to matters that in
the reasonable judgment of the Administrator are non-ministerial, the
Administrator shall not take any action unless within a reasonable time before
the taking of such action, the Administrator shall have
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<PAGE> 6
notified the Eligible Lender Trustee of the proposed action and the Eligible
Lender Trustee shall not have withheld consent or provided an alternative
direction. For the purpose of the preceding sentence, "non-ministerial matters"
shall include:
(i) the amendment of or any supplement to the Indenture;
(ii) the initiation of any claim or lawsuit by the Issuer and
the compromise of any action, claim or lawsuit brought by or against
the Issuer (other than in connection with the collection of the
Financed Student Loans);
(iii) the amendment, change or modification of the Related
Agreements;
(iv) the appointment of successor Note Registrars, successor
Paying Agents and successor Indenture Trustees pursuant to the
Indenture or the appointment of Successor Administrators or Successor
Servicers, or the consent to the assignment by the Note Registrar,
Paying Agent or Indenture Trustee of its obligations under the
Indenture; and
(v) the removal of the Indenture Trustee.
(d) EXCEPTIONS. Notwithstanding anything to the contrary in
this Agreement, except as expressly provided herein or in the other Basic
Documents, the Administrator shall not be obligated to, and shall not, (i) make
any payments to the holders of the Notes under the Related Agreements, (ii) sell
the Indenture Trust Estate pursuant to Section 5.04 of the Indenture, (iii) take
any other action that the Issuer directs the Administrator not to take on its
behalf, (iv) in connection with its duties hereunder assume any indemnification
obligation of any other Person or (v) service the Financed Student Loans.
2. RECORDS. The Administrator shall maintain appropriate books
of account and records relating to services performed hereunder, which books of
account and records shall be accessible for inspection by the Issuer at any time
during normal business hours.
3. COMPENSATION. As compensation for the performance of the
Administrator's obligations under this Agreement and as reimbursement for its
expenses related thereto, the Administrator shall be entitled to $3,000 per
quarter payable in arrears on each Distribution Date which shall be solely an
obligation of the Issuer.
4. ADDITIONAL INFORMATION TO BE FURNISHED TO THE ISSUER. The
Administrator shall furnish to the Issuer from time to time such additional
information regarding the Collateral as the Issuer shall reasonably request.
5. INDEPENDENCE OF THE ADMINISTRATOR. For all purposes of this
Agreement, the Administrator shall be an independent contractor and shall not be
subject to the supervision of the Issuer or the Eligible Lender Trustee with
respect to the manner in which it accomplishes the performance of its
obligations hereunder. Unless expressly authorized by the Issuer, the
Administrator shall have no authority to act for or represent the Issuer or the
Eligible Lender
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<PAGE> 7
Trustee in any way and shall not otherwise be deemed an agent of the Issuer or
the Eligible Lender Trustee.
6. NO JOINT VENTURE. Nothing contained in this Agreement (i)
shall constitute the Administrator and either of the Issuer or the Eligible
Lender Trustee as members of any partnership, joint venture, association,
syndicate, unincorporated business or other separate entity, (ii) shall be
construed to impose any liability as such on any of them or (iii) shall be
deemed to confer on any of them any express, implied or apparent authority to
incur any obligation or liability on behalf of the others.
7. OTHER ACTIVITIES OF ADMINISTRATOR. Nothing herein shall
prevent the Administrator or its Affiliates from engaging in other businesses
or, in its sole discretion, from acting in a similar capacity as an
administrator for any other person or entity even though such person or entity
may engage in business activities similar to those of the Issuer, the Eligible
Lender Trustee or the Indenture Trustee.
8. TERM OF AGREEMENT; RESIGNATION AND REMOVAL OF
ADMINISTRATOR. (a) This Agreement shall continue in force until the dissolution
of the Issuer, upon which event this Agreement shall automatically terminate.
(b) The provisions of Article VI and Article VIII of the Sale
and Servicing Agreement relating to the resignation or removal of the
Administrator and the failure of the Administrator to perform its duties under
this Agreement are hereby incorporated by reference herein.
9. ACTION UPON TERMINATION, RESIGNATION OR REMOVAL. Promptly
upon the effective date of termination of this Agreement pursuant to Section
8(a) or the resignation or removal of the Administrator pursuant to Section 8(b)
and the Sale and Servicing Agreement, the Administrator shall be entitled to be
paid all fees and reimbursable expenses accruing to it to the date of such
termination, resignation or removal. The Administrator shall forthwith upon such
termination pursuant to Section 8(a) deliver to the Issuer all property and
documents of or relating to the Collateral then in the custody of the
Administrator. In the event of the resignation or removal of the Administrator,
the Administrator shall cooperate with the Issuer and take all reasonable steps
requested to assist the Issuer in making an orderly transfer of the duties of
the Administrator.
10. NOTICES. Any notice, report or other communication given
hereunder shall be in writing and addressed as follows:
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<PAGE> 8
(a) if to the Issuer or the Eligible Lender Trustee, to
KeyCorp Student Loan Trust 1999-A
c/o The First National Bank of Chicago
One First National Plaza
Suite 0126
Chicago, Illinois 60670
Attention: Corporate Trust Administration
(b) if to the Administrator, to
Key Bank USA, National Association
800 Superior Avenue, 4th Floor
Cleveland, Ohio 44114
Attention: Key Education Resources
KeyCorp Student Loan Trust 1999-A
(c) if to the Indenture Trustee, to
Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Corporate Trust and Agency Group,
Structured Finance Team
or to such other address as any party shall have provided to the other parties
in writing. Any notice required to be in writing hereunder shall be deemed given
if such notice is mailed by certified mail, postage prepaid, or hand-delivered
to the address of such party as provided above.
11. AMENDMENTS. This Agreement may be amended from time to
time by a written amendment duly executed and delivered by the Issuer, the
Administrator and the Indenture Trustee, with the written consent of the
Eligible Lender Trustee, without the consent of the holders of the Notes and the
holders of the Certificates, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement or
of modifying in any manner the rights of the holders of the Notes or the holders
of the Certificates; provided that such amendment will not, in an Opinion of
Counsel obtained on behalf of the Issuer and satisfactory to the Indenture
Trustee and the Eligible Lender Trustee, materially and adversely affect the
interest of any holder of the Notes or holder of the Certificates. This
Agreement may also be amended by the Issuer, the Administrator and the Indenture
Trustee with the written consent of the Eligible Lender Trustee, the holders of
the Notes of at least a majority in the Outstanding Amount of the Notes and the
holders of the Certificates of at least a majority of the sum of the Certificate
Balances for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of the holders of the Notes or the holders of the
Certificates; PROVIDED, HOWEVER, that no such amendment may (i) increase or
reduce in any
-8-
<PAGE> 9
manner the amount of, or accelerate or delay the timing of, collections of
payments with respect to Financed Student Loans or distributions that are
required to be made for the benefit of the holders of the Notes or the holders
of the Certificates or (ii) reduce the aforesaid percentage of the holders of
the Notes and the holders of the Certificates which are required to consent to
any such amendment, without the consent of all Outstanding holders of the Notes
and holders of the Certificates. Notwithstanding the foregoing, the
Administrator may not amend this Agreement without the permission of the
Depositor, which permission shall not be unreasonably withheld. Prior to the
execution of any such amendment, the Administrator shall furnish written
notification of the substance of such amendment to each of the Rating Agencies.
12. SUCCESSORS AND ASSIGNS. Notwithstanding anything to the
contrary contained herein, except as provided in Sections 6.05 and 6.08 of the
Sale and Servicing Agreement, this Agreement may not be assigned by the
Administrator. Subject to the foregoing, this Agreement shall bind any
successors or assigns of the parties hereto.
l3. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
14. HEADINGS. The section headings hereof have been inserted
for convenience of reference only and shall not be construed to affect the
meaning, construction or effect of this Agreement.
15. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which when so executed shall together constitute but one
and the same agreement.
16. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
17. NOT APPLICABLE TO KEY BANK USA, NATIONAL ASSOCIATION IN
OTHER CAPACITIES. Nothing in this Agreement shall affect any obligation Key Bank
USA, National Association may have in any other capacity under the Basic
Documents.
18. PROVISIONS OF SALE AND SERVICING AGREEMENT CONTROL. The
provisions of the Sale and Servicing Agreement relating to the Administrator and
to this Agreement shall in all events govern and are hereby incorporated herein
and, to the extent any provision herein shall be inconsistent with any such
provision of the Sale and Servicing Agreement, the Sale and Servicing Agreement
shall govern.
19. LIMITATION OF LIABILITY OF ELIGIBLE LENDER TRUSTEE AND
INDENTURE TRUSTEE. (a) Notwithstanding anything contained herein to the contrary
except as provided in subsection (c) herein, this instrument has been
countersigned by The First National Bank of
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<PAGE> 10
Chicago not in its individual capacity but solely in its capacity as Eligible
Lender Trustee of the Issuer and subject to the succeeding paragraph, in no
event shall The First National Bank of Chicago in its individual capacity or any
Owner of the Issuer have any liability for the representations, warranties,
covenants, agreements or other obligations of the Issuer hereunder, as to all of
which recourse shall be had solely to the assets of the Issuer. For all purposes
of this Agreement, in the performance of any duties or obligations of the Issuer
hereunder, the Eligible Lender Trustee shall be subject to, and entitled to the
benefits of, the terms and provisions of Articles VI, VII and VIII of the Trust
Agreement.
(b) Notwithstanding anything contained herein to the contrary,
this Agreement has been countersigned by Bankers Trust Company not in its
individual capacity but solely as Indenture Trustee and in no event shall
Bankers Trust Company have any liability for the representations, warranties,
covenants, agreements or other obligations of the Issuer hereunder or in any of
the certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the Issuer.
(c) Notwithstanding any other provision in this Agreement or
the other Basic Documents, nothing in this Agreement or the other Basic
Documents shall be construed to limit the Eligible Lender Trustee's or the
Indenture Trustee's legal responsibility to the U.S. Secretary of Education or a
Guarantor for any violations of statutory or regulatory requirements that may
occur with respect to loans held by the Eligible Lender Trustee or the Indenture
Trustee pursuant to or to otherwise comply with their obligation under the
Higher Education Act or implementing regulations.
20. THIRD-PARTY BENEFICIARIES. The Eligible Lender Trustee is
a third-party beneficiary to this Agreement and is entitled to the rights and
benefits hereunder and may enforce the provisions hereof as if it were a party
hereto.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
KEYCORP STUDENT LOAN TRUST
1999-A,
by THE FIRST NATIONAL BANK OF CHICAGO, not
in its individual capacity but solely as
Eligible Lender Trustee,
by ________________________
Name:
Title:
BANKERS TRUST COMPANY, not in its individual
capacity but solely as Indenture Trustee,
by _________________________
Name:
Title:
KEY BANK USA, NATIONAL ASSOCIATION, as
Administrator,
by ________________________
Name:
Title:
-11-
<PAGE> 1
Exhibit 10.4
<TABLE>
<S> <C>
PENNSYLVANIA HIGHER EDUCATION ASSISTANCE LENDER AGREEMENT FOR GUARANTEE OF
AGENCY NATIONAL GUARANTY AGREEMENT STUDENT LOANS WITH FEDERAL REINSURANCE
(for loans to students and parents of students pursuant to the
Higher Education Act of 1965, as amended)
WHEREAS The First National Bank of Chicago, not in its individual capacity but solely as Eligible Lender Trustee on behalf
------------------------------------------------------------------------------------------------------------------
of the KeyCorp Student Loan Trust 1999-A pursuant to the Trust Agreement dated as of July 13, 1998, between Key
---------------------------------------------------------------------------------------------------------------
Bank USA, National Association, and the Eligible Lender Trustee, as the same may be amended, including by way of
----------------------------------------------------------------------------------------------------------------
amendment and restatement, from time to time (the "Trust Agreement")
----------------------------------------------------------------------------------------------------------------
(Corporate Name)
Located at One First National Plaza, Suite 0126, Attention: Corporate Trust Administration ,
-----------------------------------------------------------------------------------------------------------------
(Street Address)
Chicago Illinois 60670,
-----------------------------------------------------------------------------------------------------------------
(City) (State) (Zip Code)
hereinafter referred to as the "Lender," wishes to be able to secure guarantee of loans made to students pursuing programs of higher
or vocational education at eligible institutions, and to parents of such students pursuant to the aforementioned federal
legislation, hereinafter referred to as the "Act;" and
WHEREAS, the Pennsylvania Higher Education Assistance Agency, hereinafter referred to as the "Agency," was created by the Act of
August 7, 1963, P.L. 549 for the purpose of improving higher educational opportunities and to that end the Agency is empowered to
guarantee loans; and
WHEREAS, the Lender wishes to participate in the Agency's National Guaranty Program.
NOW THEREFORE, it is mutually agreed that:
<S> <C>
1. Within such limits as may be set by it, the Agency shall guarantee the full amount of all loans made by the Lender, or for
loans with a first disbursement on or after October 1, 1993, no less than 98% of the full amount of all loans, including
principal and interest, made by the Lender, except that all loans continue to be 100% guaranteed in the event of death,
disability or bankruptcy regardless of disbursement date, which are eligible for such guarantee under the Act, the
regulations issued under the Act and the Rules and Regulations and policies of the Agency with the exception of those
pertaining to Pennsylvania Residency/Domicile, which Act, regulations, Rules and Regulations and policies as they may be
from time to time amended are made part of this Agreement.
2. The Agency shall guarantee loans without regard to sex, age, race, color, religion, handicapped status, income, national
origin or any other basis prohibited by applicable law and the Lender will not discriminate in the making of loans to
eligible borrowers or in the treatment of such borrowers on any prohibited basis.
3. On all loans guaranteed, the Agency agreed to obtain maximum reinsurance by means of an agreement with the Federal
Government pursuant to the Act.
4. The Lender authorizes the Agency to act as its representative with respect to retaining the school's statement of the
student's enrollment and need. This document will be retained for the five-year period as required of the Lender by federal
regulations.
5. The Lender shall designate its Servicer to maintain for all loans guaranteed a system of records and accounts, shall afford
access thereto, and shall furnish such periodic and separate reports as may reasonably be required by the U.S. Secretary of
Education and the Agency, under the Act, regulations, Rules and Regulations and policies identified above. For loans paid
in full or otherwise discharged, the records shall be retained by the Lender as required by the Act, regulations, Rules and
Regulations, and policies identified above.
6. The Agency agrees to purchase eligible loans made by the Lender provided that such loans are in default (as defined by the
Act, regulations, Rules and Regulations and policies identified above); the loan was made in accordance with the Act,
regulations, Rules and Regulations and policies identified above; the Lender has otherwise exercised due diligence in the
making, servicing, and collection of such loans; and, title to the loan note has been subrogated to the Agency by the
Lender.
7. Failure of the Lender to comply with the terms hereof with respect to an individual loan shall not invalidate the guarantee
of the Agency to the Lender with respect to other loans held in compliance with the terms of this Agreement.
</TABLE>
1
<PAGE> 2
<TABLE>
<S> <C>
8. In making loans under the Act, the Lender will undertake to secure such reductions in borrowers' obligations to pay
interest on loans held by the Lender as they may be eligible to receive under the Act and regulations. The Lender further
agrees to comply with all applicable Federal and State laws in originating guaranteed student loans.
9. The Agency agrees to maintain at all times reserve levels which comply with Section 428(c)(10) of the Higher Education Act,
as amended.
10. This Agreement may be terminated by the Lender upon sixty (60) days written notice. The Agency may limit, suspend or
terminate this Agreement in the manner provided for by the Agency Rules and Regulations. All rights, duties and obligations
hereunder shall immediately cease upon termination, except the rights and obligations of the parties which existed as of
the date of termination.
11. The Lender wishes to participate in the following programs: (Please check all applicable programs)
X Stafford
---
PLUS
---
X SLS
---
X Consolidation
---
12. The Agency agrees to reimburse the Lender for any federal special allowance payments lost with respect to an individual
loan as a result of a delay in payment of a claim under this Agreement by the Agency to the Lender with respect to such
loan.
13. The Agency agrees upon written request to furnish a copy of its most recent audited financial statements to any holder of
record of Notes or Certificates (each as defined in the Trust Agreement) of KeyCorp Student Loan Trust 1999-A
IN WITNESS WHEREOF, the Lender and the Agency have caused this Agreement to be duly executed and delivered as of the 13th
day of July, 1998.
<S> <C>
THE FIRST NATIONAL BANK OF CHICAGO, PENNSYLVANIA HIGHER EDUCATION
NOT IN ITS INDIVIDUAL CAPACITY BUT SOLELY AS ELIGIBLE ASSISTANCE AGENCY
LENDER TRUSTEE ON BEHALF OF KEYCORP STUDENT
LOAN TRUST 1999-A
- ------------------------------------------- -------------------------------------------
Authorized Signature
- ------------------------------------------- -------------------------------------------
Title Title
833220
- -------------------------------------------
D.E. Lender Code Number
36-7111819
- -------------------------------------------
Federal Tax Identification Number
Approved as to form and legality this _____ Approved as to form and legality this _____
day of __________, 1999 day of __________, 1999
- ------------------------------------------- -------------------------------------------
PHEAA Chief Counsel Deputy Attorney General
</TABLE>
2
<PAGE> 3
LENDER PARTICIPATION AGREEMENT
FOR CONSOLIDATION LOANS
THIS AGREEMENT is made as of the 13th day of July, 1998, by and between
the PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY, a public corporation
organized under the laws of the Commonwealth of Pennsylvania with its principal
office at 1200 North Seventh Street, Harrisburg, Pennsylvania 17102 (herein
called "Agency") and THE FIRST NATIONAL BANK OF CHICAGO, not in its individual
capacity but solely as Eligible Lender Trustee on behalf of the KeyCorp Student
Loan Trust 1999-A, with its principal office at One First National Plaza, Suite
0126, Chicago, Illinois 60670, Attention: Corporate Trust Administration,
(herein called "Lender").
W I T N E S S E T H:
--------------------
WHEREAS, Agency was created by the Act of August 7, 1963, P.L. 549 for
the purpose of improving higher educational opportunities and to that end Agency
is empowered to guarantee loans of money, and
WHEREAS, Lender wishes to make Consolidation Loans to eligible
borrowers and/or purchase Consolidation Loans made pursuant to the Higher
Education Act of 1965, as amended.
NOW, THEREFORE, Agency and Lender agree as follows:
1. This Agreement incorporates and is amended by Guidelines
issued by Agency governing details of loans and guarantees
made pursuant hereto. The Guidelines comply with state and
federal law, regulations and interpretations thereof, and
provisions of this Agreement which become inconsistent with
any of the above will automatically be amended upon changes to
the Higher Education Act of 1965 or upon the issuance of new
and revised Guidelines.
2. Upon purchasing an existing Consolidation Loan or making a
Consolidation Loan, Lender agrees to comply with all Agency
Guidelines regarding Consolidation Loans guaranteed by Agency.
3. In making a Consolidation Loan, Lender will make a
Consolidation Loan to an eligible borrower only if the
borrower certifies that he/she has no other application
pending for a Consolidation Loan and Lender either currently
holds an outstanding loan of the borrower which he/she has
selected for consolidation or has obtained a certification
from the borrower that he/she has been unable to obtain a
Consolidation Loan from the holders of his/her outstanding
loans selected for consolidation, or for a Consolidation Loan
made on or after July 1, 1994, has obtained a certification
from the borrower that he/she has been unable to obtain a
Consolidation Loan with income-sensitive repayment terms from
the holders of his/her loans selected for consolidation.
<PAGE> 4
4. In making a Consolidation Loan, Lender will determine, to its
satisfaction, in accordance with reasonable and prudent
business practices, for each loan being consolidated that:
a. each loan is a legal, valid and binding obligation of
the borrower;
b. each loan was made and serviced in compliance with
applicable laws and regulations; and
c. the insurance on each loan is in full force and
effect.
5. In making a Consolidation Loan before July 1, 1994, Lender
will comply with all requirements set forth in Section 428C of
the Higher Education Act, as amended, including the following:
a. the interest rate shall be determined in accordance
with the Act;
b. the amount of each Consolidation Loan will be not
less than $7,500.00 and will equal the sum of the
unpaid principal, accrued unpaid interest and late
charges of all loans selected by the borrower for
consolidation; and
c. the repayment terms may include graduated or income
sensitive repayment schedules as set forth in the Act
and Guidelines.
In making a Consolidation Loan on or after July 1, 1994,
Lender will comply with all requirements set forth in Section
428C of the Higher Education Act of 1965, as amended,
including the following:
a. the interest rate shall be determined in accordance
with the Act;
b. the amount of each Consolidation Loan will equal the
sum of the unpaid principal, accrued interest and
late charges of all eligible loans selected by the
borrower for consolidation; and
c. the repayment terms shall include graduated or income
sensitive repayment schedules established in
accordance with the regulations of the Secretary.
6. In making a Consolidation Loan, Lender will use the proceeds
of the Consolidation Loan to pay the holder(s) of the loans
selected for consolidation to discharge the borrower's
liability on such loans.
7. Agency guarantees to Lender, its assignees, and its
successors, subject to each and all of the conditions set
forth herein and the Guidelines issued from time to time by
Agency, repayment of the unpaid principal and interest due and
owing after default on the promissory note by a borrower, or
for Consolidation Loans made on or after October 1, 1993, no
less than 98% of the unpaid principal and interest due and
owing after default on the promissory note by a borrower,
except that Consolidation Loans continue to be 100% guaranteed
in the event of death, disability or bankruptcy regardless of
disbursement date.
8. If Lender no longer intends to make or hold Consolidation
Loans under this Agreement, it shall so notify Agency, in
writing, and this Agreement shall terminate sixty (60) days
after receipt of the notice. This Agreement may be terminated
by
2
<PAGE> 5
Agency in accordance with Agency Guidelines. Termination of
this Agreement shall not affect the guarantee of the loans
issued prior to the date of termination.
IN WITNESS WHEREOF, the parties hereto have executed such on the day,
month and year first above written.
<TABLE>
<S> <C>
PENNSYLVANIA HIGHER
EDUCATION ASSISTANCE AGENCY
By:
---------------------------------------
Title:
-------------------------------------
THE FIRST NATIONAL BANK OF
CHICAGO, NOT IN ITS INDIVIDUAL CAPACITY
BUT SOLELY AS ELIGIBLE LENDER TRUSTEE ON
BEHALF OF KEYCORP STUDENT LOAN TRUST
1999-A
By:
---------------------------------------
Title:
-------------------------------------
D.E. Code: 833220
--------------------------------
Approved as to form and legality this _____ Approved as to form and legality this _____
day of __________, 1999 day of __________, 1999
PHEAA Chief Counsel -------------------------------------------
- ------------------------------------------- Deputy Attorney General
</TABLE>
3
<PAGE> 1
Exhibit 10.5
HOLDER GUARANTEE AGREEMENT
BETWEEN
MASSACHUSETTS HIGHER EDUCATION ASSISTANCE CORPORATION
DOING BUSINESS AS AMERICAN STUDENT ASSISTANCE
AND
THE FIRST NATIONAL BANK OF CHICAGO, NOT IN ITS INDIVIDUAL
CAPACITY BUT SOLELY AS ELIGIBLE LENDER TRUSTEE
ON BEHALF OF KEYCORP STUDENT LOAN TRUST 1999-A
WHEREAS, Massachusetts Higher Education Assistance Corporation doing
business as American Student Assistance (ASA)(R), a private nonprofit
corporation created by the General Court of the Commonwealth of Massachusetts
and having its principal office at 330 Stuart Street, Boston, Massachusetts
02116 (hereinafter "ASA"), administers several loan guarantee programs providing
financial assistance to and on behalf of students enrolled in programs of higher
education; and
WHEREAS, The First National Bank of Chicago, not in its individual
capacity but solely as Eligible Lender Trustee on behalf of KeyCorp Student Loan
Trust 1999-A, pursuant to the Trust Agreement dated as of July 13, 1998, between
Key Bank USA, National Association, and the Eligible Lender Trustee, as the same
may be amended, including by way of amendment and restatement, from time to time
(the "Trust Agreement"), with its principal office located at One First National
Plaza, Suite 0126, Chicago, Illinois 60670, Attention: Corporate Trust
Administration (hereinafter "HOLDER"), qualifies as an eligible lender under one
or more of these programs, fulfilling such criteria as have been set forth by
federal and state statute and regulation and by the Board of Directors of ASA
pertaining to the particular program; and
WHEREAS, HOLDER is willing to be a holder of loans made to eligible
borrowers as such are defined in this Agreement and in the policies of ASA, and
ASA is willing to guarantee the payment of principal and interest in the event
of the borrower's default of repayment in accordance with the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the receipt and sufficiency of which are hereby acknowledged, ASA and
HOLDER agree as follows:
<PAGE> 2
Section 1. DEFINITIONS
a. "Agreement" - shall mean this Guarantee Agreement to the extent that
HOLDER and ASA each has indicated its willingness to participate in the programs
as evidenced by signature or initial.
b. "Borrower" - shall mean any person or persons executing a promissory
note individually or jointly for the purpose of obtaining funds pursuant to
loans held by HOLDER under one of the programs authorized by this Agreement.
c. "Default" - shall mean the failure of the Borrower to repay borrowed
amounts when due and/or the failure of the Borrower to comply with the terms of
the promissory note.
d. "Due Diligence" - shall mean the utilization by HOLDER of policies,
practices and procedures in the servicing and collection of loans which are
consistent with HOLDER's policies, practices and procedures applicable to its
other consumer loan and credit portfolios, if any, and which comply with the
requirements of federal and state statutes and regulations and ASA policies. Due
Diligence includes, but is not limited to, the remission of guarantee fees to
ASA in amounts and time frames specified by ASA.
e. "Federal Family Education Loan Program" - shall mean the Federal
Stafford Loan Program (subsidized and unsubsidized), the Federal Supplemental
Loan for Students ("SLS") Program, the Federal PLUS Loan Program, the Federal
Consolidation Loan Program and other federal education loan programs
administered by ASA.
f. "Forms" - shall mean such application forms, promissory notes and
administrative forms as are provided and/or required by ASA for participation in
any of the programs authorized by this Agreement.
g. "Guarantee" - shall mean the guarantee of payment given by ASA to
HOLDER by which ASA covenants to pay to HOLDER such principal and interest as
may be provided by the terms of each program after being assured that HOLDER has
exercised Due Diligence in its servicing and collection and that the necessary
documents have been submitted to ASA in the Forms required.
h. "Limitation, Suspension or Termination" - shall mean the
restrictions imposed by ASA upon HOLDER's continued participation in any of the
programs authorized by this Agreement. The cause of such restrictions, the
process by which such restrictions may be imposed, and their nature and scope
are set forth in Section 3 herein.
Section 2. TERMS AND CONDITIONS OF LOANS ORIGINATED AND HELD UNDER THE
FEDERAL FAMILY EDUCATION LOAN PROGRAM ADMINISTERED BY ASA
-2-
<PAGE> 3
a. ASA participates in the Federal Family Education Loan Program as a
private, nonprofit guaranty agency pursuant to Part B of Title IV of the Higher
Education Act of 1965, as amended (20 U.S.C. ss. 1071 et seq.), and its
implementing regulations (hereinafter, collectively, the "Act") and to several
contractual agreements with the United States Department of Education
(hereinafter "USDOE"). The Act and these agreements confer eligibility upon
Borrowers to receive full or partial interest subsidies, upon lenders to receive
special allowance payments and upon ASA to receive insurance and reinsurance
payments in the event of death, disability, bankruptcy or Default. ASA hereby
represents and covenants that it will structure and operate its programs in such
a manner as to comply with the Act and preserve to the extent possible the
benefits of these federal agreements.
b. As security for the performance of its obligations hereunder, ASA
covenants that it will, at all times, maintain a reserve consisting of cash,
certificates of deposit, marketable securities or other assets having value of
not less than that required by the USDOE for participating guarantors in the
Federal Family Education Loan Program. ASA retains the right to modify the
reserve requirement if necessary and, upon 30 (thirty)-day written notice to
HOLDER, to meet federal requirements or if the ASA Board of Directors
determines such modification to be in the best interest of the Federal Family
Education Loan Program administered by ASA.
c. HOLDER covenants that it will comply with all applicable
requirements of federal and state statutes and regulations and with all
requirements and policies of ASA. HOLDER also shall administer the ASA Federal
Family Education Loan Program in conformity with sound lending practices and
standards of Due Diligence as applied to the programs therein.
d. In its administration of the Federal Family Education Loan Program,
HOLDER shall use Forms approved and distributed by ASA and/or by USDOE.
e. In the event of a Borrower's Default, death, total and permanent
disability or discharge in bankruptcy, as such events are defined by the Act
and/or other applicable law and regulation, ASA will accept a claim for payment
upon its Guarantee and, if satisfied that standards of Due Diligence have been
met, make payment to HOLDER in an amount equal to the outstanding and unpaid
principal amount plus interest accrued since the date of last payment or
maturity to the date of payment by ASA, to the extent that such interest does
not exceed the maximum number of days authorized by ASA or federal law and
regulations. In addition, in accordance with applicable law, regulation, ASA's
own policy and procedure and the Act, in the event that ASA fails to pay a
claim to HOLDER timely in accordance with applicable federal law and
regulation, ASA shall, upon written request from HOLDER, pay to HOLDER an
amount equivalent to the applicable federal special allowance payment, if any,
calculated for the period between termination of the USDOE's obligation to pay
special allowance to HOLDER and the date of payment by ASA.
f. HOLDER agrees that it will prepare and make available such reports
or other information as may be reasonably required by ASA or USDOE and, further,
that independent auditors or authorized representatives of ASA or USDOE shall
have access to the operations and
-3-
<PAGE> 4
financial records and procedures pertaining to the Stafford, PLUS, and
Consolidation programs or any other federal program administered by ASA.
g. ASA agrees upon written request to furnish a supply of its most
recent audited financial statements to any holder of record of notes,
certificates or other securities issued by KeyCorp Student Loan Trust 1999-A,
provided, however, that ASA may, in its discretion, first verify the identity of
any such holder of record with Key Bank USA, National Association, prior to
fulfilling this requirement.
h. If HOLDER shall violate, or fail to comply with, any of the terms of
this Agreement, it shall become liable to ASA in an amount equal to the damages
sustained by ASA by virtue of such violation or failure to comply. ASA may, at
its option and in addition to any other remedies available to it at law or in
equity, invoke and apply the provisions of Section 3 of this Agreement relating
to Limitation, Suspension or Termination. If ASA should violate, or fail to
comply with, any of the terms of this AGREEMENT, it shall become liable to
HOLDER in an amount equal to the damages sustained by HOLDER by virtue of such
violations or failure to comply. In no event shall either party be liable for
any profits lost, or for any special, consequential, incidental or contingent
damages, arising out of or in connection with this AGREEMENT (even if it has
been advised of the possibility of such damages by the other party).
Section 3. LIMITATION, SUSPENSION OR TERMINATION OF HOLDER PARTICIPATION
a. As a holder of loans in the Federal Family Education Loan Program
administered by ASA, HOLDER shall administer its loan portfolios in accordance
with applicable federal and state law and regulations and with ASA policies. In
no event shall Holder originate any Federal Family Education Loan Program loans
guaranteed by ASA or otherwise subject to this Agreement. In the event that ASA
determines that HOLDER's administration of such programs does not satisfy the
required levels of Due Diligence or that the Default or delinquency rate of
loans held by HOLDER is excessive, ASA will inform HOLDER of the noted
deficiencies and of corrective actions required to continue participation.
HOLDER then shall implement the recommended corrective action and/or take other
action to rectify each of the administrative deficiencies noted by ASA within
the time specified by ASA or as agreed to by HOLDER and ASA.
-4-
<PAGE> 5
b. In the event that HOLDER fails to rectify such deficiencies in a
timely and prudent manner, ASA may, in its discretion, impose Limitation,
Suspension or Termination sanctions as it may deem appropriate, after affording
HOLDER an opportunity to respond. ASA, however, may impose such sanctions on
HOLDER without a hearing if ASA determines that emergency action is necessary to
prevent monetary loss to ASA and the federal government or to otherwise protect
the federal fiscal interest. HOLDER may appeal any Limitation, Suspension or
Termination sanctions imposed by ASA in accordance with the Act.
(1) LIMITATION sanctions provide for the continued participation of
HOLDER, subject to such special conditions, procedures or
timetables as may be established by ASA.
(2) SUSPENSION sanctions include the temporary termination of
HOLDER's eligibility for participation for a specified period of
time or until HOLDER satisfies the standards established by ASA
to remove the Suspension.
(3) TERMINATION sanctions may be invoked by ASA where the
administrative deficiencies are substantial and where HOLDER has
not taken timely corrective action. ASA may not terminate
HOLDER's eligibility for participation without having first
provided HOLDER with an opportunity for a hearing. Restoration of
HOLDER's eligibility for participation can be accomplished only
upon submission of a new application for such participation and
ASA's approval of such application after consideration of
eligibility standards then required by the ASA Board of
Directors.
c. Any Limitation, Suspension or Termination hereunder shall be
prospective only and shall not affect the obligations of the parties hereto
which were incurred prior to such Limitation, Suspension or Termination.
Section 4. GENERAL PROVISIONS
a. This Agreement may be modified only by written agreement of the
parties hereto, except as provided in Section 2, subsection b., herein. Any
waiver, modification or failure to insist upon the strict performance of the
duties of either party to this Agreement shall not be construed as a waiver or
modification generally or of such particular condition in a subsequent instance.
b. The rights of HOLDER hereunder may be assigned in whole or in part
by HOLDER to any permitted successor or to any purchaser of all or any part of
its interest in the loans covered by this AGREEMENT without ASA's approval;
provided, however: (i) that ASA shall be given advance notice of such
assignment, (ii) that HOLDER's obligations hereunder shall be assumed by any
such successor or purchaser in writing, (iii) that any successor qualify as an
eligible lender, and (iv) that any successor comply with ASA policies. ASA
acknowledges that HOLDER will pledge the loans covered by this AGREEMENT and
all its rights hereunder to
-5-
<PAGE> 6
Bankers Trust Company, not in its individual capacity but solely as Indenture
Trustee ("Indenture Trustee"), and agrees that in the event Indenture Trustee
forecloses upon such collateral, Indenture Trustee may exercise any or all of
HOLDER's rights hereunder.
c. Either party hereto may terminate this Agreement at any time by
providing at least thirty (30) days' written notice of such termination to the
other party. Such termination shall be prospective only, however, and shall not
affect the obligations of the parties hereto which were incurred prior to such
termination.
d. The rights and obligations accruing under the Agreement shall come
into existence as of the date that HOLDER purchases loans guaranteed by ASA
Guarantor.
e. The failure of ASA at any time to require strict performance of any
term, condition or obligation of this Agreement or to exercise any right or
power hereunder shall not constitute a waiver of that term, condition or
obligation and shall not in any way affect ASA's right to enforce the same.
f. Should any of the provisions of this Agreement be invalid, changed
by law or regulation or declared invalid by order, decree or judgment of an
authority of competent jurisdiction, the remaining provisions of this Agreement
shall not be affected thereby, and this Agreement shall be construed as if such
invalid provisions had not been inserted in this Agreement, or as if the new law
or regulation were incorporated herein.
g. This Agreement constitutes the entire agreement between the parties
and supersedes all other prior communications and agreements between the parties
with respect to the subject matter hereof, including, without limitation, any
prior arrangements between the parties.
Section 5. TERMINATION BY THE SECRETARY
Notwithstanding any other provision, condition or agreement herein, and
pursuant to Section 4042 of the Student Loan Reform Act of 1993, amending
Section 422 of the Act (20 U.S.C. Sec. 1072), this Agreement is terminable by
the Secretary of USDOE (hereinafter the "Secretary") upon thirty (30) days'
notice to the contracting parties if the Secretary determines that this
Agreement includes an impermissible transfer of the reserve funds or assets of a
guaranty agency or is otherwise inconsistent with the terms and purposes of
Section 422 of the Act.
Section 6. PROGRAM PARTICIPATION
By checking below, HOLDER signifies its intent to acquire and hold
loans in the programs indicated:
[X] Participation in the Federal Stafford Loan Program
[X] Participation in the unsubsidized Federal Stafford Loan Program
-6-
<PAGE> 7
[X] Participation in the Federal Supplemental Loans for
Students (SLS) Program
[ ] Participation in the Federal PLUS Loan Program
[X] Participation in the Federal Consolidation Loan Program
IN WITNESS WHEREOF, ASA and HOLDER have caused this instrument to be
executed by their respective and duly authorized officers as of the day and year
indicated below.
THE FIRST NATIONAL BANK OF CHICAGO, NOT IN ITS INDIVIDUAL CAPACITY BUT
SOLELY AS ELIGIBLE LENDER TRUSTEE ON BEHALF OF KEYCORP STUDENT LOAN
TRUST 1999-A
By:
----------------------------
Name (Print):
----------------------------
Title:
----------------------------
Date: July 13, 1998
----------------------------
EIN #: 36-7111819
----------------------------
Lender Code: 833220
----------------------------
MASSACHUSETTS HIGHER EDUCATION ASSISTANCE CORPORATION
D/B/A AMERICAN STUDENT ASSISTANCE GUARANTOR
By:
----------------------------
Name (Print): Paul Combe
Title: President
Date: July 13, 1998
----------------------------
-7-
<PAGE> 1
Exhibit 10.6
LENDER AGREEMENT FOR GUARANTEE OF
STUDENT LOANS WITH FEDERAL REINSURANCE
(SECONDARY MARKET LENDER)
For loans eligible for guarantee under the Higher Education Act of
1965, as amended (the "Act").
WHEREAS, The First National Bank of Chicago, not in its individual
capacity but solely as Eligible Lender Trustee on behalf of the KeyCorp Student
Loan Trust 1999-A (the "Trust"), pursuant to the Trust Agreement dated as of
July 13, 1998, between Key Bank USA, National Association and the Eligible
Lender Trustee, as the same may be amended, including by way of amendment and
restatement, from time to time (the "Trust Agreement") located at, One First
National Plaza, Suite 0126, Chicago, Illinois 60670, Attn: Corporate Trust
Administration, using DE Lender ID number 833220 (the "Lender") wishes to secure
loan guarantees with the Nebraska Student Loan Program, Inc. ("NSLP") on federal
student loans made to "Eligible Borrowers" (as hereinafter defined) purchased by
Lender from eligible institutions pursuant to the Act; and
WHEREAS, Lender represents that it is an eligible secondary market
lender under the provisions of the Act and the "Program Rules" (as hereinafter
defined).
NOW, THEREFORE, it is mutually agreed that:
1. The following words and terms shall have the following meanings
unless otherwise herein provided or unless the context or use
clearly indicates another or differing meaning or intent:
(a) "Act" shall mean Title IV, Part B, of the Higher Education
Act of 1965, as amended, the regulations promulgated
thereunder, and all official interpretations of federal
requirements as issued by the U.S. Department of Education
("ED");
(b) "Agreement" shall mean this Agreement;
(c) "Eligible Borrower" shall mean a borrower as defined by the
Act;
(d) "Eligible Loan" shall mean a loan as defined by the Act;
and
(e) "Program Rules" shall include, but are not limited to, the
Act, the Common Manual -Unified Student Loan Policy, NSLP
Operations Alerts and NSLP correspondent materials. All
such Program Rules, as amended from time to time, are
specifically incorporated into and made a part of this
Agreement.
2. NSLP shall guarantee Eligible Loans held by the Lender which have
been acquired in conformance with the Program Rules. While the
Trust is in existence, Lender shall purchase Eligible Loans in an
amount not to exceed $1 billion In conjunction with the
<PAGE> 2
purchase of Eligible Loans, NSLP shall provide guarantee and
related services to Lender in conformance with the Act and the
Program Rules. NSLP shall review the principal amount of Eligible
Loans on a quarterly basis to determine compliance with respect
to this provision.
3. NSLP and the Lender agree that upon the default of a promissory
note and the filing of a claim on such promissory note by the
Lender, such claim shall be processed as provided for in the
Program Rules.
4. NSLP agrees to maintain reserves as defined by the Act for the
payment of claims/purchase of loans pursuant to the reinsurance
contracts with the Secretary of Education.
5. Lender shall only purchase Eligible Loans made by qualified
lenders to Eligible Borrowers permitted by the Program Rules.
6. The Lender, or its servicers, shall determine that each Eligible
Loan obligation is a legal, valid and binding obligation of the
Eligible Borrower, and shall engage in the requisite due
diligence relative to the purchase, servicing, and collection of
Eligible Loans as required by the Program Rules. Lender, or its
servicers, shall document in the loan file the basis on which it
made its determination and due diligence and retain the same for
the term required by the Program Rules. Lender acknowledges that
NSLP has no responsibility to review determinations or due
diligence activity of Lender.
7. Lender shall notify NSLP in writing if any servicing or
management of the Lender's Eligible Loans guaranteed by NSLP is
done by an entity other than Lender or by a servicer other than
Pennsylvania Higher Education Assistance Agency ("PHEAA") or EFS
Services, Inc.("EFS"), Lender's current servicers. Lender shall
provide NSLP with a copy of the current servicing agreement and
otherwise perform pursuant to the terms of the Program Rules as
they pertain to the use of a third party servicing entity.
8. Each Eligible Loan purchased by Lender has been made at an
interest rate not otherwise prohibited by the Act.
9. Each Eligible Loan shall be subject to repayment on the terms
stated in the Act.
10. The Lender agrees to remit to NSLP any applicable fees permitted
by the Act and the Program Rules or as otherwise required by
NSLP.
11. NSLP and the Lender agree that the guarantee on any particular
Eligible Loan shall be effective for the term of that Eligible
Loan on the effective date determined in accordance with the
Program Rules.
2
<PAGE> 3
12. In purchasing and servicing Eligible Loans from Eligible
Borrowers, the Lender agrees to comply with all applicable
federal and state laws in addition to (and not in conflict with)
the Program Rules.
13. In the event the Lender, its servicing agent, any prior
transferor, transferees or subsequent servicing agent shall
violate or fail to comply with the Program Rules with respect to
any Eligible Loan, Lender shall assume liability for and agrees
to indemnify and keep harmless NSLP, its successors, assigns,
directors, officers and agents from and against any and all
liabilities, losses, damages, penalties, claims, actions,
expenses and disbursements, including legal fees and expenses,
imposed on, incurred by or asserted against them or any of them,
in any way relating to or arising out of such violation or
failure to comply with the Program Rules, irrespective of whether
NSLP shall have purchased such Eligible Loans from the Lender.
14. The Lender, or its servicers, shall maintain for all Eligible
Loans guaranteed a system of records and accounts, shall afford
access thereto, and shall furnish such periodic and separate
reports as may reasonably be required by the ED and NSLP under
the Program Rules. For Eligible Loans paid in full or otherwise
discharged, the records shall be retained by the Lender, or its
servicers, as required by the Program Rules.
15. NSLP shall guarantee Eligible Loans without regard to sex, age,
race, color, religion, handicapped status, income, national
origin, or any other basis prohibited by applicable law. The
Lender will not discriminate in the acquisition of Eligible Loans
from originating lenders or in the treatment of Eligible
Borrowers on any prohibited basis.
16. This Agreement shall inure to the benefit of and be
binding upon NSLP, the Lender and their respective successors.
The rights of Lender hereunder may be assigned in whole or in
part by Lender to any permitted successor or to any purchaser of
all or any part of its interest in the loans covered by this
Agreement without NSLP's approval; provided, however: (i) that
NSLP shall be given advance notice of such assignment and (ii)
that Lender's obligations hereunder shall be assumed by any such
successor or purchaser in writing. NSLP acknowledges that Lender
will pledge the loans covered by this Agreement and all its
rights hereunder to Bankers Trust Company, not in its individual
capacity but solely as Indenture Trustee ("Indenture Trustee"),
and agrees that in the event Indenture Trustee forecloses upon
such collateral, Indenture Trustee may exercise any or all of
Lender's rights hereunder.
17. Subject to the prior written approval of the Lender, which
approval shall not be unreasonably withheld, NSLP may transfer
Eligible Loans which are guaranteed to any other guarantor which
has given NSLP its prior written approval of such transfer.
Lender may likewise transfer Eligible Loans to another
NSLP-approved lender or eligible holder, and shall notify NSLP of
any proposed transfer of NSLP guaranteed loans by sale, payoff or
pledge to such approved lender or eligible holder.
3
<PAGE> 4
18. This Agreement may be terminated by the Lender upon ninety
(90) days advance written notice to NSLP. The Lender is required
to give NSLP ninety (90) days advance written notice of
termination if the Lender intends to cease making Eligible Loans
under this Agreement. This Agreement may be terminated, suspended
or limited by NSLP in any manner provided for in the Program
Rules. Such termination, suspension or limitation shall not
affect the coverage of Eligible Loans previously guaranteed.
In addition, this Agreement may be terminated by NSLP upon ninety
(90) days written notice to the Lender in the event NSLP intends
to cease guaranteeing Eligible Loans of Lender. Lender will have
90 days from receipt of the termination notice to obtain a
guarantee from NSLP on all Eligible Loans acquired prior to
receipt of the termination notice.
19. Lender agrees to indemnify and hold harmless NSLP from any
obligations arising out of or related to Eligible Loans not
originated, acquired or serviced in the manner required by the
Act and the Program Rules.
20. NSLP agrees to reimburse the Lender for any federal special
allowance payments lost with respect to an individual loan as a
result of a delay in payment of a claim under this Agreement by
NSLP to the Lender with respect to such loan, provided that such
reimbursement is permissible under the Act and the Program Rules
and further provided that such delay is not due to Lender's (or
its servicer's) actions.
21. NSLP agrees upon written request to furnish a copy of its most
recent audited financial statements to any holder of record of
Notes or Certificates (each as defined in the Trust Agreement) of
KeyCorp Student Loan Trust 1999-A.
22. This Agreement shall be governed by the laws of the State of
Nebraska, except to the extent federal law and/or regulations
apply to the subject matter hereof. This Agreement shall not be
varied by oral agreement but only by an instrument in writing
duly executed by both parties. Any legal or equitable judicial
proceeding arising out of or related to this Agreement shall be
heard solely in the courts located in the City of Lincoln,
Lancaster County, Nebraska, as the forum of choice of the parties
to this Agreement. This Agreement represents the entire
understanding of the parties with respect to the subject matter
and supersedes all other communications between the parties.
4
<PAGE> 5
This Agreement is made as of July 13, 1998.
THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity, but
solely as Eligible Lender Trustee
on behalf of KeyCorp Student Loan
Trust 1999-A:
ATTEST:
By: By:
----------------------------- ---------------------------------
Title: Title:
-------------------------- ------------------------------
NEBRASKA STUDENT LOAN PROGRAM, INC.
ATTEST:
By: By:
----------------------------- ---------------------------------
Nancy J. Wiederspan, President
Title:
--------------------------
5
<PAGE> 6
LENDER AGREEMENT FOR GUARANTEE OF
FEDERAL CONSOLIDATION LOANS WITH FEDERAL REINSURANCE
For loans eligible for guarantee under the Higher Education Act of
1965, as amended (the "Act")
WHEREAS, The First National Bank of Chicago, not in its individual
capacity but solely as Eligible Lender Trustee on behalf of the KeyCorp Student
Loan Trust 1999-A (the "Trust"), pursuant to the Trust Agreement dated as of
July 13, 1998, between Key Bank USA, National Association and the Eligible
Lender Trustee, as the same may be amended, including by way of amendment and
restatement, from time to time (the "Trust Agreement") located at, One First
National Plaza, Suite 0126, Chicago, Illinois 60670, Attn: Corporate Trust
Administration, using DE Lender ID number 833220 (the "Lender") wishes to secure
loan guarantees with the Nebraska Student Loan Program, Inc. ("NSLP") on
"Federal Consolidation Loans" (as hereinafter defined) made to "Eligible
Borrowers" (as hereinafter defined); and
WHEREAS, Lender represents that it is an "eligible lender" under the
provisions of the Act and the "Program Rules" (as hereinafter defined); and
WHEREAS, Lender has previously executed the NSLP Lender Agreement for
Guarantee of Student Loans with Federal Reinsurance.
NOW, THEREFORE, it is mutually agreed that:
1. The following words and terms shall have the following meanings
unless otherwise herein provided or unless that context or use
clearly indicates another or differing meaning or intent;
(a) "Act" shall mean Title IV, Part B, of the Higher Education
Act of 1965, as amended, the regulations promulgated
thereunder, and all official interpretations of federal
requirements as issued by the U.S. Department of Education
("ED");
(b) "Agreement" shall mean this Agreement;
(c) "Eligible Borrower" shall mean a borrower as defined by the
Act;
(d) "Eligible Loan" shall mean a loan as defined by the Act;
(e) "Federal Consolidation Loan" shall mean a student loan which
has been consolidated pursuant to and as defined by the Act;
(f) "Initial Principal Amount" shall mean the principal amount
of a Federal Consolidation Loan when made; and
(g) "Program Rules" shall include, but are not limited to, the
Act, all correspondence, the Common Manual - Unified Student
Loan Policy, NSLP Operations Alerts and NSLP
<PAGE> 7
correspondent materials. All such Program Rules, as amended
from time to time, are specifically incorporated into and
made a part of this Agreement.
2. NSLP shall guarantee Federal Consolidation Loans made or acquired
by the Lender which have been made in conformance with the Program
Rules.
3. NSLP and the Lender agree that upon the default with respect to a
promissory note and the filing of a claim on such promissory note
by the Lender, such claim shall be processed as provided for in
the Program Rules.
4. NSLP agrees to maintain reserves as defined by the Act for the
payment of claims/purchase of loans pursuant to the reinsurance
contracts with the Secretary of Education.
5. Lender shall make a Federal Consolidation Loan only to discharge
Eligible Loans upon an Eligible Borrower's request.
6. Lender shall make a Federal Consolidation Loan only to those
Eligible Borrowers permitted by the Program Rules.
7. With respect to each Federal Consolidation Loan, the Lender, or
its servicers, shall determine as to each Eligible Loan obligation
to be consolidated that each obligation:
(a) is a legal, valid and binding obligation of the Eligible
Borrower;
(b) was made and has been continuously serviced in accordance
with applicable laws and regulations and, if guaranteed,
requirements of the guarantor;
(c) each underlying loan is currently guaranteed under the Act
as of the date of the consolidation; and
(d) is not in default status as defined under the Act or the
Program Rules.
Lender, or its servicers, shall document in the loan file the
basis on which it made its determination and retain that
documentation for the term required by the Program Rules. Lender
acknowledges that NSLP has no responsibility to review such
determination of Lender.
8. Unless otherwise required by the Act, each Federal Consolidation
Loan shall be made in a principal amount which is equal to the sum
of the unpaid principal and accrued unpaid interest and late
charges of the Eligible Loans to be consolidated. The proceeds of
each Federal Consolidation Loan will be paid to the holder of each
loan to be consolidated to discharge the liability on such loans.
9. Each Federal Consolidation Loan shall be made at the interest rate
designated by the Act.
2
<PAGE> 8
10. Each Federal Consolidation Loan shall be subject to repayment on
the terms stated in the Act.
11. The Lender agrees to remit to NSLP any applicable fees permitted
by the Act and required by NSLP.
12. NSLP and the Lender agree that the guarantee on any particular
Federal Consolidation Loan shall be effective for the term of that
Federal Consolidation Loan determined in accordance with the
Program Rules, the effective date beginning on the date of receipt
by NSLP of any fee with respect to that Federal Consolidation Loan
or, if no fee is permitted or required, beginning on the date of
disbursement of that Federal Consolidation Loan.
13. In making Federal Consolidation Loans to Eligible Borrowers, the
Lender agrees to comply with all applicable federal and state laws
in addition to (and not in conflict with) the Program Rules.
14. The Lender agrees to notify NSLP in writing within 60 days from
the date that each Federal Consolidation Loan is made by Lender.
15. The Lender shall maintain for all Federal Consolidation Loans
guaranteed a system of records and accounts, shall afford access
thereto, and shall furnish such periodic and separate reports as
may reasonably be required by the ED and NSLP under the Program
Rules. For Federal Consolidation Loans paid in full or otherwise
discharged, the records shall be retained by the Lender as
required by the Program Rules.
16. NSLP shall guarantee Federal Consolidation Loans without regard to
sex, age, race, color, religion, handicapped status, income,
national origin, or any other basis prohibited by applicable law.
The Lender will not discriminate in the making of loans to
Eligible Borrowers or in the treatment of such Eligible Borrowers
on any prohibited basis.
17. This Agreement shall inure to the benefit of and be binding upon
NSLP, the Lender, and their respective successors. The rights of
Lender hereunder may be assigned in whole or in part by Lender to
any permitted successor or to any purchaser of all or any part of
its interest in the loans covered by this Agreement without NSLP's
approval; provided, however: (i) that NSLP shall be given advance
notice of such assignment and (ii) that Lender's obligations
hereunder shall be assumed by any such successor or purchaser in
writing. NSLP acknowledges that Lender will pledge the loans
covered by this Agreement and all its rights hereunder to Bankers
Trust Company, not in its individual capacity but solely as
Indenture Trustee ("Indenture Trustee"), and agrees that in the
event Indenture Trustee forecloses upon such collateral, Indenture
Trustee may exercise any or all of Lender's rights hereunder.
3
<PAGE> 9
18. Subject to the prior written approval of the Lender, which
approval shall not be unreasonably withheld, NSLP may transfer
Federal Consolidation Loans which are guaranteed to any other
guarantor which has given NSLP its prior written approval of such
transfer.
19. This Agreement may be terminated by the Lender upon ninety (90)
days advance written notice to NSLP. The Lender is required to
give NSLP ninety (90) days advance written notice of termination
if the Lender intends to cease making Federal Consolidation Loans
under this Agreement. This Agreement may be terminated, suspended
or limited by NSLP in any manner provided for in the Program
Rules. Such termination, suspension, or limitation shall not
affect the coverage of Federal Consolidation Loans previously
guaranteed.
In addition, this Agreement may be terminated by NSLP upon ninety
(90) days written notice to the Lender, in the event that NSLP
intends to cease guaranteeing Federal Consolidation Loans of
Lender. Upon receipt of the termination notice, Lender shall
immediately cease origination and disbursement of all
Consolidation Loans. Lender will have 90 days from receipt of the
termination notice to obtain a guarantee from NSLP on all
Consolidation Loans originated and disbursed prior to receipt of
the termination notice.
20. Lender agrees to indemnify and hold harmless NSLP from any
obligations arising out of or related to Federal Consolidation
Loans not originated by Lender and serviced in the manner required
by the Act and the Program Rules.
21. NSLP agrees to reimburse the Lender for any federal special
allowance payments lost with respect to an individual loan as a
result of a delay in payment of a claim under this Agreement by
NSLP to the Lender with respect to such loan, provided that such
reimbursement is permissible under the Act and the Program Rules
and further provided that such delay is not due to Lender's (or
its servicer's) actions.
22. NSLP agrees upon written request to furnish a copy of its most
recent audited financial statements to any holder of record of
Notes or Certificates (each as defined in the Trust Agreement) of
KeyCorp Student Loan Trust 1999-A.
23. This Agreement shall be governed by the laws of the State of
Nebraska, except to the extent federal law and/or regulations
apply to the subject matter hereof. This Agreement shall not be
varied by oral agreement but only by an instrument in writing duly
executed by both parties. Any legal or equitable judicial
proceeding arising out of or related to this Agreement shall be
heard solely in the courts located in the City of Lincoln,
Lancaster County, Nebraska, as the forum of choice of the parties
to this Agreement. This Agreement represents the entire
understanding of the parties with respect to the subject matter
and supersedes all other communications between the parties.
4
<PAGE> 10
24. Nothing contained in this Agreement amends or modifies in any way
the Nebraska Student Loan Program, Inc. Lender Agreement for
Guarantee of Student Loans with Federal Reinsurance between Lender
and NSLP, including any addendum or amendment to that agreement.
This Agreement is made as of July 13, 1998.
THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity, but
solely as Eligible Lender Trustee
on behalf of KeyCorp Student Loan
Trust 1999-A:
ATTEST:
By: By:
----------------------------- ---------------------------------
Title: Title:
-------------------------- ------------------------------
NEBRASKA STUDENT LOAN PROGRAM, INC.
ATTEST:
By: By:
----------------------------- ---------------------------------
Nancy J. Wiederspan, President
Title:
--------------------------
5
<PAGE> 1
Exhibit 10.7
EDUCATIONAL CREDIT HOLDER AGREEMENT
MANAGEMENT CORPORATION FOR PAYMENT ON
GUARANTEE OF STUDENT LOANS
WITH FEDERAL REINSURANCE
(for loans to students and parents of
students pursuant to the Higher
Education Act of 1965, as amended)
WHEREAS, The First National Bank of Chicago, not in its individual capacity but
solely as Eligible Lender Trustee on behalf of the KeyCorp Student Loan Trust
1999-A, pursuant to the Trust Agreement dated as of July 13, 1998, between Key
Bank USA, National Association and the Eligible Lender Trustee, as the same may
be amended, including by way of amendment and restatement, from time to time
(the "Trust Agreement")
Located at One First National Plaza, Suite 0126, Chicago, Illinois 60670
(the "Holder") holds or wishes to acquire and hold guaranteed loans (the
"Loans") made to students pursuing programs of higher or vocational education at
eligible institutions, and to parents of such students, pursuant to the
aforementioned federal legislation (the "Act"); and
WHEREAS, the Holder represents that it is an "eligible lender" under the
provisions of the Act, the regulations issued under the Act and the Rules and
Regulations and policies of the Educational Credit Management Corporation
("ECMC") as such policies may be implemented or amended;
WHEREAS, the guarantee on the Loans or the right to reinstate a previously
issued guarantee of another entity has been transferred to ECMC by the United
States Department of Education or by another Guaranty Agency under the Act; and
WHEREAS, ECMC, relying upon the Holder's representation that it qualifies as an
eligible lender under the provisions of the Act, the regulations issued under
the Act and the Rules and Regulations and policies of ECMC, wishes to allow the
acquisition and holding of the Loans by the Holder in accordance with the policy
expressed in the Act.
NOW, THEREFORE, it is mutually agreed that:
1. Within such limits as may be set by it, ECMC agrees to honor any
previously issued guarantee of the Loans by another entity or to
reinstate a previously issued guarantee of the Loans by another entity,
to the extent that the Loans are eligible for such guarantee under the
Act, the regulations issued under the Act and the Rules and Regulations
and policies of ECMC, which Act, regulations, Rules and Regulations and
policies, as they may be from time to time amended, are made part of
this Agreement.
2. ECMC agrees to purchase eligible Loans held by the Holder provided that
(a) the Loans are in default (as defined by the Act, regulations, Rules
and Regulations and policies identified above); (b) the Loans have been
made in accordance with the Act, regulations, Rules and
1
<PAGE> 2
Regulations and policies identified above; (c) the Holder has
requested pre-claim assistance from ECMC or the prior guarantor as
required by the Act, regulations, and the Rules and Regulations and
policies of ECMC; (d) the Holder has otherwise exercised due diligence
in the making, servicing, and collection of such loans; (e) with
respect to any Loan, the Holder has not committed any act or omitted to
do any act, the commission or omission of which would cause ECMC to
lose its reinsurance pursuant to the Act with respect to such Loan; and
(f) title to the promissory notes evidencing the Loans has been
subrogated to ECMC by the Holder.
3. With respect to all Loans previously guaranteed by another entity, ECMC
represents that it has negotiated an agreement with the Federal
Government with respect to reinsurance pursuant to the Act and with
respect to the maintenance of reserves for the purchase of Loans in
default.
4. ECMC and the Holder agree that the guarantee previously issued by
another entity on any Loan shall be effective for the term of the Loan
determined in accordance with the Act, regulations, Rules and
Regulations and policies identified above and beginning on the date of
receipt by ECMC of the guarantee fee, if any is required, or, if no fee
is required, beginning on the latter of the date of disbursement or on
the date of reinstatement of the guarantee by ECMC.
5. The Holder, its agents and servicers, shall maintain for all Loans a
system of records and accounts, shall afford ECMC access thereto, and
shall furnish such periodic and separate reports as may reasonably be
required by the U.S. Secretary of Education and ECMC under the Act,
regulations, Rules and Regulations and policies identified above. For
Loans paid in full or otherwise discharged, the records shall be
retained by the Holder as required by the Act, regulations, Rules and
Regulations, and policies identified above. This Section 5 shall
survive the termination of this Agreement.
6. Holder shall promptly repurchase any Loan where the repurchase of such
Loan is required in accordance with the Act, regulations, or Rules and
Regulations and policies of ECMC. Holder agrees to repurchase the Loans
if for any reason ECMC is denied reinsurance on said Loans or if said
Loans are determined to be unenforceable. Holder shall indemnify and
hold ECMC harmless from any and all losses including costs and
attorneys' fees which ECMC may incur based upon Holder's failure to
repurchase the Loans as provided herein. This Section 6 shall survive
the termination of this Agreement.
7. ECMC and the Holder agree that this Agreement shall in no manner
constitute an agreement by ECMC to issue new guarantees pursuant to the
Act at any time for any Loans issued by the Holder, or for any Loans
acquired by the Holder which were not so guaranteed prior to such
acquisition.
2
<PAGE> 3
8. This Agreement may be terminated by either party upon sixty (60) days
written notice to the other party. The termination notice shall specify
a termination date which shall not be sooner than sixty-five (65) days
after the mailing of the termination notice. ECMC may, in addition and
at its option, suspend or limit this Agreement in the manner provided
for by ECMC Rules and Regulations. No limitation, suspension, or
termination shall affect the guarantee on Loans previously covered by
this Agreement.
9. This Agreement may be terminated by the United States Secretary of
Education (the "Secretary") upon thirty (30) days advance written
notice to Holder, pursuant to the provisions of 20 U.S.C. ss. 1072. No
limitation, suspension, or termination shall affect the guarantee on
Loans previously covered by this Agreement.
10. This Agreement may not be assigned by Holder without the express
written consent of ECMC said consent shall not be unreasonably withheld
by ECMC.
11. The laws of the State of Minnesota shall govern the validity,
performance and enforcement of this Agreement.
12. ECMC agrees upon written request to furnish a copy of its most recent
audited financial statements to any holder of record of Notes or
Certificates (each as defined in the Trust Agreement) of KeyCorp
Student Loan Trust 1999-A.
3
<PAGE> 4
IN WITNESS WHEREOF, the Holder and ECMC have caused this Agreement to
be duly executed and delivered as of the 1st day of January, 1999.
THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity, but
solely as Eligible Lender Trustee
on behalf of KeyCorp Student Loan
Trust 1999-A
By:
----------------------------------------
Title:
-------------------------------------
Lender Code: 833220
Federal Tax ID: 36-7111819
EDUCATIONAL CREDIT MANAGEMENT CORPORATION
By:
----------------------------------------
Title:
-------------------------------------
4
<PAGE> 1
Exhibit 10.8
GUARANTEE AGREEMENT
AMONG
THE EDUCATION RESOURCES INSTITUTE, INC.
AND
KEY BANK USA, NATIONAL ASSOCIATION
AND
THE FIRST NATIONAL BANK OF CHICAGO,
NOT IN ITS INDIVIDUAL CAPACITY BUT SOLELY AS ELIGIBLE LENDER TRUSTEE ON BEHALF
OF KEYCORP STUDENT LOAN TRUST 1999-A
This Guarantee Agreement (the "Guarantee Agreement") is made and
entered into as of the 13th day of July, 1998, by and among THE EDUCATION
RESOURCES INSTITUTE, INC. ("TERI"), a private non-profit corporation organized
under Chapter 180 of the Massachusetts general laws with its principal place of
business at 330 Stuart Street, Suite 500, Boston, Massachusetts 02116-5237, KEY
BANK USA, NATIONAL ASSOCIATION, a national bank organized and existing under the
laws of the United States ("Seller"), and THE FIRST NATIONAL BANK OF CHICAGO, a
national banking association, not in its individual capacity but solely as
Eligible Lender Trustee ("Eligible Lender Trustee") on behalf of KeyCorp Student
Loan Trust 1999-A (the "Trust").
WHEREAS, Law Access Inc., or its predecessor in interest, Law School
Admission Services, Inc., each of which is a nonstock corporation organized
under the laws of the State of Delaware (collectively "LAI"), administers the
Access Group(sm) Loan Programs (the "Program") whereby law, medical, dental,
business and other graduate students may apply for loans to finance their
education and certain post-graduate education expenses.
WHEREAS, TERI has guaranteed and will guarantee certain Loans (as
defined below) originated under the Programs for which federal guarantees or
reinsurance is not available under the Higher Education Act of 1965, as amended
41.(the "Private Loans");
WHEREAS, as a Lender in the Program, Seller has made loans to Eligible
Borrowers (as defined below) and in anticipation of a public offering of
securities by the Trust (the "Public Offering") will transfer to Eligible Lender
Trustee on behalf of the Trust a portion of the Loans (as defined below) made by
Seller under the Program and from time to time before and after such Public
Offering may transfer to Eligible Lender Trustee on behalf of the Trust certain
additional Loans and certain guarantee fee advances under existing Loans (all
such Loans and related advances acquired by Eligible Lender Trustee on behalf of
the Trust are hereinafter collectively referred to as the "Financed Private
Loans");
WHEREAS, the Pennsylvania Higher Education Assistance Agency, an agency
of the Commonwealth of Pennsylvania ("PHEAA") and EFS Services, Inc., an Indiana
corporation ("EFS"), have each agreed to act as servicer (each a "Servicer" and
together, the "Servicers") and service the Financed Private Loans; and
<PAGE> 2
WHEREAS, TERI, Seller, and Eligible Lender Trustee wish to enter into
an agreement whereby TERI guarantees the payment of the principal of and
interest on certain of the Financed Private Loans, as specified herein and
subject to the terms and conditions contained in this Guarantee Agreement;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, TERI, Seller and Eligible Lender
Trustee agree as follows:
SECTION 1.
DEFINITIONS.
------------
Wherever used in this Guarantee Agreement, unless the content indicates
a contrary intent or unless otherwise specifically provided in this Guarantee
Agreement, capitalized terms shall have the meanings set forth below:
"Administration Agreement" means the Administration Agreement to be
entered into in connection with the Public Offering by and among the Trust,
Seller in its capacity as Administrator ("Administrator"), and Bankers Trust
Company, not in its individual capacity but solely as Indenture Trustee
("Indenture Trustee").
"Coordination Agreement" shall mean the applicable Coordination
Agreements entered into in connection with the Program, by and among LAI doing
business as the Access Group(sm), PHEAA, Massachusetts Higher Education
Assistance Corporation doing business as American Student Assistance Guarantor
("ASA"), TERI, and Seller, as the same may be amended from time to time.
"Deposit Agreement" means the applicable Deposit Agreements entered
into in connection with the Program, by and among TERI, Seller and, with respect
to one such Deposit Agreement, SLFC, Inc., a non-profit corporation organized
under the laws of the State of Ohio.
"EFS Servicing Agreements" means the existing arrangement under which
EFS services Financed Private Loans and, when executed and delivered, as they
apply to EFS, the Sale and Servicing Agreement and the Supplemental Sale and
Servicing Agreement, including all exhibits, addenda and schedules thereto.
"Eligible Borrower" shall have the meaning specified in the
Coordination Agreement.
"Guarantee Event" shall mean any of the following events:
(a) Failure by an Eligible Borrower to make monthly principal
and/or interest payments on a Financed Private Loan when due,
provided such failure persists for a period of one hundred
twenty (120) consecutive days;
(b) The filing by or against an Eligible Borrower of a petition in
bankruptcy pursuant to any chapter of the federal bankruptcy
code, as amended;
-2-
<PAGE> 3
(C) The death of an Eligible Borrower; or
(d) The total and permanent disability of an Eligible Borrower to
be employed on a full-time basis, as certified by two
qualified physicians.
"Loan" shall mean a LAL Loan, BEL Loan and/or REL Loan made under the
Programs, together with any advances made with respect thereto.
"Operating Reserve" means the aggregate value, determined in accordance
with generally accepted accounting principles, of certain TERI funds and
reserves, namely deferred guarantee fee income, loan loss reserve, designated
purpose fund, guarantee reserve fund, the operating fund, or any fund
established for the purpose of constituting, in part or in whole, the operating
reserve as certified by TERI's independent auditor, and held as security for the
performance of TERI's obligations hereunder.
"Origination and Disbursement Agreements" means the applicable
Origination and Disbursement Agreements entered into in connection with the
Program, among LAI, PHEAA, ASA, TERI and Seller.
"PHEAA Servicing Agreements" means the existing arrangement under which
PHEAA services Financed Private Loans and, when executed and delivered, as they
apply to PHEAA, the Sale and Servicing Agreement and the Supplemental Sale and
Servicing Agreement, including all exhibits, addenda and schedules thereto.
"Promissory Note" shall mean a promissory note executed by an Eligible
Borrower evidencing a Loan.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement
to be entered into in connection with the Public Offering among the Trust,
Seller, Eligible Lender Trustee, Administrator and the Servicers.
"Securityholder" means any holder of one or more securities issued by
the Trust in connection with the Public Offering.
"Servicing Agreements" means, collectively, the PHEAA Servicing
Agreements and EFS Servicing Agreements.
"Supplemental Sale and Servicing Agreements" means the Supplemental
Sale and Servicing Agreement to be entered into in connection with the Public
Offering by and among Administrator, the Trust, Eligible Lender Trustee,
Indenture Trustee and the Servicers.
"TERI Guaranteed Loans" means, collectively, the unpaid and outstanding
principal balance (including capitalized interest, if any) of all loans which
are guaranteed from time to time by TERI, in whole or in part; provided, that
for any loan guaranteed in part by TERI, only that portion of the loan which is
guaranteed by TERI shall be included in such unpaid and outstanding principal
balance.
-3-
<PAGE> 4
"Trust Agreement" means the Trust Agreement dated as of July 13, 1998
by and between Seller, as Depositor, and Eligible Lender Trustee, as the same
may be amended, including by way of amendment and restatement, from time to
time.
SECTION 2.
GUARANTEE OF LOANS.
-------------------
2.1. TERI hereby guarantees to Eligible Lender Trustee on behalf of the
Trust, unconditionally except as set forth in Section 2.2, the payment of 100%
of the principal (including capitalized interest) of and accrued interest on
every Financed Private Loan which is a TERI Guaranteed Loan with respect to
which a Guarantee Event has occurred. "Accrued Interest" shall mean interest
accrued and unpaid to the date of payment in full by TERI. TERI's guarantee
shall continue notwithstanding the payment of any penalties or costs by TERI
pursuant to the provisions of any Coordination Agreement. TERI will use its best
efforts to make payment on its guarantee within thirty (30) days, but in no
event later than ninety (90) days, after TERI's receipt of demand stating the
name of the Eligible Borrower, setting forth the Guarantee Event that has
occurred, and including all documents required under Section 2.2. All payments
made by TERI hereunder shall be directed to the applicable Servicer on behalf of
the Eligible Lender Trust.
2.2 TERI's above guarantee with respect to any given Financed Private
Loan that is a TERI Guaranteed Loan is conditioned upon the following:
(a) The claim must have been filed within the time
specified in the applicable Servicing Agreements.
(b) The Financed Private Loan must have been originated
and disbursed to an Eligible Borrower in accordance
with the applicable Coordination Agreement and
related Origination and Disbursement Agreement;
provided, however, that no claim for guarantee shall
be denied by TERI solely because the Financed Private
Loan, when added to the other educational Loans for
that Eligible Borrower, exceeds the maximum aggregate
limits set forth in the applicable Coordination
Agreement.
(c) The Financed Private Loan must have been serviced in
all material respects in accordance with the terms
and provisions of the applicable Servicing
Agreements.
(d) TERI must have received the private guarantee fees,
or TERI's share thereof, applicable to the Financed
Private Loan in accordance with the applicable
Deposit Agreement.
(e) TERI must have received the original of the
Promissory Note for the Financed Private Loan (or, in
the event the original has been lost, misplaced or
destroyed, a copy with accompanying affidavit
describing with particularity said loss, misplacement
or destruction), endorsed to TERI in such manner as
to transfer to TERI all rights in and title to such
Promissory Note, free and
-4-
<PAGE> 5
clear of all liens and encumbrances, and except as
set forth in Section 2.4 of this Guarantee Agreement
and as permitted by any provision of the applicable
Coordination Agreement, of all defenses,
counterclaims, offsets, and rights of rescission that
might be raised by the Eligible Borrower. Acceptance
of a claim by TERI shall not constitute a waiver by
TERI of any defenses TERI might have to such claim.
2.3. TERI's guarantee obligation with respect to any Financed Private
Loan that is a TERI Guaranteed Loan shall not be terminated or otherwise
affected or impaired (i) by Eligible Lender Trustee's or a Servicer's granting
any extension to any Eligible Borrower of time to make the scheduled payments,
or by any other indulgence or indulgences Eligible Lender Trustee or a Servicer
may grant to any Eligible Borrower, provided that all extensions and other
indulgences substantially meet the forbearance standards and other requirements
of the applicable Servicing Agreements, (ii) because of any fraud, illegal or
improper acts of any Eligible Borrower, or (iii) except as provided in Section
2.4, because any Eligible Borrower may, by operation of law or otherwise, be
relieved of liability upon his or her Financed Private Loans.
2.4. Notwithstanding anything herein to the contrary, in the event that
any Financed Private Loan that is a TERI Guaranteed Loan becomes unenforceable
because the terms thereof, or the forms of the application or Promissory Note
related thereto, violate any provision of applicable state law, TERI shall be
obligated to pay Eligible Lender Trustee one-half (1/2) of the unpaid principal
balance (including capitalized interest) thereof and accrued interest thereon to
the date of payment, and if the unenforceability of the Financed Private Loan is
discovered after payment of the guarantee claim has been made in accordance with
Section 2.1, Seller shall forthwith reimburse TERI for one-half (1/2) of TERI's
guarantee payment.
2.5. If TERI denies a claim on any Financed Private Loan that is a TERI
Guaranteed Loan on the grounds that it fails to meet the conditions contained
within Section 2.2, Eligible Lender Trustee or a Servicer on Eligible Lender
Trustee's behalf may thereafter request that TERI reinstate the guarantee of
such Financed Private Loan which request will not be unreasonably denied;
provided, however, (i) Eligible Lender Trustee or such Servicer corrects the
deficiencies and receives three consecutive full monthly payments from the
Eligible Borrower and (ii) at the time of Eligible Lender Trustee's or such
Servicer's request that the Eligible Borrower is within thirty (30) days of
being current on his or her payments on such Financed Private Loan.
2.6. TERI's guarantee hereunder is continuing and an absolute guarantee
of payment covering the Financed Private Loans that are TERI Guaranteed Loans
now or hereafter owned by Eligible Lender Trustee on behalf of the Trust.
2.7. With respect to any Financed Private Loan that is a TERI
Guaranteed Loan, if TERI fails to honor its guarantee commitment under this
Guarantee Agreement, its guarantee obligation to Eligible Lender Trustee shall
be effective immediately, without demand, presentment, protest or notice of any
kind, all of which are hereby waived.
-5-
<PAGE> 6
2.8. TERI agrees not to exercise any right of subrogation,
reimbursement, indemnity, contribution or the like against any Eligible Borrower
unless and until all of TERI's obligations to Eligible Lender Trustee under this
Guarantee Agreement with respect to such Eligible Borrower's Loans have been
satisfied in full.
SECTION 3.
OBLIGATIONS OF TERI.
--------------------
3.1. (a) TERI shall furnish to Administrator (i) within forty-five (45)
days after the end of each of the quarter-annual periods of each of its fiscal
years (and, in any event, in each case as soon as it is available) TERI's
balance sheet at the end of such period and a profit and loss statement for that
period, all certified by a financial officer of TERI, (ii) within ninety (90)
days after the end of each of TERI's fiscal years (and, in any event, as soon as
it is available), a complete annual financial statement for TERI for that year
prepared and certified by an independent public accountant, and (iii) forthwith
upon Administrator's written request, such other information about TERI's
financial condition as Administrator may reasonably request.
(b) TERI shall furnish to any Securityholder upon request a
copy of TERI's most recent audited financial statements.
3.2. TERI covenants that all servicing and collections activities on
Financed Private Loans purchased by TERI, and all pre-claim assistance performed
by TERI prior to such purchase, shall be performed in compliance with all
applicable state and federal laws for the protection of consumers relating to
the servicing and collecting of loans, including but not limited to the Fair
Debt Collection Practices Act, applicable retail installment acts, and state
collection statutes.
3.3 TERI agrees that so long as this Guarantee Agreement remains in
effect:
(a) it will not cause or permit its Operating Reserve to
fall below 3% of TERI Guaranteed Loans, provided,
that if TERI shall obtain reinsurance while this
Guarantee Agreement remains in effect, TERI may
adjust its Operating Reserve percentage to the same
extent that any such adjustment is made to the
required level of TERI's Operating Reserves under the
substantially similar provisions of other guarantee
agreements to which Seller and TERI are parties if
the reinsurance obtained applies to the Financed
Private Loans that are TERI Guaranteed Loans and TERI
observes and complies with respect to such Financed
Private Loans with the same terms, conditions or
covenants applicable to the adjustment of Operating
Reserves under such other guarantee agreements; and
(b) at least semi-annually, TERI, at its sole cost and
expense, will submit to the Eligible Lender Trustee
an actuarial default risk study (the "Actuarial
Study"), prepared by a nationally recognized
accounting or actuarial firm in accordance with the
Code of Professional Conduct and Qualifications
Standards of the
-6-
<PAGE> 7
American Academy of Actuaries and the then current
Actuarial Standards of Practice adopted by the
Actuarial Standards Board, which, by its terms, may
be relied upon by Seller and the Eligible Lender
Trustee and which establishes that TERI's existing
loan loss reserves for each loan program are adequate
to cover anticipated estimated future net defaults.
In the event that its Operating Reserve falls below
the level required by (a) above or the Actuarial
Report fails to establish the adequacy of loan loss
reserves, as described in (b) above, and TERI fails,
within 30 days of its receipt of notice of such
situation, to provide the Eligible Lender Trustee
with evidence that such situation has been corrected,
then TERI shall not guarantee any additional loans
for any lender and shall not undertake any additional
commitments to guarantee any such loans without the
express written consent of the Eligible Lender
Trustee, which consent shall not be unreasonably
withheld; provided, that nothing in this section
shall prohibit TERI from continuing to guarantee
loans for a lender which has a binding commitment to
lend to a borrower; and further provided that nothing
in this section shall prohibit TERI from continuing
to guarantee loans originated by Seller under the
Program or otherwise.
3.4. TERI agrees that it will not (i) undertake any additional
commitments to guarantee any loans, (ii) undertake any additional business
opportunities, or (iii) make any gifts or expend any funds, if in its reasonable
belief, such additional commitments, guarantees, business opportunities, gifts
or expenditures would cause its Operating Reserve to at any time fall below the
level required by Section 3.3 of this Guarantee Agreement.
SECTION 4.
OBLIGATIONS OF SELLER AND ELIGIBLE LENDER TRUSTEE.
--------------------------------------------------
4.1. If TERI shall have purchased a Financed Private Loan that is a
TERI Guaranteed Loan due to the occurrence of a Guarantee Event, Seller shall
purchase such Financed Private Loan from TERI if TERI succeeds, after purchase,
in obtaining from the affected Eligible Borrower three (3) full consecutive
monthly payments. Seller shall have no obligation to purchase any such Financed
Private Loan unless and until (i) the aggregate principal balance (including
capitalized interest) on Private Loans (which, for purposes of this Section 4.1,
include Financed Private Loans and any other Private Loan which Seller is
obligated to repurchase pursuant to the substantially similar provisions of any
guarantee agreement to which TERI and Seller are parties) to be purchased equals
or exceeds Fifty Thousand Dollars ($50,000) at the time of notice by TERI
hereunder; (ii) all such Financed Private Loans subject to purchase are less
than thirty (30) days past due at time of such notice, and (iii) TERI provides
Seller with written notice of the Financed Private Loans qualifying for purchase
hereunder. Seller shall purchase all such Financed Private Loans within
forty-five (45) days of receipt of written notice from TERI. This purchase
obligation may be invoked by TERI only once as to any Financed Private Loan. In
addition to the foregoing, if TERI shall have purchased a Financed Private Loan
that is a TERI Guaranteed Loan for which a copy of the Promissory Note was not
received as provided in Section 2.2(e), Seller shall purchase such Financed
Private Loan within forty-five (45)
-7-
<PAGE> 8
days of written notice from TERI that the Promissory Note was held unenforceable
by a court of competent jurisdiction as the result of the unavailability of the
original of such Promissory Note. TERI agrees to endorse the original of such
Promissory Note (or, in the event the original has been lost, misplaced, or
destroyed, a copy with accompanying affidavit describing with particularity said
loss, misplacement or destruction) purchased by Seller in accordance with the
provisions of this paragraph in such manner as to transfer to Seller all rights
in and title to such Promissory Note, free and clear of all claims, liens,
encumbrances, defenses, counterclaims, offsets, and rights of rescission that
might be raised by an Eligible Borrower as a result of any action or inaction by
TERI in the servicing and collection of such Financed Private Loan during the
time such Financed Private Loan was owned by TERI.
4.2. Eligible Lender Trustee agrees to fully cooperate with TERI in the
prosecution of any claim in bankruptcy court to determine the dischargeability
of any Financed Private Loan that is a TERI Guaranteed Loan of an Eligible
Borrower. Notwithstanding the foregoing, TERI shall be responsible for any and
all attorneys' fees and court costs and any costs and expenses of the Eligible
Lender Trustee in connection with the prosecution of any claim to determine
dischargeability.
SECTION 5.
REPRESENTATIONS AND WARRANTIES.
-------------------------------
5.1. Each party with respect to itself represents and warrants that the
making and performance of this Guarantee Agreement and the activities
contemplated under this Guarantee Agreement have been duly authorized by all
necessary corporate action, and do not and will not:
(a) violate any provision of applicable law, or any
applicable regulation, order, decree, writ or
injunction, or any provision of its charter or
bylaws; or
(b) violate or result in the breach of, or constitute a
default or require any consent under, any material
agreement or material instrument by which it or any
of its property may be bound or affected;
and this Guarantee Agreement is the legal, valid and binding obligation of such
party, enforceable in accordance with the terms of this Guarantee Agreement
subject to (i) the exercise of judicial discretion in accordance with general
principles of equity, (ii) the exercise of the police powers of the several
states of the United States of America, (iii) the constitutional powers of the
United States of America, and (iv) the bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditor's rights generally. Each party
with respect to itself further represents and warrants that there is no pending
or threatened litigation that would materially impact that party's ability to
perform its obligations under this Guarantee Agreement.
-8-
<PAGE> 9
SECTION 6.
MISCELLANEOUS.
--------------
6.1. The obligations under this Guarantee Agreement of each of the
parties are several and distinct, each party being responsible solely for its
own performance pursuant to the terms and conditions contained in this Guarantee
Agreement. Each party agrees to pay for any loss, liability or expense,
including reasonable attorneys' fees resulting from, or attributable to, any
breach by that party of its obligations arising under this Guarantee Agreement
where the final determination of liability on the part of such party is
established by an arbitrator (to which such party has agreed to submit), by a
court of law with appropriate jurisdiction or by way of settlement agreed to by
such party. This shall not be construed to limit any party's rights,
obligations, liabilities, claims or defenses which arise as a matter of law or
pursuant to any other provision of this Guarantee Agreement.
6.2. None of the parties hereto is or will hold itself out to be the
agent of any of the other parties with regard to any transaction under or
pursuant to this Guarantee Agreement except as otherwise described with respect
to the Seller, the Eligible Lender Trustee or the Administrator in the Sale and
Servicing Agreement or the Administration Agreement.
6.3. Each party's respective rights, remedies, powers, privileges, and
discretion ("Rights and Remedies") shall be cumulative and not exclusive of any
rights. No delays or omissions by any party in exercising or enforcing any of
its Rights and Remedies shall operate as or constitute a waiver of them. No
waiver by a party of any default under this Guarantee Agreement shall operate as
a waiver of any other default under this Guarantee Agreement. No single or
partial exercise by a party of any of its Rights and Remedies shall preclude the
other or further exercise of such Rights and Remedies. No waiver or modification
of a party's Rights and Remedies on any one occasion shall be deemed a waiver on
any subsequent occasion, nor shall it be deemed a continuing waiver. All Rights
and Remedies shall be cumulative and not alternative or exclusive, and a party
may exercise them at such time or times and in such order of preference as it in
its sole discretion may determine.
6.4. This Guarantee Agreement may be modified only by written agreement
of the parties to this Guarantee Agreement, except as may otherwise be set forth
in this Guarantee Agreement.
6.5. Any determination that any provision of this Guarantee Agreement
is invalid, illegal, or unenforceable in any respect shall not affect the
validity, legality, or enforceability of such provision in any other instance
and shall not affect the validity, legality, or enforceability of any other
provision of this Guarantee Agreement.
6.6. This Guarantee Agreement shall be governed and construed in
accordance with Massachusetts law, without regard to principles of conflict of
laws. Eligible Lender Trustee, Seller and TERI each consent to jurisdiction in
the Court of Common Pleas for Cuyahoga County, Ohio, the United States District
Court for the Northern District of Ohio, Eastern Division, the appropriate Court
Department for Suffolk County, located in Boston, Massachusetts, and the United
States District Court for the District of Massachusetts, as judicial forums
within which any action to enforce the provisions hereof or any disputes arising
under this Guarantee Agreement may be brought.
-9-
<PAGE> 10
6.7. This Guarantee Agreement may not be assigned or delegated by TERI
or Seller without Eligible Lender Trustee's written consent. The rights of
Eligible Lender Trustee hereunder may be assigned in whole or in part by
Eligible Lender Trustee to any permitted successor or to any purchaser of all or
any part of its interest in the Financed Private Loans without TERI's approval;
provided, however, that Eligible Lender Trustee's obligations hereunder shall be
assumed by any such successor or purchaser in writing. TERI acknowledges that
Eligible Lender Trustee will pledge the Financed Private Loans and all its
rights hereunder to Indenture Trustee and agrees that in the event Indenture
Trustee forecloses upon such collateral, Indenture Trustee may exercise any or
all of Eligible Lender Trustee's rights hereunder.
6.8. All notices under this Guarantee Agreement shall be sent by any
means requiring receipt signature, or if by facsimile confirmed by first class
mail, postage or other delivery charge prepaid to:
TERI: Paul C. McCarty
Senior Vice President
The Education Resources Institute, Inc.
330 Stuart Street
Boston, Massachusetts 02116-5237
Seller: Randall M. Behm
Senior Vice President
Key Bank USA, National Association
800 Superior Avenue, 4th Floor
Cleveland, Ohio 44114
Eligible Lender
Trustee: The First National Bank of Chicago,
not in its individual capacity but solely as Eligible
Lender Trustee on behalf of KeyCorp Student Loan Trust 1998-A
Attention: Corporate Trust Administration
One First National Plaza, Suite 0126
Chicago, Illinois 60670
Any party may, by notice to the other parties in accordance with this section,
designate a different address for notices thereafter under this Guarantee
Agreement.
6.9. Notwithstanding anything contained herein to the contrary, this
instrument has been signed by The First National Bank of Chicago not in its
individual capacity but solely in its capacity as Eligible Lender Trustee of the
Trust and in no event shall The First National Bank of Chicago in its individual
capacity have any liability for the representations, warranties, covenants,
agreements or other obligations of Eligible Lender Trustee of the Trust
hereunder, as to all of which recourse shall be had solely to the assets of the
Trust.
-10-
<PAGE> 11
IN WITNESS WHEREOF, the undersigned have caused this Guarantee
Agreement to be executed by their duly authorized officers as of the day and
year indicated above.
THE EDUCATION RESOURCES INSTITUTE,
INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
KEY BANK USA, NATIONAL ASSOCIATION
By:
--------------------------------
Darlene Dimitrijevs
Vice President
THE FIRST NATIONAL BANK OF
CHICAGO, not in its individual
capacity but solely as Eligible
Lender Trustee on behalf of KeyCorp
Student Loan Trust 1999-A
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
-11-
<PAGE> 1
Exhibit 10.9
ENDORSEMENT TO ALTERNATIVE DEAL SURETY BOND
NUMBERS 1994-A, 1994-B, 1995-A AND 1996-A
This Endorsement is issued to evidence the consent of HEMAR
Insurance Corporation of America (the "Surety"), under Alternative DEAL Surety
Bond Numbers 1994-A, 1994-B, 1995-A and 1996-A, to the sale of any Alternative
DEAL Notes which are insured pursuant to said Surety Bonds or any other
Alternative DEAL Surety Bond, and listed on EXHIBIT A (the "Identified
Alternative DEAL Notes") attached hereto, by Key Bank USA, National Association
("Seller") to The First National Bank of Chicago, a national banking
association, not in its individual capacity but solely as Eligible Lender
Trustee (the "Eligible Lender Trustee") on behalf of the Trust (defined below).
WHEREAS, KeyCorp Student Loan Trust 1999-A, a New York Trust
(the "Trust") was established pursuant to a certain Trust Agreement, dated as of
July 13, 1998, as amended and restated as of January 1, 1999, between Key Bank
USA, National Association, ("Key Bank USA") as Depositor, and the Eligible
Lender Trustee (the "Trust Agreement");
WHEREAS, Seller has conveyed or will convey to the Eligible
Lender Trustee on behalf of the Trust all of its right, title and interest in
and to the Identified Alternative DEAL Notes, inter alia, and including all of
its right, title and interest as "Original Insured" or "Insured" under the
Surety Bonds referenced above with respect to the Identified Alternative DEAL
Notes pursuant to a certain Sale and Servicing Agreement, dated as of January 1,
1999 by and among the Seller, Key Bank USA, as the Administrator, the Trust, the
Eligible Lender Trustee, and Pennsylvania Higher Education Assistance Agency and
EFS Services, Inc., as the Servicers (the "Sale and Servicing Agreement").
Pursuant to Section 2(e) of the Surety Bonds referenced above,
the Eligible Lender Trustee shall be entitled to receive notice (and the Surety
agrees to provide such notice) from the Surety that the Surety Bond with respect
to an Identified Alternative Deal Note has been canceled. Such notice shall be
given to:
The First National Bank of Chicago
-----------------------------------------
One First National Plaza, Suite 0126
-----------------------------------------
Chicago, Illinois 60670
-----------------------------------------
Attention: Corporate Trust Administration
-----------------------------------------
or other such address as the Eligible Lender Trustee may designate in writing to
the Surety.
<PAGE> 2
For purposes of the Surety Bonds referenced above, including
without limitation, Section 6 thereof, the Eligible Lender Trustee shall have
all rights afforded it as if it were the Original Insured with respect to the
Identified Alternative DEAL Notes. With respect to any Alternative DEAL Notes
which are insured pursuant to the Alternative DEAL Surety Bonds referenced
above, but which are not listed on EXHIBIT A hereto, Key Bank USA, National
Association will continue to be deemed the Original Insured under said Surety
Bonds for purposes of Section 6 and all other provisions of said Surety Bonds.
HEMAR Insurance Corporation
of America, as Surety
------------------------------------------
Kevin F. Moehn, President
ATTEST:
- -----------------------------
Bruce L. Olson, Secretary
The foregoing Endorsement was issued as of July 13, 1998, by
the undersigned, an insurance agent duly licensed under the laws of the State of
Ohio and authorized to act as agent for HEMAR Insurance Corporation of America.
---------------------------------
Robert E. O'Connell as
authorized Agent for HEMAR
Insurance Corporation of America
<PAGE> 1
Exhibit 24.2
POWER OF ATTORNEY
The undersigned director, officer, or director and officer of Key Bank
USA, National Association, a national banking association (the "Bank"), which
proposes to file with the Securities and Exchange Commission, Washington, D.C.,
under the provisions of the Securities Act of 1933, as amended, a Registration
Statement with respect to the issuance of up to $1,000,000,000 in securities by
one or more Trusts, to be established by the Bank in connection with the
securitization of a portion of the Bank's student loan portfolio, hereby
constitutes and appoints James A. Fishell, Daniel R. Stolzer, and Forrest F.
Stanley, and each of them, as his attorney, with full power of substitution and
resubstitution, for and in his or her name, place, and stead, to sign and file
the proposed Registration Statement and any and all amendments, post-effective
amendments, supplements, prospectuses and exhibits thereto, and any and all
applications and other documents to be filed with the Securities and Exchange
Commission pertaining to such securities or such registration, on behalf of
itself as originator of such Trust and in its capacity as Administrator on
behalf of such Trust, with full power and authority to do and perform any and
all acts and things whatsoever requisite and necessary to be done in the
premises, hereby ratifying and approving the acts of such attorney or any such
substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand at
Cleveland, Ohio this 27th day of January, 1999.
/s/ Michael W. Dvorak
-----------------------------
Name: Michael W. Dvorak
------------------------
<PAGE> 1
Exhibit 25.1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) ___________
--------------------
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification no.)
FOUR ALBANY STREET
NEW YORK, NEW YORK 10006
(Address of principal (Zip Code)
executive offices)
BANKERS TRUST COMPANY
LEGAL DEPARTMENT
130 LIBERTY STREET, 31ST FLOOR
NEW YORK, NEW YORK 10006
(212) 250-2201
(Name, address and telephone number of agent for service)
--------------------
KEYCORP STUDENT LOAN TRUST 1998-A
(Exact name of obligor as specified in its charter)
NEW YORK ###-##-####
(State or other jurisdiction of (I.R.S. employer
Incorporation or organization) Identification no.)
C/O THE FIRST NATIONAL BANK OF CHICAGO
ONE FIRST NATIONAL PLAZA
SUITE 0126
CHICAGO, ILLINOIS 60670
(Address of principal executive offices)
<PAGE> 2
KEYCORP STUDENT LOAN TRUST 1998-A
FLOATING RATE ASSET BACKED NOTES
(Title of the indenture securities)
<PAGE> 3
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising authority to
which it is subject.
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers. Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the Trustee, describe each such
affiliation.
None.
ITEM 3.-15. NOT APPLICABLE
ITEM 16. LIST OF EXHIBITS.
EXHIBIT 1 - Restated Organization Certificate of Bankers Trust
Company dated August 7, 1990, Certificate of Amendment of
the Organization Certificate of Bankers Trust Company dated
June 21, 1995 - Incorporated herein by reference to Exhibit
1 filed with Form T-1 Statement, Registration No. 33-65171,
Certificate of Amendment of the Organization Certificate of
Bankers Trust Company dated March 20, 1996, incorporated by
reference to Exhibit 1 filed with Form T-1 Statement,
Registration No. 333-25843, Certificate of Amendment of the
Organization Certificate of Bankers Trust Company dated June
19, 1997, incorporated by reference to Exhibit 1 filed with
Form T-1 Statement, Registration No. 333-45229 and
Certificate of Amendment of the Organization Certificate of
Bankers Trust Company dated March 26, 1998, copy attached.
EXHIBIT 2 - Certificate of Authority to commence business -
Incorporated herein by reference to Exhibit 2 filed with
Form T-1 Statement, Registration No. 33-21047.
EXHIBIT 3 - Authorization of the Trustee to exercise corporate
trust powers Incorporated herein by reference to Exhibit 2
filed with Form T-1 Statement, Registration No. 33-21047.
EXHIBIT 4 - Existing By-Laws of Bankers Trust Company, as amended
on November 18, 1997. Copy attached.
<PAGE> 4
EXHIBIT 5 - Not applicable.
EXHIBIT 6 - Consent of Bankers Trust Company required by Section
321(b) of the Act. Incorporated herein by reference to
Exhibit 4 filed with Form T-1 Statement, Registration No.
22-18864.
EXHIBIT 7 - The latest report of condition of Bankers Trust
Company dated as of March 31, 1998. Copy attached.
EXHIBIT 8 - Not Applicable.
EXHIBIT 9 - Not Applicable.
-2-
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in The City of New York, and State of New York, on the ____ day
of October, 1998.
BANKERS TRUST COMPANY
By: _______________________________
Lillian K. Peros
Vice President
-3-
<PAGE> 6
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in The City of New York, and State of New York, on the ____ day
of October, 1998
BANKERS TRUST COMPANY
By: Lillian K. Peros
---------------------------------
Lillian K. Peros
Vice President
-4-
<PAGE> 7
State of New York,
Banking Department
I, MANUEL KURSKY, Deputy Superintendent of Banks of the State of New
York, DO HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF
AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY UNDER SECTION
8005 OF THE BANKING LAW," dated March 18, 1998, providing for an increase in
authorized capital stock from $2,351,666,670 consisting of 135,166,667 shares
with a par value of $10 each designated as Common Stock and 1000 shares with a
par value of $1,000,000 each designated as Series Preferred Stock to
$2,501,666,670 consisting of 150,166,667 shares with a par value of $10 each
designated as Common Stock and 1,000 shares with a par value of $1,000,000 each
designated as Series Preferred Stock.
WITNESS, my hand and official seal of the Banking Department at the City of
New York,
this 26TH day of MARCH in the Year of our Lord one thousand nine
hundred and NINETY-EIGHT.
Manuel Kursky
------------------------------
Deputy Superintendent of Banks
<PAGE> 8
CERTIFICATE OF AMENDMENT
OF THE
ORGANIZATION CERTIFICATE
OF BANKERS TRUST
Under Section 8005 of the Banking Law
-----------------------------
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a
Managing Director and an Assistant Secretary of Bankers Trust Company, do hereby
certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of said corporation was filed by the
Superintendent of Banks on the 5th of March, 1903.
3. The organization certificate as heretofore amended is hereby
amended to increase the aggregate number of shares which the corporation shall
have authority to issue and to increase the amount of its authorized capital
stock in conformity therewith.
4. Article III of the organization certificate with reference to the
authorized capital stock, the number of shares into which the capital stock
shall be divided, the par value of the shares and the capital stock outstanding,
which reads as follows:
"III. The amount of capital stock which the corporation is hereafter
to have is Two Billion, Three Hundred and Fifty One Million, Six
Hundred Sixty-Six Thousand, Six Hundred Seventy Dollars
($2,351,666,670), divided into One Hundred Thirty Five Million, One
Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven (135,166,667)
shares with a par value of $10 each designated as Common Stock and
1000 shares with a par value of One Million Dollars ($1,000,000) each
designated as Series Preferred Stock."
is hereby amended to read as follows:
"III. The amount of capital stock which the corporation is hereafter
to have is Two Billion Five Hundred and One Million, Six Hundred Sixty-Six
Thousand, Six Hundred Seventy Dollars ($2,501,666,670), divided into One Hundred
Fifty Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven
(150,166,667) shares with a par value of $10 each designated as Common Stock and
1000 shares with a par value of One Million Dollars ($1,000,000) each designated
as Series Preferred Stock."
<PAGE> 9
6. The foregoing amendment of the organization certificate was
authorized by unanimous written consent signed by the holder of all outstanding
shares entitled to vote thereon.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
18th day of March, 1998.
James T. Byrne, Jr.
----------------------------------
James T. Byrne, Jr.
Managing Director and Secretary
Lea Lahtinen
----------------------------------
Lea Lahtinen
Vice President and Assistant Secretary
State of New York )
) ss:
County of New York )
Lea Lahtinen, being fully sworn, deposes and says that she is a Vice
President and an Assistant Secretary of Bankers Trust Company, the corporation
described in the foregoing certificate; that she has read the foregoing
certificate and knows the contents thereof, and that the statements herein
contained are true.
Lea Lahtinen
-----------------
Lea Lahtinen
Sworn to before me this 18th day
of March, 1998.
Sandra L. West
--------------------
Notary Public
SANDRA L. WEST
Notary Public State of New York
No. 31-4942101
Qualified in New York County
Commission Expires September 19, 1998
<PAGE> 10
BY-LAWS
NOVEMBER 18, 1997
BANKERS TRUST COMPANY
NEW YORK
<PAGE> 11
BY-LAWS
OF
BANKERS TRUST COMPANY
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of this Company shall be held
at the office of the Company in the Borough of Manhattan, City of New York, on
the third Tuesday in January of each year, for the election of directors and
such other business as may properly come before said meeting.
SECTION 2. Special meetings of stockholders other than those regulated by
statute may be called at any time by a majority of the directors. It shall be
the duty of the Chairman of the Board, the Chief Executive Officer or the
President to call such meetings whenever requested in writing to do so by
stockholders owning a majority of the capital stock.
SECTION 3. At all meetings of stockholders, there shall be present, either in
person or by proxy, stockholders owning a majority of the capital stock of the
Company, in order to constitute a quorum, except at special elections of
directors, as provided by law, but less than a quorum shall have power to
adjourn any meeting.
SECTION 4. The Chairman of the Board or, in his absence, the Chief Executive
Officer or, in his absence, the President or, in their absence, the senior
officer present, shall preside at meetings of the stockholders and shall direct
the proceedings and the order of business. The Secretary shall act as secretary
of such meetings and record the proceedings.
ARTICLE II
DIRECTORS
SECTION 1. The affairs of the Company shall be managed and its corporate powers
exercised by a Board of Directors consisting of such number of directors, but
not less than ten nor more than twenty-five, as may from time to time be fixed
by resolution adopted by a majority of the directors then in office, or by the
stockholders. In the event of any increase in the number of directors,
additional directors may be elected within the limitations so fixed, either by
the stockholders or within the limitations imposed by law, by a majority of
directors then in office. One-third of the number of directors, as fixed from
time to time, shall constitute a quorum. Any one or more members of the Board of
Directors or any Committee thereof may participate in a meeting of the Board of
Directors or Committee thereof by means of a conference telephone or similar
communications equipment which allows all persons participating in the meeting
to hear each other at the same time. Participation by such means shall
constitute presence in person at such a meeting.
<PAGE> 12
All directors hereafter elected shall hold office until the next annual meeting
of the stockholders and until their successors are elected and have qualified.
No person who shall have attained age 72 shall be eligible to be elected or
re-elected a director. Such director may, however, remain a director of the
Company until the next annual meeting of the stockholders of Bankers Trust New
York Corporation (the Company's parent) so that such director's retirement will
coincide with the retirement date from Bankers Trust New York Corporation.
No Officer-Director who shall have attained age 65, or earlier relinquishes his
responsibilities and title, shall be eligible to serve as a director.
SECTION 2. Vacancies not exceeding one-third of the whole number of the Board of
Directors may be filled by the affirmative vote of a majority of the directors
then in office, and the directors so elected shall hold office for the balance
of the unexpired term.
SECTION 3. The Chairman of the Board shall preside at meetings of the Board of
Directors. In his absence, the Chief Executive Officer or, in his absence, such
other director as the Board of Directors from time to time may designate shall
preside at such meetings.
SECTION 4. The Board of Directors may adopt such Rules and Regulations for the
conduct of its meetings and the management of the affairs of the Company as it
may deem proper, not inconsistent with the laws of the State of New York, or
these By-Laws, and all officers and employees shall strictly adhere to, and be
bound by, such Rules and Regulations.
SECTION 5. Regular meetings of the Board of Directors shall be held from time to
time on the third Tuesday of the month. If the day appointed for holding such
regular meetings shall be a legal holiday, the regular meeting to be held on
such day shall be held on the next business day thereafter. Special meetings of
the Board of Directors may be called upon at least two day's notice whenever it
may be deemed proper by the Chairman of the Board or, the Chief Executive
Officer or, in their absence, by such other director as the Board of Directors
may have designated pursuant to Section 3 of this Article, and shall be called
upon like notice whenever any three of the directors so request in writing.
SECTION 6. The compensation of directors as such or as members of committees
shall be fixed from time to time by resolution of the Board of Directors.
<PAGE> 13
ARTICLE III
COMMITTEES
SECTION 1. There shall be an Executive Committee of the Board consisting of not
less than five directors who shall be appointed annually by the Board of
Directors. The Chairman of the Board shall preside at meetings of the Executive
Committee. In his absence, the Chief Executive Officer or, in his absence, such
other member of the Committee as the Committee from time to time may designate
shall preside at such meetings.
The Executive Committee shall possess and exercise to the extent permitted by
law all of the powers of the Board of Directors, except when the latter is in
session, and shall keep minutes of its proceedings, which shall be presented to
the Board of Directors at its next subsequent meeting. All acts done and powers
and authority conferred by the Executive Committee from time to time shall be
and be deemed to be, and may be certified as being, the act and under the
authority of the Board of Directors.
A majority of the Committee shall constitute a quorum, but the Committee may act
only by the concurrent vote of not less than one-third of its members, at least
one of whom must be a director other than an officer. Any one or more directors,
even though not members of the Executive Committee, may attend any meeting of
the Committee, and the member or members of the Committee present, even though
less than a quorum, may designate any one or more of such directors as a
substitute or substitutes for any absent member or members of the Committee, and
each such substitute or substitutes shall be counted for quorum, voting, and all
other purposes as a member or members of the Committee.
SECTION 2. There shall be an Audit Committee appointed annually by resolution
adopted by a majority of the entire Board of Directors which shall consist of
such number of directors, who are not also officers of the Company, as may from
time to time be fixed by resolution adopted by the Board of Directors. The
Chairman shall be designated by the Board of Directors, who shall also from time
to time fix a quorum for meetings of the Committee. Such Committee shall conduct
the annual directors' examinations of the Company as required by the New York
State Banking Law; shall review the reports of all examinations made of the
Company by public authorities and report thereon to the Board of Directors; and
shall report to the Board of Directors such other matters as it deems advisable
with respect to the Company, its various departments and the conduct of its
operations.
In the performance of its duties, the Audit Committee may employ or retain, from
time to time, expert assistants, independent of the officers or personnel of the
Company, to make studies of the Company's assets and liabilities as the
Committee may request and to make an examination of the accounting and auditing
methods of the Company and its system of internal protective controls to the
extent considered necessary or advisable in order to determine that the
operations of the Company, including its fiduciary departments, are being
audited by the General Auditor in such a manner as to provide prudent and
adequate protection. The Committee also may direct the General Auditor to make
such investigation as it deems necessary or advisable with respect to the
Company, its various departments and the conduct of its operations. The
Committee shall hold regular quarterly meetings and during the intervals thereof
shall meet at other times on call of the Chairman.
<PAGE> 14
SECTION 3. The Board of Directors shall have the power to appoint any other
Committees as may seem necessary, and from time to time to suspend or continue
the powers and duties of such Committees. Each Committee appointed pursuant to
this Article shall serve at the pleasure of the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 1. The Board of Directors shall elect from among their number a Chairman
of the Board and a Chief Executive Officer; and shall also elect a President,
and may also elect a Senior Vice Chairman, one or more Vice Chairmen, one or
more Executive Vice Presidents, one or more Senior Managing Directors, one or
more Managing Directors, one or more Senior Vice Presidents, one or more
Principals, one or more Vice Presidents, one or more General Managers, a
Secretary, a Controller, a Treasurer, a General Counsel, one or more Associate
General Counsels, a General Auditor, a General Credit Auditor, and one or more
Deputy Auditors, who need not be directors. The officers of the corporation may
also include such other officers or assistant officers as shall from time to
time be elected or appointed by the Board. The Chairman of the Board or the
Chief Executive Officer or, in their absence, the President, the Senior Vice
Chairman or any Vice Chairman, may from time to time appoint assistant officers.
All officers elected or appointed by the Board of Directors shall hold their
respective offices during the pleasure of the Board of Directors, and all
assistant officers shall hold office at the pleasure of the Board or the
Chairman of the Board or the Chief Executive Officer or, in their absence, the
President, the Senior Vice Chairman or any Vice Chairman. The Board of Directors
may require any and all officers and employees to give security for the faithful
performance of their duties.
SECTION 2. The Board of Directors shall designate the Chief Executive Officer of
the Company who may also hold the additional title of Chairman of the Board,
President, Senior Vice Chairman or Vice Chairman and such person shall have,
subject to the supervision and direction of the Board of Directors or the
Executive Committee, all of the powers vested in such Chief Executive Officer by
law or by these By-Laws, or which usually attach or pertain to such office. The
other officers shall have, subject to the supervision and direction of the Board
of Directors or the Executive Committee or the Chairman of the Board or, the
Chief Executive Officer, the powers vested by law or by these By-Laws in them as
holders of their respective offices and, in addition, shall perform such other
duties as shall be assigned to them by the Board of Directors or the Executive
Committee or the Chairman of the Board or the Chief Executive Officer.
The General Auditor shall be responsible, through the Audit Committee, to the
Board of Directors for the determination of the program of the internal audit
function and the evaluation of the adequacy of the system of internal controls.
Subject to the Board of Directors, the General Auditor shall have and may
exercise all the powers and shall perform all the duties usual to such office
and shall have such other powers as may be prescribed or assigned to him from
time to time by the Board of Directors or vested in him by law or by these
By-Laws. He shall perform such other duties and shall make such investigations,
examinations and reports as may be prescribed or required by the Audit
Committee. The General Auditor shall have unrestricted access to all records and
premises of the Company and shall delegate such authority to his subordinates.
He shall have the duty to report to the Audit Committee on all matters
concerning the internal audit program and the adequacy of the system of internal
controls of the Company which he deems advisable or which the Audit Committee
may request. Additionally, the General Auditor shall have the duty of reporting
independently of all officers of the Company to the Audit
<PAGE> 15
Committee at least quarterly on any matters concerning the internal audit
program and the adequacy of the system of internal controls of the Company that
should be brought to the attention of the directors except those matters
responsibility for which has been vested in the General Credit Auditor. Should
the General Auditor deem any matter to be of special immediate importance, he
shall report thereon forthwith to the Audit Committee. The General Auditor shall
report to the Chief Financial Officer only for administrative purposes.
The General Credit Auditor shall be responsible to the Chief Executive Officer
and, through the Audit Committee, to the Board of Directors for the systems of
internal credit audit, shall perform such other duties as the Chief Executive
Officer may prescribe, and shall make such examinations and reports as may be
required by the Audit Committee. The General Credit Auditor shall have
unrestricted access to all records and may delegate such authority to
subordinates.
SECTION 3. The compensation of all officers shall be fixed under such plan or
plans of position evaluation and salary administration as shall be approved from
time to time by resolution of the Board of Directors.
SECTION 4. The Board of Directors, the Executive Committee, the Chairman of the
Board, the Chief Executive Officer or any person authorized for this purpose by
the Chief Executive Officer, shall appoint or engage all other employees and
agents and fix their compensation. The employment of all such employees and
agents shall continue during the pleasure of the Board of Directors or the
Executive Committee or the Chairman of the Board or the Chief Executive Officer
or any such authorized person; and the Board of Directors, the Executive
Committee, the Chairman of the Board, the Chief Executive Officer or any such
authorized person may discharge any such employees and agents at will.
<PAGE> 16
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 1. The Company shall, to the fullest extent permitted by Section 7018 of
the New York Banking Law, indemnify any person who is or was made, or threatened
to be made, a party to an action or proceeding, whether civil or criminal,
whether involving any actual or alleged breach of duty, neglect or error, any
accountability, or any actual or alleged misstatement, misleading statement or
other act or omission and whether brought or threatened in any court or
administrative or legislative body or agency, including an action by or in the
right of the Company to procure a judgment in its favor and an action by or in
the right of any other corporation of any type or kind, domestic or foreign, or
any partnership, joint venture, trust, employee benefit plan or other
enterprise, which any director or officer of the Company is servicing or served
in any capacity at the request of the Company by reason of the fact that he, his
testator or intestate, is or was a director or officer of the Company, or is
serving or served such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity, against judgments,
fines, amounts paid in settlement, and costs, charges and expenses, including
attorneys' fees, or any appeal therein; provided, however, that no
indemnification shall be provided to any such person if a judgment or other
final adjudication adverse to the director or officer establishes that (i) his
acts were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
SECTION 2. The Company may indemnify any other person to whom the Company is
permitted to provide indemnification or the advancement of expenses by
applicable law, whether pursuant to rights granted pursuant to, or provided by,
the New York Banking Law or other rights created by (i) a resolution of
stockholders, (ii) a resolution of directors, or (iii) an agreement providing
for such indemnification, it being expressly intended that these By-Laws
authorize the creation of other rights in any such manner.
SECTION 3. The Company shall, from time to time, reimburse or advance to any
person referred to in Section 1 the funds necessary for payment of expenses,
including attorneys' fees, incurred in connection with any action or proceeding
referred to in Section 1, upon receipt of a written undertaking by or on behalf
of such person to repay such amount(s) if a judgment or other final adjudication
adverse to the director or officer establishes that (i) his acts were committed
in bad faith or were the result of active and deliberate dishonesty and, in
either case, were material to the cause of action so adjudicated, or (ii) he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled.
SECTION 4. Any director or officer of the Company serving (i) another
corporation, of which a majority of the shares entitled to vote in the election
of its directors is held by the Company, or (ii) any employee benefit plan of
the Company or any corporation referred to in clause (i) in any capacity shall
be deemed to be doing so at the request of the Company. In all other cases, the
provisions of this Article V will apply (i) only if the person serving another
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise so served at the specific request of the Company, evidenced by
a written communication signed by the Chairman of the Board, the Chief Executive
Officer or the President, and (ii) only if and to the extent that, after making
such efforts as the Chairman of the Board, the Chief Executive Officer or the
President
<PAGE> 17
shall deem adequate in the circumstances, such person shall be unable to obtain
indemnification from such other enterprise or its insurer.
SECTION 5. Any person entitled to be indemnified or to the reimbursement or
advancement of expenses as a matter of right pursuant to this Article V may
elect to have the right to indemnification (or advancement of expenses)
interpreted on the basis of the applicable law in effect at the time of
occurrence of the event or events giving rise to the action or proceeding, to
the extent permitted by law, or on the basis of the applicable law in effect at
the time indemnification is sought.
SECTION 6. The right to be indemnified or to the reimbursement or advancement of
expense pursuant to this Article V (i) is a contract right pursuant to which the
person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the Company and the director or
officer, (ii) is intended to be retroactive and shall be available with respect
to events occurring prior to the adoption hereof, and (iii) shall continue to
exist after the rescission or restrictive modification hereof with respect to
events occurring prior thereto.
SECTION 7. If a request to be indemnified or for the reimbursement or
advancement of expenses pursuant hereto is not paid in full by the Company
within thirty days after a written claim has been received by the Company, the
claimant may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled also to be paid the expenses of prosecuting such
claim. Neither the failure of the Company (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of or
reimbursement or advancement of expenses to the claimant is proper in the
circumstance, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant is
not entitled to indemnification or to the reimbursement or advancement of
expenses, shall be a defense to the action or create a presumption that the
claimant is not so entitled.
SECTION 8. A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in Section 1 shall be entitled to indemnification only as provided in Sections 1
and 3, notwithstanding any provision of the New York Banking Law to the
contrary.
ARTICLE VI
SEAL
SECTION 1. The Board of Directors shall provide a seal for the Company, the
counterpart dies of which shall be in the charge of the Secretary of the Company
and such officers as the Chairman of the Board, the Chief Executive Officer or
the Secretary may from time to time direct in writing, to be affixed to
certificates of stock and other documents in accordance with the directions of
the Board of Directors or the Executive Committee.
SECTION 2. The Board of Directors may provide, in proper cases on a specified
occasion and for a specified transaction or transactions, for the use of a
printed or engraved facsimile seal of the Company.
<PAGE> 18
ARTICLE VII
CAPITAL STOCK
SECTION 1. Registration of transfer of shares shall only be made upon the books
of the Company by the registered holder in person, or by power of attorney, duly
executed, witnessed and filed with the Secretary or other proper officer of the
Company, on the surrender of the certificate or certificates of such shares
properly assigned for transfer.
ARTICLE VIII
CONSTRUCTION
SECTION 1. The masculine gender, when appearing in these By-Laws, shall be
deemed to include the feminine gender.
ARTICLE IX
AMENDMENTS
SECTION 1. These By-Laws may be altered, amended or added to by the Board of
Directors at any meeting, or by the stockholders at any annual or special
meeting, provided notice thereof has been given.
<PAGE> 19
I, __________Peter Becker___________________________, Assistant Secretary of
Bankers Trust Company, New York, New York, hereby certify that the foregoing is
a complete, true and correct copy of the By-Laws of Bankers Trust Company, and
that the same are in full force and effect at this date.
Peter Becker
--------------------
ASSISTANT SECRETARY
DATED: _____September 8, 1998________________________
<PAGE> 20
<TABLE>
<S> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 06/30/98 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-1
City, State ZIP: New York, NY 10006 11
FDIC Certificate No.: | 0 | 0 | 6 | 2 | 3
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR JUNE 30, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
<S> <C>
--------------------------------------
| C400 |
---------------------------------------
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS | / / / / / / / / / / / / / / / / / / / / / /|
1. Cash and balances due from depository institutions | |
(from Schedule RC-A): | / / / / / / / / / / / / / / / / / / / / / /|
| a. Noninterest-bearing balances and currency | |
and coin (1) .................................................... | 0081 1,868,000| 1.a.
b. Interest-bearing balances (2) ................................... | 0071 2,041,000| 1.b.
2. Securities: | / / / / / / / / / / / / / / / / / / / / / /|
a. Held-to-maturity securities | |
(from Schedule RC-B, column A) .................................. | 1754 0| 2.a.
b. Available-for-sale securities | |
(from Schedule RC-B, column D)................................... | 1773 7,419,000| 2.b.
3. Federal funds sold and securities purchased under | |
agreements to resell................................................ | 1350 41,837,000| 3.
4. Loans and lease financing receivables: | / / / / / / / / / / / / / / / / / / / / / /|
a. Loans and leases, net of unearned income | |
(from Schedule RC-C).......................... RCFD 2122 20,707,000 | / / / / / / / / / / / / / / / / / / / / / /| 4.a.
b. LESS: Allowance for loan and lease losses......RCFD 3123 629,000 | / / / / / / / / / / / / / / / / / / / / / /| 4.b.
c. LESS: Allocated transfer risk reserve .........RCFD 3128 0 | / / / / / / / / / / / / / / / / / / / / / /| 4.c.
d. Loans and leases, net of unearned income, | / / / / / / / / / / / / / / / / / / / / / /|
allowance, and reserve (item 4.a minus | |
4.b and 4.c) ..................................................... | 2125 20,078,000| 4.d.
5. Trading Assets (from schedule RC-D) ................................ | 3545 49,665,000| 5.
6. Premises and fixed assets (including capitalized leases) ............ | 2145 848,000| 6.
7. Other real estate owned (from Schedule RC-M) ........................ | 2150 180,000| 7.
8. Investments in unconsolidated subsidiaries and | |
associated companies (from Schedule RC-M)............................ | 2130 92,000| 8.
9. Customers' liability to this bank on acceptances outstanding ........ | 2155 512,000| 9.
10. Intangible assets (from Schedule RC-M) .............................. | 2143 270,000|10.
11. Other assets (from Schedule RC-F) ................................... | 2160 6,442,000|11.
12. Total assets (sum of items 1 through 11) ............................ | 2170 131,252,000|12.
---------------------------------------------
</TABLE>
- ------------------------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 21
<TABLE>
<S> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 06/30/98 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-2
City, State Zip: New York, NY 10006 12
FDIC Certificate No.: | 0 | 0 | 6 | 2 | 3
</TABLE>
SCHEDULE RC--CONTINUED
<TABLE>
<S> <C>
------------------------------------------------
Dollar Amounts in Thousands | / / / / / / / Bil Mil Thou |
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES | / / / / / / / / / / / / / / / / / / / / / / / |
13. Deposits: | / / / / / / / / / / / / / / / / / / / / / / / |
a. In domestic offices (sum of totals of columns | |
A and C from Schedule RC-E, part I) |RCON 2200 26,791,000 |13.a.
(1) Noninterest-bearing(1)................RCON 6631 3,362,000 | / / / / / / / / / / / / / / / / / / / / / / / |13.a.(1)
(2) Interest-bearing .....................RCON 6636 23,429,000 | / / / / / / / / / / / / / / / / / / / / / / / |13.a.(2)
b. In foreign offices, Edge and Agreement | |
subsidiaries, and IBFs (from Schedule RC-E | / / / / / / / / / / / / / / / / / / / / / / / |
part II).................................. | RCFN 2200 22,089,000 |13.b.
(1) Noninterest-bearing ..................RCFN 6631 1,810,000 | / / / / / / / / / / / / / / / / / / / / / / / |13.b.(1)
(2) Interest-bearing......................RCFN 6636 20,279,000 | / / / / / / / / / / / / / / / / / / / / / / / |13.b.(2)
14. Federal funds purchased and securities sold under | |
agreements to repurchase | RCFD 2800 19,274,000|14.
15. a. Demand notes issued to the U.S. Treasury ..... | RCON 2840 0|15.a.
b. Trading liabilities (from Schedule RC-D)...... | RCFD 3548 30,729,000|15.b.
16. Other borrowed money (includes mortgage indebtedness | |
and obligations under capitalized leases): | / / / / / / / / / / / / / / / / / / / / / / / |
a. With a remaining maturity of one year or less | RCFD 2332 7,891,000|16.a.
b. With a remaining maturity of more than one year | |
through three years............................ | A547 3,576,000|16.b.
c. With a remaining maturity of more than three years | A548 2,872,000|16.c
17. Not Applicable. | / / / / / / / / / / / / / / / / / / / / / / / |17.
18. Bank's liability on acceptances executed and outstanding | RCFD 2920 512,000|18.
19. Subordinated notes and debentures (2).................. | RCFD 3200 1,534,000|19.
20. Other liabilities (from Schedule RC-G)................ | RCFD 2930 9,202,000|20.
21. Total liabilities (sum of items 13 through 20) ........ | RCFD 2948 124,470,000|21.
22. Not Applicable | / / / / / / / / / / / / / / / / / / / / / / / |
| / / / / / / / / / / / / / / / / / / / / / / / |22.
EQUITY CAPITAL | / / / / / / / / / / / / / / / / / / / / / / / |
23. Perpetual preferred stock and related surplus .................. | RCFD 3838 1,000,000|23.
24. Common stock................................................... | RCFD 3230 2,001,000|24.
25. Surplus (exclude all surplus related to preferred stock) .... | RCFD 3839 540,000|25.
26. a. Undivided profits and capital reserves ................... | RCFD 3632 3,693,000|26.a.
b. Net unrealized holding gains (losses) on available-for-sale | |
securities............................................... | RCFD 8434 (71,000)|26.b.
27. Cumulative foreign currency translation adjustments ............ | RCFD 3284 (381,000)|27.
28. Total equity capital (sum of items 23 through 27).............. | RCFD 3210 6,782,000|28.
29. Total liabilities and equity capital (sum of items 21 and 28)... | RCFD 3300 131,252,000|29
------------------------------------------------
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the
number of the statement below that best describes the Number
most comprehensive level of auditing work performed for the ---------------------------------------------
bank by independent external auditors as of any date during 1997 | RCFD 6724 N/A | M.1
----------------------------------------
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed
with generally accepted auditing standards by a certified by other external auditors (may be required
public accounting firm which submits a report on the bank by state chartering authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by
conducted in accordance with generally accepted auditing external auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial
submits a report on the consolidated holding company statements by external auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax
3 = Directors' examination of the bank conducted in preparation work)
accordance with generally accepted auditing standards 8 = No external audit work
by a certified public accounting firm (may be required
by state chartering authority)
- ----------------------
(1) Including total demand deposits and noninterest-bearing time and savings deposits.
(2) Includes limited-life preferred stock and related surplus.
</TABLE>
